A data center shutdown is not a strategy

There’s a national conversation underway about data centers: where they should be built, how they should be taxed, and what their growth means for energy and water supplies.

Given the industry’s importance to our economy, it’s a necessary conversation. But the economy shouldn’t stop modernizing while policymakers and voters debate the future of data center regulation.

This year, Gov. Katie Hobbs and the Arizona Legislature chose a prudent course: a three-year pause on new applications for Arizona’s data center tax incentive program. Through June 2029, the state can reassess the program’s fiscal implications without imposing a statewide prohibition on building new facilities.

It’s an important distinction. Reviewing a tax incentive is legitimate fiscal oversight. Blocking the infrastructure businesses increasingly need to operate carries entirely different consequences.

Attorney General Kris Mayes says Arizona should pursue a much more restrictive path. In August, she called for a statewide moratorium on approving and constructing new data centers, particularly hyperscale artificial intelligence projects, until Arizona develops a plan to manage the industry’s growth. At a recent town hall in Mesa, she argued that this issue is too important for data center developers to decide what’s right for Arizona communities.

Her concerns about water supplies and electricity costs deserve attention. But opposing a statewide moratorium does not mean letting developers write their own rules. Local elected officials, utilities, regulators, and residents already have roles in evaluating these projects. The question is whether Arizona can address legitimate concerns while allowing responsible development to proceed.

A statewide moratorium would treat all data center projects the same regardless of their location, water management, infrastructure arrangements, or ability to address community concerns. It would tell developers who can meet responsible standards that they must wait alongside those who cannot.

Other jurisdictions have embraced that approach, from Oklahoma City to Wisconsin’s Dane County and even Texas, where Republican Gov. Greg Abbott directed state agencies to halt regulatory approvals for data center development pending audits of the industry’s effect on the electric grid and water resources.

Arizona should resist following them.

Data centers support the daily work of the modern economy. Businesses process payments, manage inventory, and protect information. Hospitals access records. Researchers analyze data. Manufacturers coordinate supply chains and production. The everyday transactions we carry out online are all tied back to a data center.

We cannot expect Arizona to thrive in a digital economy while treating the infrastructure supporting it as an unwelcome intrusion.

I am not arguing for a free pass. Every project should face scrutiny. Residents deserve clear answers about water consumption, electricity supply, neighborhood compatibility, and infrastructure costs. Utilities and regulators should ensure that serving major new customers does not unfairly shift costs onto existing customers. Data center developers should welcome some sunshine on their work. Amazon made the right move in announcing that it has stopped using nondisclosure agreements with county governments in the data center approval process.

But Mayes’ blanket moratorium would sideline case-by-case evaluations in favor of a statewide stop sign.

Investment won’t patiently wait, though. Companies have choices. When one jurisdiction closes its doors, another can offer land, workers, and a path to approval. Arizona could lose construction work, technical jobs, supplier business, and tax revenue while continuing to depend on the services those facilities provide.

The consequences could extend beyond state lines. If restrictions proliferate nationally, some future investment and computing activity could move overseas, including to countries that do not share America’s commitments to individual liberty, privacy, and the rule of law. Making it hard to build in the United States risks weakening the technological leadership we want to preserve.

Arizona’s tax incentive pause gives policymakers time to assess the tradeoff between forgone revenue and the investment, employment, and tax collections the incentive might help generate. If we use that time well, we’ll have a stronger basis for deciding what policy best serves taxpayers.

Gov. Hobbs and the Legislature struck the right balance: give Arizona time to scrutinize the tax incentive while allowing responsible development to proceed. That is a better path than a statewide construction moratorium that puts our economic competitiveness at risk.

Danny Seiden is the president and CEO of the Arizona Chamber of Commerce & Industry.

This column may be reproduced.