Texas lawmakers reconsider tax incentives for data centers
DALLAS - Twelve years ago, Texas started offering big tax exemptions to entice new data centers. Now, the political climate has changed, and lawmakers say it’s time to reconsider those tax breaks.
Debate over data center tax breaks
What we know:
A law that took effect in 2014 allows large tax breaks to entice new data centers to Texas. During the first six years after the law passed, only 10 data centers held exempt status.
However, following the pandemic, the state experienced a boom in new facilities. According to the Texas Comptroller's Office, there are now 138 data centers across the state with tax exemptions, and five more applications are pending. That growth accounts for an estimated $3.3 billion in projected tax revenue the state expects to lose.
On Monday morning, a Senate committee held a hearing on data centers to discuss the exemptions, with officials from the comptroller's office testifying first. Although the Texas Legislature does not return to Austin until January, the debate over data centers has frequently surfaced in recent local county and city council meetings.
What they're saying:
Skepticism over the tax breaks and the location of the facilities has emerged from both Democrats and Republicans.
"I voted for it. Most of the people in the legislature at the time did. It passed overwhelmingly. But it has completely changed. It’s a much different animal these days," said Sen. Joan Huffman, a Republican from Houston.
"How do you suggest they should be managed?" asked Sen. Juan "Chuy" Hinojosa, a Democrat from McAllen. "That is something for you and your colleagues to deliberate in the next session to establish some kind of permitting process."
Political implications ahead of legislative session
Local perspective:
With just months to go until the November election, the topic has quickly turned political. Gov. Greg Abbott, who once praised data centers, has grown critical, calling for them not to be built in rural areas.
Abbott proposes ban on rural data centers after shifting stance
Gov. Greg Abbott proposed a ban on rural Texas AI data centers and called to eliminate their tax breaks, marking a shift from his prior support as residents increasingly oppose the facilities over water, electricity, and noise concerns.
Rice University political analyst Mark Jones discussed the shifting dynamic during an appearance on Battleground Texas.
"The governor also knows these areas where you have this disproportionate establishment of data centers are red areas where he needs to come out in full force for him to win. We are talking about the election now and Sid Miller alluded to this," Jones said. "Once we get to the legislative session in January, you are going to see hundreds of millions of dollars spent by these tech companies on lobbyists."
What's next:
Lawmakers are expected to address the tax incentive framework when the Texas Legislature officially returns to Austin in January. Multiple bills are anticipated to make changes to the tax incentive module.
The Source: The information in this article comes from testimony before a Texas Senate committee, the Texas Comptroller's Office, public statements by state lawmakers and officials, and an interview with Rice University political analyst Mark Jones on Battleground Texas.