Virginia's data center tax break is costing the state more than $1 billion a year

A recent report by the watchdog group Good Jobs First claims that Virginia's data center sales tax exemption cost state taxpayers over $1 billion in lost revenue in fiscal year 2024, projected to rise to nearly $2 billion in fiscal year 2025. This financial loss, critics argue, diverts approximately $267 million from public schools in counties such as Fairfax, Prince William, and Loudoun, leading to issues like overcrowded schools and underfunded public services. Greg LeRoy, executive director of Good Jobs First, asserts that the 2008 tax break, intended to attract data centers, failed to anticipate the massive growth spurred by artificial intelligence, leading to exponentially larger facilities and corresponding tax breaks. Conversely, Sharon Willoughby, CFO for Loudoun County Public Schools, notes significant local contributions from data centers through property taxes and STEM program funding. The Data Center Coalition, representing major industry players like Amazon, Google, Microsoft, and Meta, maintains that the tax break is self-financing, pointing to over $5 billion in state and local taxes generated by the industry and its support for 74,000 jobs annually. The debate is intensifying in Richmond. Virginia State Senator Russet Perry of Loudoun County highlighted the exponential increase from the initial $1.5 million annual tax foregone estimate. Lawmakers are currently split: the Senate aims to eliminate the exemption entirely, while the House seeks to retain it but with strict new environmental qualifications. Arlington Senator Barbara Favola, a member of the finance committee, proposes an alternative: fees based on data centers' electricity and water consumption, citing state auditors' findings that unchecked costs could add $37 monthly to family utility bills by 2040. The data center industry cautions that its investments are highly mobile and could shift to other states if Virginia removes these incentives, though Good Jobs First counters that the demand for AI makes such threats unrealistic. Richmond lawmakers face a July 1st deadline to resolve the issue.