Waste Watch: Texas faces $3.2 billion data center cash drain
Texas is projected to lose $3.2 billion in sales tax revenue from data centers over the next two years. Governor Greg Abbott has imposed a moratorium on new data center connections to the ERCOT power grid until an audit is complete, and has set new standards for developers. OpenAI and Meta have committed to comply with these standards, which include paying for infrastructure, reusing water, and disclosing tax breaks and ownership.
Texas is projected to forgo $3.2 billion in sales-tax revenue from data centers over the next two years, a figure the state Comptroller's office believes is an underestimate. This revenue is lost because qualifying data facilities are exempt from the state's 6.25% sales tax on electricity and various purchases like servers, software, and cooling systems.
In response, Governor Greg Abbott has implemented an effective moratorium on approvals for data centers seeking connection to the ERCOT power grid. No new projects can advance until the state completes a comprehensive audit of data centers. Abbott also announced that major tech companies, OpenAI and Meta, have agreed to comply with his new standards. These requirements mandate that companies pay for electric infrastructure, reuse their own water, help reduce electricity costs for Texans, avoid neighborhood disruptions, and disclose tax breaks and project ownership. Former President Donald Trump also commented on the issue, expressing concern that Texas might be making a mistake by pausing data center development, highlighting the potential economic benefits for communities.
Locally, the issue impacts proposed projects, including a $1.3 billion AI data center in Port Arthur and a separate data center proposed as part of Diligence Offshore Services' renewable energy development on Pleasure Island in Beaumont. However, Beaumont City Manager Chris Boone stated he is unaware of any proposed data centers in Beaumont. The Texas Tribune has identified 583 data centers across the state, with 335 operational and 248 proposed, underscoring the scale of data center development and the billions in revenue at stake.