Can Cities Afford the Cloud? Balancing Data Center Growth with Local Limits

Data Centers and Local Infrastructure Strain

Data centers are often welcomed by municipalities due to their perceived economic benefits, which usually include temporary construction jobs, expanded tax bases, and the potential for high-tech investment branding. However, these benefits can obscure the long-term costs to local infrastructure. A single hyperscale data center can consume between 10 and 50 megawatts of electricity, which is enough to power tens of thousands of homes. These facilities operate 24/7, and their energy demands are not seasonal or cyclical. This continuous load places stress on municipal power grids, often requiring costly upgrades to transmission lines, substations, or even new generation capacity that is funded through ratepayer increases or public investment bonds (U.S. Department of Energy 2022)¹.

Water usage presents another significant challenge. Many data centers use evaporative cooling systems, which can consume millions of gallons of water per day. In arid or drought-prone regions, this can lead to water scarcity issues that affect residential and agricultural users. Even in areas with adequate rainfall, the increased demand can strain municipal water treatment and delivery systems. For example, in The Dalles, Oregon, a public records lawsuit revealed that a local data center used more than a quarter of the city's water supply during peak months, leading to community concern and scrutiny over public resource allocation (Roth 2022)².

Sustainability Concerns and Planning Limitations

From a planning perspective, municipalities often lack the regulatory frameworks or technical expertise to fully evaluate the long-term sustainability implications of data centers. Zoning ordinances may not account for continuous high-energy or high-water use, and environmental impact statements may not be required if the facility is sited in a commercially zoned area. This puts local governments at a disadvantage when negotiating community benefit agreements or setting conditions for facility construction and operation. In many cases, municipalities are left to absorb the secondary costs of infrastructure expansion, maintenance, and environmental degradation (National League of Cities 2021)³.

Additionally, data centers rarely produce many permanent jobs. Once operational, these facilities are highly automated and employ a relatively small number of IT, security, and maintenance staff. While construction may provide a temporary employment boost, the long-term job creation is minimal compared to the strain these facilities place on public utilities and services. This imbalance can lead to public frustration and raises questions about whether data centers should qualify for economic development incentives that are traditionally reserved for more labor-intensive industries (Freeman 2021)⁴.

Financial Incentives and Community Trade-offs

Many state and local governments offer substantial tax incentives to attract data centers, including property tax abatements, sales tax exemptions for equipment, and energy cost reductions. These incentives can total tens of millions of dollars over the life of a facility. While this may attract corporate investment, it also represents a significant opportunity cost. Funds that could be directed toward schools, transportation, or affordable housing are instead allocated to support a facility that may not yield proportional community benefits (Good Jobs First 2020)⁵.