Can Wisconsin Recoup Billions In Data Center Tax Breaks?
A new report from the Wisconsin Policy Forum analyzes the economic and environmental impacts of data centers in Wisconsin, particularly focusing on tax incentives and their large electricity and water demands. The report suggests that income, utility, and property taxes could help offset sales tax revenues lost due to exemptions for data center construction and operations. It also highlights that electricity demand poses a greater challenge than water use for the state's utilities and ratepayers.
A report from the Wisconsin Policy Forum indicates that while data centers offer economic development opportunities for Wisconsin communities, concerns about water and energy use, along with potential costs to residents, have made them controversial. The report, co-authored by Jason Stein, examined tax incentives, energy, and water use related to data center projects in the state.
Wisconsin is one of 38 states offering tax incentives to data centers, with the Legislative Fiscal Bureau estimating a loss of $1.5 billion in sales tax revenues from construction between 2024 and 2028, and $369 million annually from operations. The report suggests these forgone sales tax revenues could be recouped through income and sales taxes from construction workers and companies, as well as property taxes and additional taxes from utilities serving data centers. It also notes that local development agreements, such as those reviewed in Mount Pleasant, Port Washington, and Beaver Dam, often include financial safeguards like limits on municipal borrowing and guaranteed property values.
While public debate often focuses on water use, the report finds that meeting the significant electricity demands of data centers is the bigger challenge. State water withdrawals have declined, and projected data center water use is less than this decline, with examples like Microsoft's Mount Pleasant facility using a fraction of the water decline seen by Racine Water Works. However, electricity demand is projected to rise significantly, largely due to data centers, increasing peak demand from 14.6 gigawatts in 2024 to 19.9 gigawatts by 2030. State utility regulators have modified rate proposals from We Energies and Alliant Energy to protect residential customers, but questions remain about transmission rates and the ability of utilities to bring new generation and transmission online quickly enough. The report suggests a potential need for a statewide framework for electric rates tied to data centers.
Some proposed data center projects in DeForest, Greenleaf, and Janesville have been canceled due to public unpopularity.