Local Governments are Learning How to Negotiate With Data Center Developers

Christopher Jordan is a program manager at the National League of Cities and Kate Stoll is a project director at the AAAS Center for Scientific Evidence in Public Issues.

In August, the Tucson, Arizona City Council voted unanimously to oppose Project Blue, the code name for a proposed $3.6 billion Amazon data center campus on the city’s southern edge. The decision came after months of sustained community opposition driven by a lack of transparency from the city and the developer, fears about the project’s estimated water consumption, and concern over how the cost of intense energy needs might get passed on to local ratepayers. The project may yet move forward, but the debate exposed fault lines between developers, city officials, and front-line communities.

Tucson’s experience is part of a growing pattern of communities becoming more attuned to the trade-offs of hosting hyperscale AI data centers. As demand for data center capacity accelerates, local government officials across the United States are weighing the promise of jobs, tax revenue, and other economic development benefits against the strains these facilities place on land, water, and power systems that often exceed the assumptions built into existing zoning codes, permitting processes, and infrastructure plans.

Some US states are moving to restrict the latitude that local developers have to negotiate, and the federal government is doing its best to remove obstacles to data center build out. Yet within their remit, local governments retain important tools and bargaining power to shape these projects and the terms on which they proceed. Their responses so far, both reactive and proactive, fall into a few distinct patterns, from outright rejection to securing concessions. Federal, state and civil society counterparts can learn from these early local responses for what they might signal for the hundreds of proposals currently being considered across the country.

A taxonomy of local responses

The latter half of 2025 has seen a growing amount of community opposition to data center proposals and developments. This is in large part due to growing community awareness of the energy and water demands these facilities impose, but also noise and aesthetic complaints that threaten to erode community character. In response, some city and county officials have moved to enforce pauses and moratoria.

For example, in San Marcos, Texas, city council members moved to pause a $1.5 billion, 200 acre proposal after residents voiced concern that the development, which would have added to the two other centers already planned to open in the community, would create too much demand on energy in an area already vulnerable to brown outs.

In Prince George’s County, Maryland, leaders imposed a 180 day pause on new data center proposals after pressure from community demonstrations and a petition which garnered over twenty thousand signatures. The county’s special task force will now “study the potential risks, community benefits, and revenue potential of [data centers].” A similar one-year moratorium was recently adopted in St. Charles, Missouri, where residents expressed concerns about potential water contamination, although more research to understand possible links between data centers’ wastewater discharge and drinking water contaminants is needed.

Elsewhere, a small but growing list of local governments are beginning to establish ordinances that seek to regulate data center operations and get ahead of negative externalities. These measures are mostly taking place in areas with already high concentrations of hyperscale data centers.

Take, for example, the American Southwest, where Maricopa County, Arizona alone hosts 59 data center facilities. In response, Chandler, Arizona, codified one of the nation’s first data center-specific ordinances in 2023, updating a new section of zoning code related to data center development and operations. The ordinance also requires noise mitigations studies and measures, public notice of construction timelines, and increased regulation of backup generators.

Neighboring Mesa and Phoenix, Arizona have updated their zoning ordinances to address water consumption. These modifications usher data center proposals through a special permit process that is subject to greater review and oversight, and supplement large water user ordinances already in place.

Changes to the zoning and permitting process, while seemingly mundane, are powerful tools for responsible data center construction. In Fairfax County, Virginia and Santa Clara, California, for example, revised zoning codes to establish limits on where data centers can be sited. Harrisonburg, Virginia, moved to amend data centers from a “by-right” development to require special-use permits, which redirect proposals through public hearings and discretionary review. This is important, as the lack of transparency with some deals exacerbates community concern. This was the case in Tucson and in Indianapolis, Indiana, where proposals broke down after the public learned of non-disclosure agreements.

Community benefits programs are another way communities can get more out of local data center projects. The return on investment for communities hosting data centers is mixed. They see rises in construction contracts, but limited long-term jobs. In addition, local tax revenue and expenditure limits vary by state. While some states like Virginia have creatively coded data center equipment as taxable capital, other states have proffered significant tax abatements with fewer immediate tax streams for government.

Still, locals are securing wins for their residents. In New Albany, Ohio, a tax abatement for a major facility was linked to community grants for a local arboretum, STEM education, and A $200,000 investment in the city’s new community center. In Henrico County, Virginia, officials appropriated $60 million in data center revenue to launch an affordable housing trust fund, which is expected to support the construction of 750 homes over the next five years. In Memphis, Tennessee, the mayor proposed setting aside a portion of tax revenue from an X.AI data center for residents in Boxtown, a nearby community that has borne the brunt of the development's impact.

Supporting Local Readiness

Looking forward, additional policy strategies are available for local governments to adopt. Ordinances can be paired with efficiency practices that can reduce data center needs for electricity and water, especially when paired with measurable benchmarks for evaluating efficiency gains. Industry experts are exploring innovations to reuse waste heat from data centers for nearby buildings or greenhouses and alternative approaches for cooling servers, including immersion cooling or burying them underground. Innovations in cooling technologies, energy efficiency, and semiconductor design may help temper some of the pressures on local water and power, but only if local and state ordinances encourage their implementation.

Support from industry, academia, and intergovernmental partners will be needed if local officials are to manage this boom responsibly. New resources from the National League of Cities and the American Association for the Advancement of Science EPI Center offer a start by sharing the science of data centers and giving local leaders examples to support decision-making.

Additional support should help local governments plan for the long-term ramifications of data center build-out if efficiency gains eventually lead to decreasing demands on the size of these facilities, or an AI bust leads to fewer new facilities. Such outcomes might leave communities with stranded assets if not carefully planned. Further support can also help local governments better guide land-use and siting specifications as they negotiate with developers to enhance sustainability measures.

Local governments have more bargaining power than they might realize. For developers racing to bring new capacity online, time-to-market is a powerful incentive. Local governments can use that leverage to insist on clearer disclosures, stronger environmental safeguards, and enforceable community-benefit agreements and other concessions.