Ohio’s official slogan is “The Heart of It All,” and that seems especially true when it comes to data centers, as the Buckeye State ranks fifth nationwide in the number of these facilities, with over 200 already in operation, 51 more under construction, and plans by companies to invest up to $40 billion in Ohio data centers by 2030.
Yet concerns over these facilities’ massive power and water consumption, soaring electric bills, and taxpayers footing the bill for data centers owned by Amazon, Alphabet, and other of the world’s wealthiest companies led to pushback in many communities across the state. To address these concerns, Gov. Mike DeWine recently directed the chair of the Ohio Tax Credit Authority to pause consideration of any new data center tax exemption requests while the state General Assembly’s Joint Data Center Committee studies the unchecked growth of these facilities.
DeWine’s bold move comes on the heels of reports that the state’s sales tax exemption for data centers cost Ohio $1.6 billion last year – eleven times more than the original estimate of $136 million – and is one that leaders in states seeing similar surges of these facilities should take note of.
In Virginia , home to the “Data Center Alley” and the country’s largest concentration of these facilities, a similar tax exemption has cost the commonwealth $1.9 billion, while in Texas, data centers receive $1.3 billion annually in tax breaks. While not all states that provide tax exemptions to data centers disclose their revenue losses, it’s estimated that between $6 and $7 billion is lost nationwide ,annually, with the true figure almost certainly higher, given that 12 states disclose nothing.
It would be impractical to think that states should halt all new data center construction – these facilities are crucial in supporting the growth of artificial intelligence, businesses’ transition to cloud computing, and surging internet traffic – but what should not be unrealistic is asking the multi-billion dollar companies building these centers to pay their fair share for the services they use to power them.
Many critics of data center expansion across the country rightly worry that taxpayers will be the ones footing the bill for building them and that local residents will be the ones suffering the consequences in terms of quality of life issues, the impacts on electric and water infrastructure, and how the loss of revenue will impact municipal funding.
School funding is a particular concern for many parents and advocates in states that offer tax exemptions to data centers. The use of generative AI platforms like ChatGPT, paired with the loss of funding to public schools due to data center tax breaks, is quickly becoming a one-two punch to public education in states across the country.
A recent report, for example, found that about $267 million of the revenue Virginia lost due to its sales and use tax exemption for data centers would have supported K-12 schools in Old Dominion. These losses affect not just students but also district employees and teachers, who must deal with staffing shortages, aging facilities, and school-capacity pressures, with the lost school funding totaling about $2,800 per full-time teacher statewide.
Even in regions where data centers are less ubiquitous than in places like Ohio and Virginia, the impact of these tax exemptions is being felt. Another recent analysis of 24 St. Louis County and St. Louis City public school districts noted that tax abatements for data centers and other development projects have cost students more than $380 million over the past eight years – an enormous amount in districts where many residents live in poverty.
The Ohio governor’s move to pause new data center tax exemptions until their true impact can be assessed is smart and sensible, acknowledging the necessity of these facilities to our modern way of life while also recognizing that their growth shouldn’t come at the expense of everyday Ohioans. Elected officials in other states witnessing rampant data center expansion should look to Ohio and follow DeWine’s lead to ensure that data center growth isn’t shrinking opportunities for their constituents.
