Data center investment is reaching historic levels, raising questions for policymakers and constituents.
The rapid expansion of artificial intelligence is fueling an unprecedented wave of data center development, with an estimated $10.3 trillion in investment expected nationwide. The scale of spending exceeds previous economic booms, including the railroad expansion and electrification. Data center construction has more than doubled over the past two years, reaching $85 billion annually, while investment in other types of construction, including housing, has declined. Despite generating significant construction activity and potential tax revenue, data centers typically create relatively few permanent jobs, raising questions about their long-term economic benefits and the potential for investment to shift away from other industries.
As development accelerates, state and local governments are reconsidering the costs and benefits of attracting data centers. Many states previously offered generous tax incentives, but growing electricity and water demands have raised concerns about infrastructure capacity, utility rates, and whether public revenues adequately offset development impacts. Nevada has scaled back tax incentives and is requiring developers to cover certain infrastructure costs, while Virginia has introduced a surcharge on data center electricity consumption. Data centers will surely be one of the central topics legislators focus on when they convene in January for the 2027 legislative session.
