Data Centers: What EDO Leaders Should Know

The race to build data centers is reshaping local economies faster than almost any other real estate trend. From 2023 to 2024, data center construction spending increased by 70%, more than triple the rate of any other property type. [i] The sector is drawing billions in venture capital and now consumes up to eight percent of total U.S. electricity.[ii]

For local communities, that growth is arriving with both a windfall and a set of tradeoffs: improved fiber and broadband networks, short-term and permanent job gains, and large tax receipts on one side, with infrastructure demands, public health concerns, and general local opposition on the other. Data centers are coming; the question is how economic developers can help communities capture the benefits and manage the tradeoffs.

Why are there so many new data centers?

A data center is a facility used to house large computer systems.[iii] There are many types of data centers hosting different services, but today’s headline centers are mostly used for cloud computing, including massive hyper scalers, which host at least 5,000 servers and can be 60,000 square feet in size.[iv] Cloud computing is an on-demand computing service, which can be rented by consumers. These centers are used for various IT purposes like storage, networking, and software deployment.

Separately, AI training data centers use cloud-computing’s on-demand infrastructure with specialized hardware and storage to train Large Language Models (LLMs), like ChatGPT. The AI market is booming and driving data center growth through investments by such companies as Microsoft, OpenAI, Google, and AWS. As these companies search for sites, EDO leaders are often the ones asked to explain what a data center will mean for a community. This piece is built for those conversations: a guide to the benefits, costs, and tradeoffs that come up when a project is proposed.

What are the potential benefits?

New tax revenues are the most significant benefit of hosting a data center. Depending on state and local tax regimes, new centers may pay real property taxes, personal property taxes, business income taxes, and sales and use taxes. Revenue can particularly surge in states which impose a personal property tax.

Some communities also benefit from developer philanthropy. Though unlike tax receipts, this giving is rarely guaranteed. A good example is Meta’s Data Center Community Action Grants program, which funds local STEM education and community projects.[v] A Meta facility in Huntsville, Alabama contributed to broadband expansions that brought internet access to nearby rural communities.[vi] While some communities benefit from data center philanthropy, , most charitable giving is contingent on specific Public Benefit or Community Benefit Agreement (PBA, CBA). These agreements typically stipulate investments in local workforce, agreements to limit the use of resources like water and energy, and investment in local funds. One such agreement in Cedar Rapids, Iowa required data center developers to invest in the local Community Betterment Fund, administered by the city council.[vii]

While data centers offer job gains, the highest number are related to the construction stage with permanent jobs, while high-paying, typically number less than 100 per site. Moreover, the scale depends on facility type and may take years to materialize. A Brookings analysis found that counties receiving their first large data center saw total private employment grow by 2,000 to 4,000 jobs over six years. Construction and IT sectors see the sharpest gains, but the overall employment effect is modest relative to the scale of investment these facilities represent.[viii]

What are the drawbacks?

Perhaps the most urgent challenge posed by data centers is energy use. A single modern AI data center can use energy equivalent to 100,000 homes over a year, and even larger data centers are entering the pipeline further increasing the demand.[ix] This creates a major challenge for utilities, community leaders, and economic developers, especially if this power demand results in higher costs for other consumers.

Data centers can also affect local air quality. To avoid using congested municipal power grids, some data centers utilize on-site natural gas turbines for power. These turbines – as well as diesel backup generators[x] at grid-connected centers – produce fine particulate matter and nitrogen oxides.[xi] The U.S. Environmental Protection Agency identifies both[xii]^{, [xiii]} as causes of harm to human health, but it remains difficult to isolate how much of these pollutants any single facility adds to a community’s air.[xiv]

As with energy, data centers need large amounts of water to cool their servers. In some cases, the water is taken from municipal sources which can raise water prices for residents. However, water consumption depends heavily on the type of cooling a data center uses. Centers that use closed-loop or immersion cooling consume less than those using evaporative cooling.[xv] Large data centers, like those that train LLMs for AI, can use as much as 5 million gallons per day.[xvi]

Taken together, the energy, air quality, and water demands of data centers represent costs that often fall on residents rather than developers. That doesn’t mean communities should turn data centers away, but it does mean the terms of any agreement matter enormously.

Are data centers right for your community?

Like every expansion project, communities should treat every transaction as a negotiation ensuring that any tradeoffs are more than offset by project benefits. Because demand for sites is high, developers need communities as much as communities need them, and that gives community leaders room to negotiate. Some Community Benefit Agreements have required developers to invest in local workforce programs, infrastructure, and community funds. Others have secured commitments to reduce grid electricity demand and water consumption.

What undermines this leverage is the incentive package. Many communities are offering tax exemptions and other concessions to attract developers, which can minimize potential tax revenue that makes data centers attractive. This is a particular risk given the relatively low job creation for residents.[xvii]

The financial case for data centers rests heavily on their tax contributions, and those contributions can erode quickly when lofty incentives are on the table.

Major Takeaways

Data center development is moving fast, and the communities best positioned to benefit are those that have assessed their leverage, tax structure, and infrastructure capacity before entering negotiations.

Tax revenue can be substantial, but incentives offered to attract developers can offset those gains
Data centers are not major job creators and generate modest local wage increases, so financial benefits largely depend on tax structure
Energy and water demands can raise costs and health risks for residents, particularly in densely populated areas
Community Benefit Agreements that require developers to invest in the community including workforce programs and infrastructure
The type of data center matters: cooling systems, on-site power generation, and facility size all affect local impact

Data centers are less about job creation and more about tax base expansion, infrastructure investment, and long-term economic positioning. For communities, the real value comes when leaders align these projects with broader development goals while carefully managing tradeoffs like energy demand, land use, and community concerns. EDO leaders can use this information to help communities enter negotiations with a clear picture of what a given project will actually cost and deliver for their community before extending incentives.