Credit rating agency Moody's has issued a report indicating that the rapid expansion of data center projects across the United States, along with their substantial consumption of electricity and water resources, is gradually posing a potential risk to the credit profiles of state and local governments.
In the report released on Wednesday, analysts from Moody's emphasized that the wave of data center growth "urgently requires large-scale upgrades to power delivery, transmission networks, and water supply infrastructure." However, if the associated construction costs cannot be fully borne by the new data center operators, they may ultimately be passed on to local governments or taxpayers, creating a fiscal burden.
As core infrastructure supporting the booming artificial intelligence industry, data centers are currently proliferating densely across the nation. Simultaneously, they have become a focal point of concern in some communities, with worries centering on rising electricity prices, water scarcity, and noise pollution from equipment operations.
While data centers can bring local economic growth opportunities, Moody's points out that some municipal authorities and utility companies have begun scrutinizing the underlying cost pressures and, in certain cases, are requiring data center projects to shoulder more of the associated infrastructure investments.
It is noteworthy that although many governments use tax abatements and other agreements to attract such investments, the actual effect of some incentive measures may "significantly reduce or delay expected fiscal revenues."
Taking Virginia as an example, the state hosts the world's most concentrated cluster of data centers. According to a report released by the non-profit organization Good Jobs First in April, the state's foregone sales tax revenue due to related incentive policies exceeded $1 billion in the 2024 fiscal year and is projected to expand to nearly $2 billion in the 2025 fiscal year.
In response to this situation, Virginia recently passed a specialized tax targeting data center electricity consumption, the first of its kind in the nation.
Moody's states that in the face of increasingly prominent fiscal and environmental pressures, some state and local governments are reassessing existing tax incentive policies, strictly reviewing new project proposals, and even considering temporary moratoriums on data center projects.
The core objective is to minimize the risk of utility expansion costs being transferred to ordinary residents and business customers.
However, the report also notes that not all regions are tightening policies—some jurisdictions are still actively competing for new data center projects.
Analysts from Moody's concluded: "Moratoriums buy governments time to assess the comprehensive impact of data centers and develop more robust development policies to more effectively mitigate potential negative impacts on communities. But this approach may also have the side effect of pushing developers toward regions with fewer restrictions that are more welcoming to new projects."
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