Not long ago, Gov. JB Pritzker, like many other governors, saw data centers as a generational opportunity for economic growth, and he argued that Illinois needed to lead the data chase.
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Pritzker even signed a 2019 bill that encouraged the use of tax incentives to help ensure data-center growth. After all, the huge computing power delivered by data centers is driving the increasingly artificial intelligence-driven economy.
But now the dimensions of the vast amount of power and water needed to drive data centers are becoming more clear, as is political resistance to the higher utility rates and other disruptions that come along with the sprawling warehouse-style developments. Pritzker now sees the scale of the power, water and political concerns, and in late spring, he imposed a pause on new data center tax incentives, which began July 1. And he did so despite objections from House Speaker Emanuel “Chris” Welch and opposition from his political base: Climate Jobs Illinois and the Illinois AFL-CIO in a joint statement called on the governor to “pause his pause.”
A growing body of independent data shows Pritzker is right to be cautious. Here is the latest example: A report by the Tribune and my organization, the Better Government Association’s Illinois Answers Project, found that data centers near O’Hare International Airport have received $100 million in tax breaks. Just three suburbs — Elk Grove Village, Northlake and Franklin Park — cut the valuation of data center property by $2 billion, shifting that burden to other taxpayers.
There are costs with data centers, and there are benefits. There are potential windfalls; there are huge risks. There is no sure way forward, either.
No wonder Illinois is one of several states imposing stay-put actions, according to a recent report by the Center on Budget and Policy Priorities. At least a dozen more states are considering pauses, too. Some local communities are joining in: The Tribune reported recently that at least six Illinois counties and nine cities are slowing data center construction in some way.
It’s no wonder pauses are growing popular. The unknowns are substantial, and the stakes are great.
A McKinsey & Co. study this month foresaw spending of nearly $7 trillion on U.S. data center infrastructure by 2030. Those numbers foretell substantial economic growth, from AI investment and the productivity it generates, but also the potential immensity of undesirable consequences if states and cities don’t effectively manage data center growth.
After all, data center tax credits impose costs on other taxpayers. Their noise and unsightly electric towers affect quality of life. They create relatively few jobs in comparison with the scale of investment. And their demands for power and water raise costs for consumers and impose on resources that may already be under stress.
The pauses by Pritzker and others may make sense. But a pause is not a policy. And the policies that Illinois and other states develop during their slowdowns will determine how they fare long term.
In Illinois, this will mean a redoubled effort to focus on the increased demand for power and water — power to run the computers and water to keep them cool enough to work.
A potential power shortage is already a major concern. Three state agencies in a report this year predicted energy shortfalls by 2030 in northern Illinois and by 2031 downstate, with increased demand from data centers a major factor.
Pritzker has backed the idea of introducing “mini-nukes,” relatively low-wattage nuclear reactors that could be used to help power data centers. But a recent analysis by the Bulletin of the Atomic Scientists found that these reactors are decades away from meaningful impact, and the hype surrounding them is little more than “greenwashing, in order to divert attention from the negative environmental impacts of data center operations.”
Traditional large-scale reactors could help, and nine communities have responded to Pritzker’s call for expressions of interest. A slowdown on the state’s conversion away from coal has been mentioned as a possibility but should be a last resort.
Water scarcity is the other major issue. As underground aquifers run low, Illinois is increasing its draw from Lake Michigan — with Joliet set to begin taking water from the lake in 2030. Depleted underground aquifers and limits on the state’s draw of water from Lake Michigan could constrain data center growth.
Pritzker’s pause on data-center tax incentives is not meant to be permanent, and his initial instinct was right. Data centers are a big opportunity, and Illinois needs to compete.
The Tribune Editorial Board this week proposed one litmus test by which the state could move forward: Local communities should benefit when data centers move in. That’s simple, and correct, and examples such as Loudon County, Virginia, show it can happen.
Community benefit agreements could become part of such plans. And for data centers to be a net plus, the state, counties and cities will need to develop coordinated plans to address power and water constraints, too.
The broad outline of such plans should be in sight before Pritzker’s pause is lifted and any new data-center tax breaks are offered again, anywhere in the state.
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Pritzker has called for the legislature to present a path forward during its fall veto session. In this, Pritzker is right: Illinois needs a plan before the data-center land rush resumes.
David Greising is president of the Better Government Association.
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