The $1 Trillion Question: New York’s Data Center Moratorium and the Future of AI Infrastructure

Data centers have become critical infrastructure for the modern economy. Artificial intelligence models, cloud platforms, financial systems, healthcare applications, defense technologies, cybersecurity platforms and communications networks all rely on physical computing infrastructure capable of storing and processing vast volumes of information. According to the Electric Power Research Institute (EPRI), data centers currently consume approximately 4% to 5% of total U.S. electricity, and AI-driven growth could increase that share to between 9% and 17% by 2030. In effect, electricity demand attributable to data centers could double, triple or even quadruple within the next five years, requiring substantial investment in generation, transmission, and distribution infrastructure.

The policy question, therefore, is not whether the United States needs additional capacity. It is where new facilities should be located, who should finance the supporting infrastructure, and how the public should participate in the resulting economic value.

Current U.S. Data Center Landscape

Recent mapping initiatives show that data center development is concentrated in a relatively small number of markets. Northern Virginia remains the nation’s dominant data center corridor and represents the largest concentration of computing capacity in the United States. Other major hubs include Dallas-Fort Worth, Phoenix, Atlanta, Chicago, Silicon Valley, Columbus and other parts of Texas.

New York’s Moratorium Raises Broader State Policy Questions

Although New York imposed the first statewide data center moratorium in July, the action appears intended as a temporary regulatory pause rather than a permanent ban. The Executive Order pauses certain permitting activities while state agencies develop a Generic Environmental Impact Statement and a broader oversight framework addressing electric-grid impacts, water consumption, environmental considerations and ratepayer protections. Many observers, therefore, view the state’s action as an effort to establish administrative guardrails for future development, rather than an indication that New York intends to exclude hyperscale data centers altogether.

In announcing the moratorium, Governor Kathy Hochul indicated that New York intends to develop policies designed to protect ratepayers from bearing the costs of transmission and infrastructure expansion needed to serve large data center loads. New York’s approach reflects a fundamental shift in the data center debate. Rather than viewing hyperscale facilities solely as economic development opportunities warranting tax incentives, the state is increasingly evaluating them as major infrastructure users. The governor has proposed reconsidering sales tax exemptions, requiring large facilities to bear more of the costs associated with electricity supply and transmission infrastructure and establishing mechanisms to ensure that local communities benefit from future development. Under this framework, the central policy question becomes not how to attract data centers, but how to allocate the costs and benefits associated with their operation.

States Are Reassessing Data Center Tax Incentives

Virginia initially pursued a different approach to data center investment. In 2020, Virginia extended its Data Center Retail Sales and Use Tax Exemption (DCRSUT), the state’s largest economic development incentive, through June 30, 2035. The DCRSUT exempts qualifying computer equipment, software, servers, networking equipment and certain supporting infrastructure from Virginia retail sales and use tax. To qualify, operators generally must invest at least $150 million and create at least 50 jobs paying 150% of the local prevailing wage.

In fiscal year 2024, Virginia provided approximately $1 billion of sales and use tax relief to qualifying data centers, nearly doubling the fiscal year 2023 amount of $685 million.

Even though the Virginia exemption is currently scheduled to remain in effect through June 30, 2035. in 2026, lawmakers debated its future and considered whether the rapidly growing fiscal cost justified continued support. Georgia, meanwhile, has effectively adopted a grandfathering approach for existing certificates, and Ohio paused consideration of new data center exemption requests after June 1, 2026. These developments reflect increasing scrutiny of data center incentives as concerns regarding fiscal costs and infrastructure impacts intensify.

Economic Benefits and Infrastructure Costs

A fiscal year 2025 report to Virginia’s governor and General Assembly examined the effects of data center development in the state. Supporters point to approximately 74,000 jobs and $9.1 billion of annual economic output associated with the industry. However, a typical data center may employ only approximately 50 permanent workers, while construction activity may involve 1,500 workers at peak construction. As a result, much of the employment benefit may arise during the development phase rather than from ongoing operations.

Data centers are the primary driver of projected growth in Virginia’s electricity demand and, if current trends continue, could contribute to a doubling of statewide electricity demand over the coming decade. Meeting that demand will require substantial investment in new generation, transmission and grid infrastructure. Although data centers currently pay the direct costs of service, the broader infrastructure needed to support continued growth could increase electricity costs for other customers.

Moreover, while the economic gains are concentrated in the areas where data centers are located, particularly Northern Virginia, the related infrastructure and energy costs may be borne statewide.

While Virginia provided approximately $1 billion of data center sales and use tax relief in fiscal year 2024, JLARC estimates that the generation and transmission investments needed to support continued data center growth could increase a typical residential electric bill by approximately $14 to $37 per month by 2040. Applied across Virginia’s roughly 3.8 million households, that could equate to more than $1 billion of additional residential electricity costs annually.

Ultimately, the future of data center development will depend on how states balance AI infrastructure growth with tax policy, grid reliability, utility cost allocation and community benefit. New York’s moratorium is less a rejection of data centers than a signal that states may begin treating hyperscale facilities as major infrastructure users rather than traditional economic development projects. As electricity demand accelerates and the fiscal cost of incentives comes under greater scrutiny, policymakers will increasingly focus on who should bear the costs of power generation, transmission upgrades and other infrastructure investments needed to support the AI economy.

For additional analysis, see the following article, Beyond the Moratorium: A Policy Framework for Data Center Development in New York, where we examine how states are reevaluating data center tax incentives, site-selection criteria, and regulatory frameworks as they plan for the next generation of AI-driven growth.