General Assembly budget proposal expected to generate $600 million a year in revenue from data centers

Virginia lawmakers have revealed a budget conference report that introduces a significant electricity consumption fee for data centers, projected to bring in $600 million annually, totaling $1.2 billion over a two-year state budget cycle. The fee, set at $0.011 per kilowatt-hour, aims to address the growing concerns about the data center industry's impact on the state's electric grid and water resources, particularly in Northern Virginia's "Data Center Alley" in Loudoun County.

The proposal emerged from intense budget negotiations, where the Senate sought to eliminate existing sales and use tax breaks for data centers, a move opposed by the House and Governor. While the tax break remains, the new energy consumption fee serves as a compromise.

Beyond the fee, the conference report also mandates the state Department of Environmental Quality to establish noise regulations for data centers and identify areas experiencing cooling water scarcity. Additionally, the State Corporation Commission is directed to begin collecting comprehensive data on data centers' electric service agreements, water usage, and generator permits.

The creation of a new Joint Subcommittee on Tax Policy further indicates that the Legislature plans ongoing scrutiny of data center taxation and regulation. Senate Finance Appropriations Chair Louise Lucas and House Appropriations Chair Luke Torian stated that the budget reflects a commitment to making Virginia more affordable. The entire budget package, including these data center provisions, still requires final approval from both legislative chambers and Governor Abigail Spanberger to take effect.