Dueling data center bills at the Colorado Capitol are stalled as the legislative session nears its end.
An amended version of the industry-backed bill to offer tax incentives to data center companies, House Bill 1030, was supposed to be heard in committee on Thursday, but was pulled off the calendar. An environmentalist-backed bill, Senate Bill 102, to more aggressively regulate the industry’s energy and water use was heard in committee in March, but no vote was taken.
State Rep. Alex Valdez, D-Denver, the primary sponsor of the industry bill, said he’s still working on a compromise measure with fellow Democrats.
“A bill is critical to Colorado not losing the economic and environmental gains we all want,” he said via text.
State Sen. Cathy Kipp, D-Fort Collins, the main sponsor of the environmental bill, said she’s working on amendments to get labor groups on board with her proposal.
“I’m pretty confident,” she said about passing a data center bill this session.
The impasse comes as the end to the lawmaking session approaches May 13 and as the state’s Public Utilities Commission has stepped in to consider regulating the industry with some protections featured in the environmentalist-backed bill.
Elected officials nationwide and in Colorado are rolling back deals with data center companies amid mounting public opposition. Concerns over the facilities’ massive demands on natural resources, rising utility bills and limited job creation have cost some lawmakers their seats over their support for the industry.
Stalled bills
This is not the first time Colorado lawmakers have grappled with how to approach the controversial data center sector that serves as the backbone for the internet, cloud storage, video streaming, artificial intelligence and other aspects of daily digital life. But so far, no bills have reached the finish line.
While there are 56 data centers in Colorado, according to Data Center Map, the state has largely missed out on the development of more large-scale facilities seen in neighboring states.
The industry-backed bill, sponsored by Valdez, House Majority Leader Monica Duran, D-Wheat Ridge, and state Sen. Kyle Mullica, D-Thornton, is similar to a proposal from last year that lawmakers rejected. It would offer a 20- to 30-year sales and use tax exemption to data center companies that applies to computer equipment, software, energy storage or environmental control systems.
In exchange for the tax break, data center companies would have to invest $250 million in infrastructure in the first five years and create an unspecified number of jobs that pay at least 110% of the average local wage.
The first of three planned CoreSite data centers (left) sits adjacent to a new senior housing complex (right), shown Friday, Feb. 13 in Elyria-Swansea. The data center also shares the block with the Vina apartment complex, Tepeyac Health Center, and Tacos El Huequito, which was previously displaced from its previous location by highway development. (Claudia A. Garcia, Special to The Colorado Sun)They would also have to use a closed-loop cooling or similar system that recycles water to cool their massive computer networks and work to ensure that the data center doesn’t cause “unreasonable cost impact” for other energy customers.
In its current form, the bill’s tax incentives would raise taxes on the poorest Coloradans, according to nonpartisan analysts, because they would reduce the state’s general fund revenue enough to trigger a reduction in tax credits available to Coloradans with low incomes. Valdez said earlier he was working on amendments to the bill to avoid this outcome.
The rival data center bill from Kipp and Rep. Kyle Brown, D-Louisville, does not offer any tax breaks. Instead, it would put more robust environmental rules on development to make sure data centers coming to Colorado do not raise electricity prices or blow the state’s greenhouse gas emission reductions targets needed to stave off the worst effects of climate change.
Most states offer tax incentives for data centers, but some are now considering reversing course.
Earlier this year, Illinois Gov. JB Pritzker called for a two-year pause of data center tax incentives, citing their high cost. Lawmakers in at least seven other states — Arizona, Connecticut, Georgia, Maryland, Michigan, Pennsylvania and Washington — have considered bills to repeal tax incentives for data centers, often citing the high cost, according to a report from the National Conference of State Legislatures.
In Virginia, the state with the most data centers, lawmakers are split over a budget proposal that would eliminate the sales tax exemption for data centers there.
Without the tax incentives, data center companies will invest in other states, said Dan Diorio, a lobbyist for the data center industry.
“There’s a tangible barrier as far as a competitive edge,” Diorio said. “Colorado is putting itself at a disadvantage.”
Gov. Jared Polis said Thursday he supports a permanent sales and use tax exemption for data centers.
Equipment in the “Meet Me Room” March 18, 2024 at the Novva Data Center in Colorado Springs, Colorado. The room is the entry point for neworks coming into the building. (Mark Reis, Special to The Colorado Sun)“AI data centers are the manufacturing of our era. They manufacture bits and bytes, not widgets but I believe that update to the tax code would be appropriate and would help attract more data centers and jobs to Colorado,” he said, citing the state sales and use tax exemption for manufacturing.
Kipp said she’s open to a narrower incentive for data center companies.
“I think that the incentives in the other bill are a giant, humongous giveaway to the wealthiest companies on the planet,” she said. “I’m not really into doing that.”
Regulation elsewhere
A top concern of lawmakers is how much energy data centers use at a time when Colorado is trying to transition away from fossil fuels.
Earlier this month, Xcel Energy unveiled a proposal for a special tariff for data center companies aimed at ensuring they pay their way for new energy infrastructure needed to power the centers and that other utility customers don’t get hit with the costs. Usually, the cost of new power plants and transmission lines are paid for through revenue from customers’ bills.
Under the proposed large-load tariff, data centers would be required to sign 15-year contracts with utility companies, which is a key feature of the environmentalist-backed bill to ensure companies are serious about building and using the energy infrastructure.
The Public Utilities Commission will decide at a meeting this week whether to order a hearing on the proposal, which could kick off rounds of expert testimony and evidence before the commissioners decide whether to adopt it, said Michael Hiatt, a deputy managing attorney at Earthjustice.
Hiatt called Xcel’s proposal a “good start.” He’d like to see the PUC encourage tech companies to maximize benefits to the electric grid by requiring them to employ their own clean energy on-site and even pay residential customers for rooftop solar storage. The proposal does not include water or community protections, he said.
“It’s a big piece of the data center issue but doesn’t cover all the issues,” he said.
The environmentalist-backed bill would require data center companies to hold public hearings and enter into community benefit agreements with their neighbors, steps that were not required of a data center under construction in the Elyria-Swansea neighborhood in North Denver.
There, the data center company CoreSite is building the first of three buildings less than a block from a park, a recreation center, a community health clinic and an affordable housing complex for seniors. Residents have voiced concerns about the massive amount of energy and water needed to power the data center and the plans for 14 backup diesel generators on the site. They are urging CoreSite to make changes to its plans.
Because the plot of land where CoreSite’s data center campus is located was already zoned for industrial use, Denver City Council did not vote to approve the data center. In February, Denver Mayor Mike Johnston announced the city will consider a moratorium on data center development so that officials can come up with guardrails for the industry.
Jim Garcia, Tepeyac Health Center CEO, states that the optics of the new data center placement are unsettling, Friday, Feb. 13 in Elyria-Swansea. He pointed out the residential nature of the area, mentioning the affordable housing complex, new senior housing, the nearby recreation center, and a warehouse that will be the site of future housing. (Claudia A. Garcia, Special to The Colorado Sun)Without a law governing how data centers can operate in Colorado, Kipp worries companies will continue building without enough environmental and community considerations.
“If we do not pass a bill, data centers in Colorado are going to continue to open without any guardrails around them,” she said. “So I want to pass something.”
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