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PHOENIX (AZFamily) — State leaders announced Tuesday that they reached a budget deal, ending months of negotiations three weeks ahead of their deadline.
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The agreement includes a moratorium on data center tax exemptions.
The two sides agreed on a three-year pause on tax exemptions for new data centers. The tax exemption has stood for more than a decade and was a major point in the budget fight. It is viewed as a major reason data centers have proliferated across the state.
Data center growth in Arizona
Arizona is home to more than 150 data centers, according to the research tool Data Center Map.
“I think that a lot of people are really concerned when they see data centers going in that use a lot of power and they’re worried that that is going to make their utility bills higher. We are working really hard to make sure that doesn’t happen,” Gov. Katie Hobbs said.
The tax exemptions were enacted in 2013 as a way to incentivize tech companies to build data centers in Arizona. In her State of the State address, Hobbs said she voted for it back then, but now wants to eliminate what she called a $38 million corporate handout.
Senate Majority Leader John Kavanagh said that was a nonstarter.
“We had a problem with that because we’ve already given them the incentives, which last for five to 10 years, to a lot of data centers. So had we canceled them, we’d be in court,” Kavanagh said.
Republicans protected the tax exemptions in their budget, which Hobbs called “unbalanced and reckless” when she vetoed it.
Details of the compromise
The pause does not affect data centers already receiving tax breaks, and companies can still build data centers without tax exemptions.
Depending on the county population, a new data center would need to make a minimum investment of $25 million or $50 million to get the tax exemption, which would last, in most cases, up to 10 years.
“They are great for economic development and national security,” Kavanagh said. “Data centers are part of the new world, and we just have to have them develop responsibly.”
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Danny Seiden, President and CEO of the Arizona Chamber of Commerce and Industry, said the tax exemptions have done a good job bringing investments and business to the state.
“There’s going to be plenty of states out there foaming at the mouth to jump on the fact that Ohio and us and others are starting to kind of send up a signal that, hey, right now we’re not sure if we want you here. When in reality we do. We do want these large capital investments that come from data centers, especially because these are good corporate citizens now who are willing to invest in infrastructure that benefits the whole community,” Seiden said.
Seiden is hopeful that the tax exemptions can come back in some capacity, either after the three years is up or possibly even before.
Data centers have sparked concerns over their use of water and energy, and their effect on the environment.
“I think there’s bipartisan support to make sure that we’re not being taken over by data centers and certainly that they’re not making costs in our state go up,” said Hobbs. “It gives us time to make sure that data centers are actually working for Arizonans.”
The budget bills will be heard during a joint session of the Wednesday before a full vote is expected Thursday.
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