Federalism Will Save the Data Centers
Reason · RC · trust 45/100
(Evgeniy Bazurov/Dreamstime) Happy Tuesday, and welcome to another edition of Rent Free . This week's stories include:
When it comes to liberalizing land use regulations to allow more housing to be built, housing advocates have generally settled on a standard maneuver: evolve more regulatory decisions to state governments.
Localities, the thinking goes, have more powerful incentives to oppose residential construction, whereas state lawmakers are more inclined to support growth.
Results vary from state to state, but thus far, this strategy has proved relatively successful.
Legislation limiting local governments' ability to say no to projects is enabling more backyard accessory units, apartments on formerly commercial properties, and mixed-use developments in some of the most NIMBY areas.
State preemption would, however, appear to be of limited utility in counteracting America's current moral panic over data centers.
A year ago, most of the public was completely uninterested in data centers. Polls found that when people did express an opinion, they were evenly split between supporting and opposing these facilities.
No longer. Survey after survey shows large majorities opposing data center development in their communities. More people would rather live next to a steel mill than a boxy building full of computer servers.
Policymakers are moving right along with public opinion. Hardly a day goes by without a new local government proposing a flat moratorium on data centers or, at a minimum, onerous new land use controls.
And anyone hoping that state governments might ride to data centers' rescue with preemption bills that override local restrictions will be disappointed.
A growing list of governors , including ones that were once enthusiastically in favor of data center development, are now issuing executive orders clamping down on these projects.
In the housing context, regulatory decisions are moving to the state level, and regulations are (to varying degrees) becoming less restrictive. With data centers, states and localities are joining in one crackdown.
One of the few major politicians to still support data centers appears to be President Donald Trump.
In a Truth Social post yesterday, Trump described data centers as the "Golden Goose" and said that communities that reject data centers will "end up being backwards and poor."
Trump defends data centers: "The only reason that communities throughout the U.S.A. should not want Data Centers is if they want to end up being backwards and poor. If they want to be successful and rich, with far lower taxes and jobs all over the place, let Data Reign." pic.twitter.com/ZbiynIjLnO
— Sahil Kapur (@sahilkapur) August 31, 2026
It's at the federal level that data centers would still seem to have some support.
While states' pro-growth instincts have let data centers down as of late, national security concerns about winning the AI race still afford data centers some support from federal policymakers.
Last year, the Trump White House issued an executive order that called for streamlining federal permitting of these projects. Sen. Tom Cotton (R–Ark.) has proposed legislation that reduces federal regulation on data centers that supply their own power.
It would not be unprecedented for the federal government to take a more direct role in seeing that data centers aren't shot down by local and state regulation.
The 1996 Telecommunications Act preempted local zoning regulations from blocking cellphone towers.
Even so, counting on federal preemption to save data centers seems like a long shot.
While their local and environmental impacts are overhyped, data centers are more intensive land uses than cellphone towers. Imposing a blanket federal preemption of state and local data center regulations would be a more challenging endeavor.
They're also, as mentioned, incredibly unpopular. Who's to say that federal data center regulations passed in this climate would actually be superior to what states and local governments are enacting?
While Trump wants to streamline data center development, Sen. Bernie Sanders (I–Vt.) wants a nationwide moratorium.
Where preemption will likely fail, federalism could succeed.
Trump was not wrong to say that data centers are massive fiscal boons to localities that accept them.
Headlines are full of once cash-strapped localities being able to repave their roads, build new police stations, and cut property taxes on the backs of data center tax revenues.
Localities often oppose housing because of fiscal concerns. More residential development means more property tax dollars. But it also means more residents who drive on the roads, call the police, and send their kids to local public schools.
Because data centers operate with very small permanent staffs, they consume little in public services. Absent crony subsidies, data centers are liable to be a major revenue generator for local governments.
Localities and states that say no to data center development will lose out on those tax dollars. Jurisdictions that say yes will be rolling in them. Data will make it rain, to paraphrase our president.
That fiscal incentive should be enough to prevent the current backlash against data centers from grinding construction to a halt in the same way that successive anti-growth backlashes in the 20th century whittled down housing production.
As Vox 's Eric Levitz noted in a piece today, the data center backlash is happening in the context of a boom in data center construction.
The data center backlash is huge. But the boom is bigger.
Even as local bans mount, capacity keeps expanding at a dizzying pace. And that's not changing anytime soon. The buildout will continue until morale improves (or demand for compute collapses) https://t.co/aJs3nPVhoZ pic.twitter.com/0be2obP1g9
— Eric Levitz (@EricLevitz) September 1, 2026
This isn't to say that the backlash is harmless. Heatmap charts a continued rise in data center…
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