‘The Battle Line Has Been Drawn’ Around Virginia’s Data Centers

For decades, the world’s densest cluster of data centers has grown in Northern Virginia with little scrutiny and generous incentives.

That changed this spring, when state lawmakers seriously considered taking away a key tax exemption that saved the state’s data centers $1.9 billion last year and doesn’t expire until 2035. For a while, it looked like Virginia would have its first-ever state government shutdown over whether to sunset the incentive early.

Policymakers ultimately reached a compromise to avert a shutdown — and send a warning shot to the industry — by signing off on a budget Monday containing the first-ever statewide tax on data center energy consumption. Democratic Gov. Abigail Spanberger praised the initiative.

“Virginia has a responsibility to make sure the data center industry is paying their fair share for the energy they use,” she said in a Monday evening address. “But this is only the beginning.”

Even activists and lawmakers who have been pushing for years to rein in Northern Virginia’s data center industry were surprised by how quickly cracks appeared in the foundation of what felt like a stable relationship.

Northern Virginia is home to more than 300 data centers. About 200 more are expected to go up in the coming years. Loudoun County, specifically, has the world’s highest concentration of data centers, relying on the industry for almost half its property tax revenue.

But Virginia voters have quickly soured on the issue. A recent Washington Post-Schar School poll of more than 1,100 found just 35% would be comfortable with a new data center going up in their community, putting pressure on politicians to effectively choose between the interests of their constituents and those of the data center operators whose business they depend on.

“The battle line has been drawn around that question in Virginia,” said Brennan Gilmore, executive director of Clean Virginia, a nonprofit advocacy group focused on political corruption and utilities in the state. “And folks are lining up on either side of it.”

A data center is seen under construction in Ashburn, Virginia, last year. Francis Chung/POLITICO/AP

Troubleshooting

Data centers are doing damage control. Virginia Connects, the state-focused arm of the Data Center Coalition, whose members include Amazon Web Services, Google and Microsoft, has spent hundreds of thousands of dollars in recent weeks on television and digital ads touting the economic benefits of data centers and downplaying criticisms, including about the industry’s water usage.

Since June 9, Virginia Connects has spent at least $708,000 to run television ads during prime time programs like the World Cup, “The View” and “Good Morning America,” according to a NOTUS analysis of Federal Communications Commission documents. Around $243,000 of that total is for ads scheduled for October and November during shows like “General Hospital,” “Jeopardy!” and “Wheel of Fortune.”

The coalition has also spent at least $19,000 on Facebook ads since the end of May, and an undisclosed amount of money running ads on Google since last August.

Nicole Riley, director of Virginia government affairs for the Data Center Coalition, characterized efforts to axe the exemption as “hastily and poorly conceived tax hikes” in a statement, warning they would “raise costs and prices, hurt Virginia’s business reputation, violate commitments the Commonwealth has made, and stifle job creation and investment when Virginia needs both.”

Some labor unions have linked arms with data centers, an industry that a 2026 state study found has created and maintained 31,500 jobs — including around 22,000 indirect jobs — to date in Virginia. An earlier state-commissioned study found that in 2023, the data center industry provided approximately 74,000 jobs, with most of those coming during the construction phase.

Don Slaiman, director of community relations at IBEW Local 26, said that he finds opposition to data centers “perplexing and disappointing” in a statement shared by the Data Center Coalition with NOTUS.

“Data centers have created tens of thousands of high-paying union jobs for blue collar workers in construction, upgrading, retrofitting, and monitoring, as well as in the pre-fab factories that are opening around the state,” Slaiman wrote.

But Virginia’s largest teachers’ union, the Virginia Education Association, backed the proposal to do away with the tax exemption, arguing the revenue could go toward supporting the state’s education system.

While Virginia lawmakers did not do away with the exemption, they did pass the first-ever statewide tax on energy consumption by data centers, a key concern for constituents. Under the new tax, data center operators will have to pay $0.11 per kilowatt-hour of electricity used. The tax is capped at $600 million per year.

“It’s not capped in terms of how much is collected, it’s just capped in terms of how much is kept, which means that we’re actually going to know how much electricity these folks are using, and what the potential value of that is to the Virginia economy,” said Delegate John McAuliff, a Democrat whose district includes western Loudoun County.

The energy consumption tax is an undeniable win for data center opponents. While some say it doesn’t go far enough to make sure data centers pay their “fair share,” a common refrain from Spanberger — they say it’s a good first step, and one they never would have imagined accomplishing at the beginning of the session.

Rep. Suhas Subramanyam believes Virginia has become too reliant on the data center industry. Rebecca Blackwell/AP

Pumping the Brakes on Perks

Spanberger, who walked a tightrope on this political issue during her gubernatorial campaign, refused to support the state Senate’s efforts to eliminate the tax early. She told Cardinal News in May that it would send the wrong message to the business community and open the state up to “totally foreseeable legal action.” A spokesperson for Spanberger did not respond to requests for comment.

That position put the governor at odds with one of her biggest donors: Clean Virginia gave $1.2 million to Spanberger’s gubernatorial campaign in 2024 and 2025, according to the Virginia Public Access Project.

“Simply stated, I think she’s wrong with the tax exemption,” Gilmore said.

Virginia has offered to allow data centers that make certain investments tax exemptions for servers, routers, chillers, backup generators, water storage tanks and pumps, and a laundry list of other equipment since 2010. The data center landscape looked very different back then, and critics say the exemption, the largest in Virginia’s history, has ballooned far beyond original projections.

Virginia is far from the only state that offers both this exemption and other economic incentives to attract data centers. But other states, including Arizona, Ohio and Illinois, have recently paused their incentives.

Even in Texas, which has been competing with Virginia to attract new data centers, Republican Gov. Greg Abbott asked state regulators to prioritize data center regulations including repealing sales tax exemptions. The Texas Tribune estimates almost 250 new data center projects are in the works there.

Federal officials have also struggled with data centers’ growing unpopularity. Some like Sen. Bernie Sanders (I-Vermont) have endorsed a nationwide moratorium on their construction. Others, like Sen. Chris Van Hollen (D-Maryland), have introduced legislation to make operators pay for the energy cost of running these facilities.

“Consumers are worried that they’re going to be put in a position where they’re subsidizing private investment — and they shouldn’t,” a person familiar with the industry told NOTUS. “The important thing that we can do as an industry is assure ratepayers that the cost allocation will be fair … It’s simple, it’s fundamental, it’s easy.”

That person, a trade group representative who requested anonymity to share internal deliberations, said that voluntary agreements like President Donald Trump’s included in the Ratepayer Protection Pledge earlier this year are beginning to address some of these issues.

Rep. Suhas Subramanyam, a Virginia Democrat whose district includes Loudoun County, believes that the state has become too reliant on the industry.

“We have too many data centers at this point,” Subramanyam, who supports a state-level data center moratorium, told NOTUS. “The developers are making a ton of money, so they have no reason to stop, and the local governments aren’t doing enough to stop the expansion.”

Virginia policymakers are proposing more policies that could impact data center operators than any other state, Lauren Bridges, an assistant professor of media studies at the University of Virginia and creator of the Data Center Policy Database, told NOTUS.

While it may be difficult for lawmakers to walk back the promises made and the data center projects already in the works, such efforts to regulate data centers in the state aren’t coming “too late,” Bridges said.

“I certainly don’t think it’s hopeless,” she said. “I don’t think that people should give up or not consider politics as a real avenue for change.”