Texas Legislature Considers Regulations for Data Centers and Water Use
The Texas Legislature has been active in regulating data centers, including sales tax exemptions and limiting local government authority. Ahead of the 2027 session, state leaders are proposing new requirements for data centers concerning electricity, water, and local impact, while local advocacy groups and the Texas Republican Party push for increased local control and an end to incentives.
The Texas Legislature has progressively engaged in regulating new technologies, including data centers, keeping control primarily at the state level rather than delegating to local governments. Key legislative actions include House Bill 1223 (2013), which provided significant state sales tax exemptions for large data centers, leading to an estimated $1.4 billion in lost state revenue since 2014. In 2023, House Bill 2127, known as the Texas Regulatory Consistency Act, was passed, limiting cities and counties from enacting regulations on commercial activities where the State holds authority, affecting data centers under PUC and ERCOT rules. An August 2023 Attorney General opinion suggested this limitation likely extends to local moratoriums on data centers.
Looking ahead to the 2027 legislative session, state officials and the Texas Republican Party have outlined priorities concerning data centers. Lt. Governor Dan Patrick's agenda includes recommendations to balance economic benefits with impacts on landowners, property rights, and water infrastructure, and to study existing frameworks for managing increased electricity demand from data centers. He also seeks safeguards for the sales tax exemption. Governor Abbott explicitly called for legislation in 2027 to require data centers to pay for their own electric infrastructure, contribute to grid capacity, use water-efficient technologies, report resource usage, and implement best practices for local impact reduction, such as setbacks and noise reduction.
However, the Governor's proposals do not advocate for granting more authority to local governments. Conversely, the Texas Republican Party's Legislative Priorities Committee for 2027 advocates for granting cities and counties final authority over zoning and land development decisions for hyper-scale data centers and prohibiting taxpayer-funded incentives for them. The article also highlights ongoing concerns about water resources, particularly in relation to "produced water" from oil and gas operations, and recent Texas Supreme Court rulings clarifying ownership and regulation of groundwater. There's a strong call for rural communities and local officials to actively engage in the legislative process to protect natural resources and prevent "urbanization" of rural areas amidst rapid industrial growth.