Data centers have existed for decades. Now, it’s hyperscale AI data centers that are top of mind for communities in Wisconsin. They require massive resources to operate, which is one reason they’ve stirred controversy.
Decisions about data centers have been left up to local governments. State lawmakers haven’t passed comprehensive regulations.
Wisconsin Policy Forum researchers examined the deals local governments have made with data centers to see what the state, and other communities, might learn from them.
WUWM’s Eddie Morales checked in with Wisconsin Policy Forum President Jason Stein to learn about the report’s findings.
This conversation has been edited for length and clarity.
Eddie Morales: What local development deals did the Wisconsin Policy Forum examine?
Jason Stein: We looked at five communities: Janesville, Mount Pleasant, Port Washington, Beaver Dam and DeForest. So three of those communities had a data center that's being built and then two more [that were] considered and turned down. We looked at the agreements that got approved or proposed in all of those communities to see what would have been the fiscal impact for the local governments.
Largely, we found that those local governments had put in place — in their agreements or their proposed agreements — items that would help to protect the local government from risk or at least to minimize the risk. Those included things like guaranteed property values.
So, the developer committing to pledging to pay taxes at a certain value for a certain period of time on their data center, whether or not the data center was actually assessed at that value. In other words, even if the data center isn't fully built out or the value isn't what people project it to be, there would still be some protection there.
What are the most significant takeaways from that report?
There's definitely been a shift from Wisconsin using every year less and less power, to now being on a trajectory where we're using more and more power. We need to think about allocating the costs of adding that generation and transmission. We need to think about making sure that we just have enough generation and transmission assets to serve everyone.
In the report, there are some suggestions for policy options. Can you talk to me about some of those policy options and describe how you came up with those?
Right now, our state law — between what limits local property taxes from year to year and how something that is used for development called tax increment financing works — those two laws do not mesh well with each other. So, with any development, there's a certain bind that that puts local officials in about whether they're going to try to maximize how much property tax revenue they get, or whether they're going to protect property taxpayers who aren't in the TIF district in the short-term. But it really gets supercharged by a data center because of the size. We suggested some options that would give local officials more flexibility to still retain some of the new tax revenue for public services that would come from a data center, while still protecting homeowners from short-term property tax impacts from a data center.
We highlighted at the state level, the big incentive that is in place is the state waives sales tax revenue for data centers. Thirty-eight states nationally do that, have some form of that. So it's not by any means unusual for Wisconsin. Wisconsin also does that for certain other industries, like manufacturing. The state waives materials and resources that go into building data centers — waives sales taxes on that. Although a majority of states have those incentives, some states are pausing them. We provide a range of options regarding what the state could do there, including retain the incentives but put some additional requirements or triggers on them that companies would have to meet and developers would have to meet in order to receive those incentives.
