Colorado is prepared to offer tax breaks worth millions to lure data centers that power AI despite evidence questioning their economic impact.
Why it matters: The proposed incentives — valued at nearly $17 million when implemented — represent a big bet at a time when Colorado lawmakers are pinching pennies.State of play: Colorado is behind the curve on data centers, especially compared with its northern neighbor Wyoming, but lawmakers here are hoping a state sales and use tax break will draw more development, as well as jobs and improvements to the power grid.
The exemption is equal to 100% of expenses and will stay in place for 20 years.
Data: Data Center Map; Note: Dots have been shifted to avoid overlaps and locations are approximate; Map: Erin Davis/Axios Visuals
Friction point: The question is who benefits from data centers given their soaring energy and water demands, unproven benefits for local communities and minimal permanent jobs created.
If leaders prioritize jobs, there are better industries for which to compete, says Peter Orazem, an economics professor at Iowa State University.
But future property tax revenue for local governments could justify the investment, he says.
Context: A 2023 state-commissioned report in Virginia, the country's data center hub, found that the initial construction phase delivered economic benefits, but they drop off sharply once the centers are built.Building a 250,000-square-foot data center employs up to 1,500 local employees for 12-18 months. But that declines to 50 full-time workers, half of them contracted.
The other side: A recent Data Center Coalition report touts the economic benefits of data centers beyond the jobs inside them.
Those include bolstering supply-chain businesses, employees' spending in the community, and companies' state and local tax contributions — which come without straining public services like schools.
What's next: The Colorado bill won approval at a contentious legislative hearing last week and now moves to the appropriations committee for consideration.
