Navigating The Challenges Of Data Center Growth —Part III: Evolving Federal, State, And Local Policy

This is the third post in a series dedicated to the energy, environmental, and related legal issues facing data center development and their potential sustainable solutions. In the first post, we examined the basics of what a data center is and looked at energy use challenges and solutions. In the second post, we considered water, land use, and e-waste challenges, as well as the importance of community engagement. Here, we dive into the policies emerging at the federal, state, and local levels.

In this blog series, we have explored the challenges facing data center development. As the industry continues its rapid expansion, regulators at all levels of government are struggling to keep pace. This post dives into the emerging federal, state and local policy landscape.

Emerging Federal, State, and Local Data Center Policy.

Much of the emerging federal, state and local data center policy focuses on the industry’s impacts on energy affordability. In nearly every jurisdiction, leaders are advancing new rules to either slow data center growth or to ensure that growth does not put further strain on consumer energy prices.

Washington’s Ambitions Tempered by Affordability Concerns

The second Trump Administration prioritized data center development shortly after inauguration. While adopting a muscular policy at the outset, Washington appears to be recognizing that growth must be paired with programs to control energy costs—a recognition of the current affordability reality. 

The President’s actions include the following: 

• January 2025: President Trump signed the executive order Removing Barriers to American Leadership in AI. The order sought to position the U.S. as a global AI leader and directed creation of an artificial intelligence action plan within 180 days, or by July 2025.
  
  
• July 2025: The White House published Winning the AI Race: America’s AI Action Plan (AI Action Plan) to implement the January 2025 executive order. 
  
  The AI Action Plan directs the Departments of Commerce and State to work with industry to export AI to American allies. It also modifies the regulatory space by expediting the permitting process for data centers and directing elimination of “onerous Federal regulations.” Further, the top-down plan updates procurement guidelines to ensure the Federal Government only contracts with AI developers “who ensure their systems are objective and free from top-down ideological bias.” It specifically directs that references to climate change, diversity, equity, and inclusion, and misinformation be eliminated. The Action Plan also states that the Federal Government can withhold funding from states with “burdensome” AI regulations.
  
  
• Also in July 2025, the President signed three more orders Accelerating Federal Permitting of Data Center Infrastructure, Preventing Woke AI in the Federal Government, and Promoting the Export of the American AI Technology Stack.
  
  Through Accelerating Federal Permitting of Data Center Infrastructure, the Trump Administration is seeking to streamline reviews and permitting processes, most notably under the National Environmental Policy Act (NEPA), the Clean Water Act (CWA), the Clean Air Act (CAA), and other bedrock environmental statutes that have protected Americans’ health and guided development for decades. The same order calls for the use of federal lands for data center development and establishes new financial incentives and loan guarantees for data centers and component manufacturing projects. 
  
  Advocacy groups and affected communities have signaled that they are likely to challenge the rollback of NEPA and CWA protections, though as of March 2026, no such cases have been filed against Accelerating Federal Permitting of Data Center Infrastructure. Implementing the executive order will require regulatory amendments which take time and the use of federal lands for industrial development may trigger additional statutory and regulatory hurdles. 
  
  
• December 2025: President Trump signed an executive order titled Ensuring A National Policy Framework For Artificial Intelligence. While primarily focused on AI rather than data center infrastructure, it contains a provision directing the Special Advisor for AI and Crypto and the Assistant to the President for Science and Technology to jointly prepare a legislative recommendation for a uniform federal AI policy framework that preempts state AI laws which conflict the policy set out in the order. It specifically states that this recommendation should not propose preempting “otherwise lawful” state AI laws on data center infrastructure. 
  
  
• January 2026: Washington’s announcements in 2026 seem to signal a shift to put data centers on the hook for increased energy costs. In January, the President indicated that he is planning to work with data centers developers and tech companies to ensure that they can grow without increasing electricity costs for ratepayers. The same month, the White House released a report called Artificial Intelligence and the Great Divergence which compares the arrival of AI to the Industrial Revolution and re-emphasizes the Trump Administration’s plan to invest in data centers.
  
  
• March 2026: President Trump and AI and tech company leaders met at the White House to sign a Ratepayer Protection Pledge: “Amazon, Google, Meta, Microsoft, OpenAI, Oracle, and xAI signed the Ratepayer Protection Pledge, agreeing to build, bring, or buy new generation resources and cover the cost of all power delivery infrastructure upgrades required for their data centers, ensuring such expenses are not passed to American households.” 

Together, these actions are meant to support quick development of digital infrastructure and enable the U.S. to grow as a leader in the digital space. They are consistent with the broader universe of executive actions President Trump has taken since beginning his second term. They align with the rollback of the NEPA implementing regulations, the EPA’s announcement that AI is one of its top priorities, and the broader push to unleash American energy. 

While they aim to accelerate the buildout of digital infrastructure, these and other executive actions have generated heated discussion regarding the balance between accelerating digital infrastructure and maintaining environmental and community priorities. Proactively addressing sustainability can help data center developers minimize project risks and streamline approvals. 

As active as the White House has been on data center development, Congress has yet to enact any meaningful legislation impacting the industry. Republicans and Democrats have introduced bills to shape data center development, with proposals from both parties considering affordability. Progressives recently signaled increased interest in passing a national data center moratorium. 

Governors and State Leaders Sensitive to Energy Affordability

States have taken a wide variety of approaches to regulating the data centers within their borders. Most are seeking a balance between the economic benefits that the data center industry can bring to an area and the environmental and energy ratepayer impacts of unchecked development. Some states are more acutely focused on data center buildout than others. Those with large numbers of data centers, or which share a regional electricity transmission system powering data center operation, are the primary hotbed of state policy action. 

Northern Virginia’s policies have made it a data center magnet: thirteen percent of global data center capacity is housed in the region. The state hosts nearly 600 data centers, 150 of which are hyperscale data centers. Virginia’s state government encouraged data center development by offering a data center retail sales and use tax exemption on computer equipment and software, with former Governor Youngkin vetoing a 2025 bill that would have created new requirements for local government review of data centers. 

And yet, Virginia may now be trying to pump the brakes. In 2024, Virginia’s Prince William County passed a seventy-two percent tax increase on the equipment inside data centers. The County raised taxes on data centers again in 2025. And in 2026, Virginia saw the inauguration of a new governor, Abigail Spanberger, who has not ruled out shepherding in changes to the rules governing data centers in the state and has stated that high energy users should pay their fair share of electricity costs. In late February, Virginia Senate Democrats discussed eliminating the sales tax exemption that led to the proliferation of data centers in their state and the House of Delegates is considering a moratorium. 

Further south, Texas is forecasted to become a major new market for data center development, potentially even displacing Northern Virginia as the national leader. There are already 464 data centers in Texas, with more planned, and tech giants like Microsoft, Amazon, Oracle, and OpenAI are seeking to build large data center campuses in the state. Texas provides benefits to developers like a “low tax burden, lower operational costs, and light regulations and incentive programs to help business creation, expansion, relocation, and workforce training.” It also faces the same challenges as other states, including water usage concerns and community pushback. 

In June 2025, Texas Governor Greg Abott signed Senate Bill 6 (SB) into law. Passed with bipartisan support, SB6 requires data center developers to pay interconnection study fees to assess whether a project will come to fruition. It also contains a “kill switch provision.” This provision creates two demand response programs that let ERCOT operators order large load customers to curtail their energy use or switch to onsite generation if there is a grid emergency. There is both a voluntary and a mandatory program. The programs are designed to prevent large loads from overloading the grid in times of stress. While SB6 was the first of its kind, other states are considering similar legislation. 

In Pennsylvania, another state seeing high growth in data centers, Governor Shapiro stated that data centers should pay for their own power, matching the sentiments expressed by Governor Spanberger and President Trump on the topic. Governor Shapiro has been a supporter of the economic growth data centers can bring and obtained large investments from companies like Amazon, Microsoft and Google for Pennsylvania. He is also seeking to establish a balance with energy consumer interests in the development process. 

Georgia too is experiencing substantial data center growth. In 2024, lawmakers passed a bill which would have placed a two-year moratorium on tax incentives allotted to the data center industry, but Governor Brian Kemp vetoed the bill due to its impacts on business. In early 2026, the legislature introduced several new bills that would create a statewide moratorium on new data centers or increase regulation of the industry through, for instance, suspension of new sales and use tax exemptions, banning of nondisclosure agreements on water and power usage, or requiring increased ratepayer protections.

Other states are using reporting requirements to better understand the impacts and resource use of data centers. Illinois lawmakers are seeking to require data centers to report annual energy and water consumption to determine whether ratepayers are subsidizing high resource use by data centers and gain a better understanding of the industry’s environmental impacts. New Jersey passed a law directing the New Jersey Board of Public Utilities to study the effects of data centers on ratepayer expenses. 

Indiana and Ohio have adopted rules requiring large data centers to contribute to interconnection costs and to curtail demand during grid emergencies. Oregon created a new data center customer class to ensure that big power users like data centers pay for their own costs rather than passing them on to ratepayers. Arizona’s Attorney General Kris Mayes filed a request for rehearing of the Arizona Corporation Commission’s approval of a data center contract between a utility and a private developer.

Increasingly, states across the political spectrum have started considering temporary moratoria on data center development. In addition to the bills introduced in Georgia and Virginia discussed above, state governments in Maine, Maryland, Oklahoma, South Carolina, South Dakota, Vermont, and Wisconsin have proposed strategies to slow the pace of data center development. A New Hampshire bill failed to pass the legislature. 

Lawmakers in New York introduced a bill in February 2026 to establish a three year moratorium on data center development. The moratorium on new data center permits would remain in place while the state conducts a comprehensive, statewide analysis of data center impacts and promulgates regulations to mitigate environmental and ratepayer harms, alongside Public Service Commission actions to address utility rate impacts. It builds on other bills from the 2025 legislative session that would require annual disclosures from data centers, prohibit incentives in fossil fuel power purchase agreements with utilities, and seeks to establish a data center surcharge. In her State of the State, New York Governor Hochul proposed a more limited approach favoring streamlining interconnection rules and improving transparency around grid upgrades while requiring data center developers to cover energy infrastructure costs or supply their own energy. Like the other political leaders mentioned earlier, Governor Hochul has stated that data centers should pay their fair share for energy costs.

To date, no states have enacted numerical caps or limits on data center water use, though several states have considered or implemented permit requirements, reporting obligations, and conservation measures. This regulatory landscape could change as water conflicts intensify and impacts are better understood.

Local Leaders Grappling with Quality of Life Concerns

In our second blog post, we talked about the importance of local community engagement. We emphasized that early, sustained, and authentic community engagement is not a courtesy—it is foundational to successful data center siting. 

Developers are working to strengthen their community engagement efforts. For instance, in mid-March 2026 Microsoft announced that it is ending the use of nondisclosure agreements with local governments to enhance transparency and build trust with communities in which it advances proposals.

According to a Heatmap News study, forty percent of data centers opposed by local communities are eventually canceled. Community interest has pushed local policymakers into action.
 
Here, we present a small sample of how local governments are constraining data center development, presented in alphabetical order of the related state. 

• • Arizona: A number of cities in Arizona have passed or are considering ordinances restricting data center development to certain areas. The most recent rules adopted by Mesa, home to twenty-five percent of data centers in Arizona, now regulate data center siting, design, and noise impacts. Existing data centers are grandfathered in under the new rules. 
  
  
• Colorado: Colorado has seen activity at the county level. On February 5, 2026, Larimer County enacted a 30-day moratorium on all data center facility applications and pre-submittal activities in unincorporated areas, citing a lack of land use regulations tailored to data centers’ unique impacts. The next day, the County unanimously extended the moratorium to six months after community members raised concerns about data centers’ strain on the electrical grid, water resources, and local employment. During the moratorium, county staff intend to study other communities’ data center regulations, engage the public, and develop proposed standards for incorporation into the Larimer County Land Use Code.
  
  Logan County imposed a moratorium on data center projects in October 2025 to give its Planning and Zoning Commission time to develop regulations. The County held public hearings in January 2026, drawing significant community participation. The Board of County Commissioners voted unanimously on February 18, 2026, to adopt data center regulations and lift the moratorium, approving a framework covering special use permitting, setbacks, air-cooled chilling requirements, and decommissioning obligations. The regulations come as Granite Renewables has expressed interest in building a $15 billion data center near Sterling, the largest city in the County.
  
  
• Georgia: Georgia has also seen activity at the county level. In December 2025, Athens-Clarke County unanimously adopted a temporary moratorium on new data centers through March 6, 2026, while it developed zoning and land use standards. Proposed amendments to existing standards classify all data centers as Level 3 industrial threshold uses, requiring a special use permit, annual operating reporting requirements, mandatory closed-loop cooling systems, and noise barriers for facilities within 400 feet of another property line. At meetings on the standards, residents and commissioners raised concerns about resource strain, noting that Georgia Power plans to increase power capacity by over 50% due to data center demand and that the county has limited land and water to support such development. Despite the Planning Commission’s recommendation to approve the amendments, community members and representatives expressed support for an extension of the moratorium for further study rather than a rush to implement permanent regulations.
  
  The Jones County Board of Commissioners unanimously approved an amendment to its Comprehensive Land Use Plan to add data centers as a permitted use but strengthen the county’s regulatory oversight. The amendment includes noise limits, enhanced environmental review requirements, and allows the Board to deny a data center application at any stage. A Financial Impact Study projected that a data center could generate hundreds of millions of dollars in net revenue for the county over the next two decades. The decision followed months of public engagement, with opponents raising environmental and quality-of-life concerns and supporters highlighting the potential economic benefits for the community. 
  
  
• Massachusetts: In January 2026, the Lowell City Council unanimously passed an ordinance imposing a 360-day moratorium on new data center construction and development. The purpose of the moratorium is to allow the City to study how these facilities impact energy, water, noise, and neighborhood quality of life. The decision was driven in part by concerns about an existing data center near residential homes that the City approved in 2015. City staff will work with experts to draft updated rules covering power, water, noise, traffic, and public safety before any future projects move forward.
  
  
• New York: There has also been activity at the town level in New York State. The Town of Athens enacted a local law imposing a six-month moratorium halting the construction, installation, review, or approval of any new data centers through June 1, 2026. In the local law, the Town Board acknowledged that while data centers offer community benefits, they may also have adverse impacts on neighboring land uses. The Town’s current Land Use Law lacks any regulations addressing these facilities and the moratorium provides time to develop appropriate zoning and land use rules. The moratorium applies to any new data center project for which all necessary Town approvals had not been submitted by December 1, 2025.

In February 2026, the Dryden Town Board enacted a zoning amendment that prohibited data centers by adopting a definition of such facilities that effectively barred their operation. Its adoption followed an 18-month moratorium during which the Town assessed its next steps. The moratorium was prompted by developer TeraWulf’s proposal to construct a 400-megawatt data center in the neighboring town of Lansing. Town leaders stated that their decision to permanently ban data centers was driven by concerns regarding the substantial energy consumption, water usage, and noise associated with data center operations.

In January 2026, the Town of Mount Morris enacted a twelve-month moratorium on the development of commercial data centers within its jurisdiction. The Town Board recognized in the Local Law that data centers have the potential to make meaningful, positive contributions to the local economy. It further noted that data centers were not contemplated as a land use at the time the Town’s Comprehensive Plan and Zoning Ordinance were originally adopted, and the centers carry the potential for significant adverse impacts, including increased energy consumption, environmental degradation, visual disruption, and broader effects on the surrounding community. As such, the Town Board intends to use the moratorium period to evaluate and develop appropriate zoning regulations to govern data center development and to protect public health, welfare, and safety.

This snapshot of county and municipal actions across the country underscores the pressures being exerted by constituents who are concerned about the pace and scale of data center development. Given that many of these moratoria were recently enacted, it will be important to monitor whether officials will emerge from moratoria periods with new local regulations or outright prohibitions. 

Conclusion

The data center industry’s ability to balance rapid growth with sustainability will shape its development, as will the evolving policy landscape at all levels of government. Legal counsel will be pivotal in guiding clients through the legal complexities and risks involved, helping to ensure that the infrastructure supporting the digital economy is sustainably realized. Foley Hoag will continue to monitor the changing legal landscape.

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