Data center development has been at the center of the economic development conversation in 2026 as states and communities have been debating both the economic development incentive programs for data centers and the positive and negative impacts. Ohio Governor Mike DeWine’s announcement of a moratorium, effective June 1, on the Ohio Sales Tax Exemption for data centers, is a major shift in the conversation, but only the beginning of one. The General Assembly is currently considering overriding the Governor’s veto of a provision terminating the tax exemption and has created a bipartisan joint committee for consideration of the future of data center development in Ohio. A nascent ballot initiative to prohibit data centers has been collecting signatures and may land on November’s ballot, while communities have considered bans and moratoria. Over the second half of the year, we should expect to see further activity in this space.
Not Just an Ohio Problem
Data centers have become increasingly controversial. They have been blamed for driving energy costs up through their high demand for electricity and water. They can impact the environment through their sheer size and scale, and have been tied to complaints of run-off, noise, and light pollution. Denser communities are uncomfortable having data centers as neighbors and sparser, rural communities object to acres of farm being converted to a radically different use. At the same time, data centers are the backbone of artificial intelligence, the sector which has been driving the growth of the American economy and which many think is critical to maintaining America’s position geopolitically and economically. Compute is becoming a primary economic input – companies and individuals demand ever more compute as they integrate AI into their processes and AI training continues to scale. Legislators and policymakers will have to reconcile these competing interests over the coming year.
The economic development incentive is somewhat downstream of the overall data center debate. A section of the population may be comfortable with data center development, but not with public subsidies at the current scale. Governor DeWine’s moratorium is one of several states and is driven primarily by revenue impacts. Ohio reported that the tax incentive cost $1.6 billion in 2025, more than twelve times the budget estimate of $136 million. In Georgia, current revenues are showing a cost of approximately $2.5 billion, nearly eight times the budget estimate of $327 million. Pennsylvania’s estimate of $45 million has more than quadrupled to almost $190 million. With estimates off by this sort of scale, it is no surprise that legislators and taxpayers are considering their options.
What States Are Doing
On the same day that Governor DeWine announced Ohio’s moratorium, Governor Josh Shapiro of neighboring Pennsylvania outlined his Governor’s Responsible Infrastructure Development (GRID) standards and proposed legislation to encode the standards. For data center developments to access tax incentives and Pennsylvania’s fast-track permitting program, GRID would require that they meet the following standards:
- Energy: Developers must agree to bear the full cost of incremental electrical capacity by adding or buying new capacity, including a percentage from green energy sources. Developers are also required to pay the costs of interconnection, transmission, and related necessary upgrades.
- Transparency/Community Engagement: Developers must execute on a community outreach plan including consultation with local governments and impacted communities. Developers must disclose to these stakeholders the scope, end users, energy and water demands of the proposed data center.
- Workforce/Economic Development: Data centers must commit to $250+ million in investment, 200 construction jobs at prevailing wages, and 50 permanent jobs with wage and payroll requirements. Developers must also have hiring and workforce training plans.
- Environmental Protection: Developers are to provide a sustainability plan that addresses limiting water/energy consumption, air pollution and emissions, and watershed impacts.
Pennsylvania’s proposal is robust and highlights the different requirements that states and communities consider when discussing data center development. Ohio shares an electrical grid with Pennsylvania and faces many of the same electricity demand pressures, but the states differ in other ways. Nevertheless, it would be a surprise to see a proposal for the future of the data center exemption that does not try to address these four topics in some way.
Ohio and Pennsylvania aren’t the only states contemplating action. Virginia has an ongoing debate focusing on similar standards to Pennsylvania. As the country’s leader in data center development, its eventual regulatory and incentive regime will be a bellwether for the future, and there is an intense dispute between groups who see the value in continuing to be a reliable development partner and those who see the market as over-incentivized and under-taxed. Texas, another large data center state, is pushing the other way, proactively marketing itself as open for more development.
What to Watch For
Ohio is, by some measures, third only to Virginia and Texas as a location for data center development. Its robust incentive program and development-friendly regime have caused a rapid build-out of data centers, especially in and around Columbus. The current pause has significant justifications, a billion-dollar revenue impact requires some reconsideration, but may cause a shift in how data center developers view doing business in Ohio. This will be a fluid space and we expect both the state and local communities to act over the coming months.
Interested developers, communities, and landowners should watch for:
- Conditions on Development: Will Ohio adopt energy or community outreach requirements for future data center development and how will that impact project cost and timing? Will local communities act alone through the permitting process?
- Tax Exemptions: All the momentum seems to be behind trying to limit future revenue loss. Will that result in a complete elimination of the sales tax incentive, or a more constrictive, scaled-down version? Will the General Assembly consider adopting additional conditions on development, like those being considered in Pennsylvania and elsewhere?
- Permitting: In addition to the data center sales tax incentive, Pennsylvania allows data centers that meet the GRID standard to access its Fast-Track permitting process. If Ohio wants to reduce its sales tax incentive or add certain requirements to data center development, will it look to ease development by absorbing or pre-empting some local control?
- Federal Activity: The Trump Administration has been bullish on artificial intelligence driven by data center development as critical to America’s economic and geopolitical position. As states adopt regimes that make it more difficult to develop data centers, will the Administration feel pressured to take action?
Contact
This is an evolving issue and KJK’s Economic Development & Incentives team will continue to monitor it closely. To discuss how these developments may affect your project or investment strategy, contact KJK’s Director of Economic Development & Incentives, David Ebersole (DME@kjk.com).