As of April 2026, data from the US Census Bureau indicates that private sector spending on data center construction has exceeded $50 billion—a higher figure than public spending on transportation. At the same time, public concerns about data centers have grown rapidly. A series of recent surveys indicates that more than 70 percent of residents do not support data centers being built near where they live—a swing of 49 points compared to just nine months prior. Rare in today’s hyper-partisan climate, opposition spans political, demographic, and geographic divides. The development opportunities are significant, but local leaders and data center proponents cannot afford to ignore resistance, as an estimated 40 percent of projects that faced local pushback were eventually cancelled.
How should economic developers interpret and act on these diverging signals? First, it’s important to understand data centers as digital infrastructure and how generative artificial intelligence (AI) is shifting that role. Then, leaders must reexamine how they recruit data center projects and listen to constituent concerns by leveraging the increased market demand to push for community benefits. Finally, economic developers should support a future-forward vision of thistwenty-first-century infrastructure that creates widespread benefits for industry and public constituencies alike.
Data Center Evolution
Data centers largely fall into two categories: colocation and cloud provider centers. Colocation centers are usually operated by third parties that rent out server space. These projects prioritize network speed and low latency, opting for proximity to customers in denser, urban areas even if that requires higher operating costs. Facilities like these exist across urban and increasingly suburban areas in the US; even before the current boom in development, every US metro area with more than 700,000 residents had at least one third-party provider by 2019.
On the other hand, hyperscale data centers are developed by cloud computing firms that require large amounts of land, water, and electricity. These projects tend to prioritize space and long-term expenses over proximity and seek sites with low construction costs and affordable, reliable electricity. The development and widening use of AI and large language models (LLMs) is driving a bonanza of investment to build these hyperscale projects as computing tech giants race to scale operations and beat out competition.
Therein lies the rub. Driven by market pressures to build out hyperscale projects, companies are pushed into conflict with local residents and businesses wary of utility rate hikes, resource strain (particularly electricity and water), and other negative externalities, such as operation noise, pollution from fossil fuel generators, or construction runoff. The role of economic developers and local leaders is to bridge this gap by bringing constituent concerns to industry and demonstrating the benefits of data center projects to the broader community.
Why the Traditional Approach is Insufficient
What benefits might warrant higher utility costs, public ire, or worse, political violence? Typically, the economic benefit argument supporting a large capital investment or infrastructure project is based on the creation of well-paying jobs and increased tax revenue that improve quality of life and fund public services. However, in the case of data centers, the impact of jobs will be minimal after construction has ended. Though a hyperscale data center may create a temporary boom of skilled construction and technician jobs—a boom that both trade labor unions and hyperscalers have noticed—these will fade. Recent analyses also suggest that construction and operational job gains may reflect the reorganization of existing jobs within a sector (construction and information, respectively), rather than an addition of new jobs.
From a tax perspective, the capital-intensive nature of data centers, the high-tech equipment they house, and the size of hyperscale projects can increase revenue, assuming state and local actors have not negotiated those tax gains away in an effort to attract the investment. Some states are rethinking their incentive policies and exploring ways to address the data center explosion—including Illinois, Maine, New York, and Washington—with mixed outcomes. Texas, known for its pro-business, low-regulation environment and second only to Virginia in the number of operating and planned data centers, appears poised to remove or reduce data center incentives and require developers to pay interconnection and infrastructure costs in addition to annual reporting. Localities, able to move faster than state legislatures, are also weighing tax benefits against community costs, with many pausing data center development until costs and best practices can be understood. Notably, Seattle, the tech hub home of Microsoft and Amazon, recently enacted a one-year moratorium on new data centers.
Creative Approaches to Identifying and Elevating Benefits
If jobs are not the key benefit and policymakers are wrestling with how to balance public opinion and public dollars, then economic developers must be more creative in identifying data center benefits. Given the competitive market forces pushing tech companies to build these projects, public sector actors are often in a stronger position to negotiate meaningful community benefits than they are in traditional business recruitment or site selection deals.
One approach to fostering collaboration between the hyperscale developers and the community is community benefit agreements (CBAs). By creating a documented, legal framework, stakeholders on all sides will be able to identify and track direct metrics (e.g., jobs, wages, tax revenue) and establish guardrails on sensitive aspects important to residents, businesses, and developers. These include topics specific to individual project needs and the concerns of its community, such as infrastructure improvements (particularly for the electric grid), affordable electricity rates, water usage and cooling practices, noise level and light pollution monitoring, and other environmental hazard mitigation.
One step further would be to structure community equity endowments as a part of CBAs where the community becomes a partial owner of the data center real estate, allowing them to benefit directly from financial returns. Developers are also starting to recognize these concerns and the advantages of partnering with communities. For instance, Microsoft’s “Community-First AI Infrastructure” initiative offers a framework to proactively address issues around electric rates, water use, jobs, tax revenue, and community investment.
Broader regional workforce and innovation strategies are also opportunities for collaboration. From a workforce perspective, this includes partnerships between higher education and training institutions and the developer to prepare local workers for construction and operation roles. After those short- and medium-term needs are met, the developer then partners with institutions to create training programs that instruct workers on new software and AI tools that the data center helps power. Beyond building AI skillsets, research collaboration and innovation provides opportunities to explore new AI-powered tools and applications. Microsoft and OpenAI are two examples of hyperscale developers partnering with local and regional institutions, particularly in Wisconsin. However, these collaborative efforts are still nascent, and the wariness communities feel about data centers will take time and repeated demonstrations of positive outcomes to overcome.
An Opportunity to Invest in the Infrastructure of the Future
In addition to impacts on the local labor force and tax base, data centers also place demands on energy. Though this is often among the most cited concerns, these energy-hungry projects also present an opportunity to reorient energy use to be a more distributed and resilient piece of infrastructure. By requiring developers to assist with the cost of transmission and grid interconnection upgrades, the community benefits from incremental grid improvements.
It may not be top of mind for everyone, but the aging grid is a barrier to modernization and mass electrification of energy in the US. Postponing grid upgrades and delaying the rollout of new energy sources increase systemic risks and costs for consumers, while speeding up the interconnection process will benefit all energy consumers, including data centers, other commercial users, and residents. The Texas grid operator, ERCOT, uses a model for approving interconnections that has allowed the state to surpass larger California in the quantity of energy coming online in recent years. Driven by data center proposals, ERCOT is now adjusting its approach on the other side of the energy equation to speed up the process of evaluating and adding large loads.
However, even with improvements to the regulatory process and data center operators assisting in interconnection buildout, grid upgrades may continue to face backlogs of electrical transmission equipment needs while the US expands advanced manufacturing sectors to reduce import dependence. Time and markets will reveal best practices in approaching grid modernization from the supply and demand sides, but data centers are likely to play an important role in shaping how and when those changes occur.
Long interconnection queues are at odds with data centers’ need for fast energy deployment, prompting operators to look for on-site solutions. Rather than opting for short-sighted gas generators, this presents another opportunity to build future-focused infrastructure through distributed power and storage. Electrical storage is an attractive option for data centers as they can absorb excess energy during low-usage periods and quickly release power when grid operators need to curtail energy use in peak demand hours. Domestic battery markets continue to expand, as expertise refines into new opportunities, competition grows, and new technologies mature. In Georgia, regulators are pursuing a BYOE (bring your own energy) approach that allows large load requesters (i.e., data centers) to submit their own energy sources, including on-site solar generation and battery storage, through a customer-identified resource (CIR) program.
Data centers and hyperscale projects will continue to attract community attention, and economic developers need to find creative approaches to these contentious issues. By understanding the risks, potential benefits, and guardrails needed for these projects to succeed, leaders can position themselves as brokers of economic development that benefits all stakeholders.
