How To Handle "Data Centers" in Wisconsin

The "Data Center" Debacle

A data center is not a data center despite what the AI pushers say.

National Review's Noah Rothman and Fox News analyst Brit Hume both agree that public pushback against "data centers" is a "moral panic" based on "misinformation":

Is that true?

Their argument is that people don't know what they're talking about; that they've been conned into believing something false instead of thinking for themselves. Therefore, because their reasons for objecting are wrong, they are wrong to object at all.

True enough, people's reasons for opposing "data centers" may often lack merit, but that doesn't mean their opposition lacks merit. People can rightly or reasonably object to something even if their bases for doing so are shaky.

But if opposition is unwarranted because of nonexistent concerns, as Rothman and Hume argue, why is promotion well-grounded when it's based on misattributed benefits?

Apparently opponents' concerns over water usage are immaterial because golf courses and farms consume more, but somehow claiming that the internet, video streaming, GPS navigation and online banking are only possible because of "data centers" is perfectly legitimate.

But it isn't legitimate because the people who say they oppose "data centers" are talking about AI hyperscale data centers, not data centers per se. Aviran Vargas knows this full well, which is why he and others must equivocate on the term "data center" to make people feel stupid for voicing their concerns.

But a data center is not a data center.

There are run-of-the-mill data centers which host the content of the internet and enable the video streaming and GPS navigation that most people enjoy, and then there are AI data centers––AIDCs. These host AI applications like Microsoft's Azure and Copilot, OpenAI's ChatGPT, Anthropic's Claude Code, and all the rest. Neither these AI applications nor the AIDCs being built to host them have anything to do with the normal functioning of the internet. The AI pushers are reframing the debate, equivocating on the term "data center" and arguing in bad faith because the benefits strictly associated with AIDCs are so sparse.

After all, if the way in which AIDC development is being carried out is so unambiguously good, why do its promoters feel the need to attribute the benefits of normal data centers to AIDCs?

Hype, marketing and political opportunism have obscured people's understanding of this issue. Politicians, especially at the local level, have become enamored with AI and all its promises: construction jobs, shiny buildings to point to, permanent local employment, more tax revenue for public services, cures for cancer, and so on.

Because the purported upside is so great, government officials are willing to go to great lengths to secure an AIDC in their communities. It's all upside, so anyone who opposes them obviously loves cancer and hates progress.

As a consequence, they give subsidies, grant tax exemptions and rezone properties.

The utilities then argue that new power generation is needed to service these AIDCs, and that if communities and regulators don't get onboard, they will lose out on lower energy costs and the benefits of AI and AIDCs––presumably because the benefits don't extend beyond the boundaries of the locale. Curious...

It is precisely this arrangement––the government working hand-in-hand with an industry to bring about a particular product––that has led to public pushback. AIDC development is not a free-market development. It is intimately entwined with government at every level––local and federal.

How AIDC Development Looks

When zoning boards eagerly rezone A-1 land to Light Industrial, hopeful homeowners wonder why Big Tech is allowed to site warehouses and dozens of diesel generators on prime agricultural land when residential developers can't put down mobile homes, or when the local manufacturer employing half the town can't expand his plant because his contiguous property can't get permitting approval from the zoning authority.

When utility ratepayers have been asking for high-density, reliable, low-cost electricity for years, but have received only sprawling solar farms and high electric bills, they wonder why Big Tech gets dispatchable natural gas plants and nuclear power while billions of ratepayer dollars are spent to construct transmission lines to connect Big Tech's AIDCs to the grid, and which result in hundreds of acres of property being stolen.

When residents have been complaining about tax bills for more than a decade, demanding relief in the form of property tax cuts, they wonder why Big Tech gets a sales tax exemption, and why they must pay higher property taxes simply because the AIDCs are located within TIF districts.

When AIDCs get tax relief, expedited rezoning, multi-million dollar development reimbursements, site preparation at taxpayer expense, bespoke power generation and free PR, people wonder why they must pay more in taxes, pay more for housing, pay more to start, run and expand a business, and why they must pay to cover the cost of AIDCs' power generation if they go bankrupt.

When the actual costs of AIDC development are considered honestly, suddenly, opposition to AIDCs isn't so stupid after all. The solution, then, to this "moral crisis" is readily apparent, and all it requires is a commitment to free market principles. AIDCs can still develop, taxpayers can keep their money, and whatever benefits the AI industry delivers can be said to be the legitimate and well-earned consequence of honest entrepreneurship, not crony capitalist corporate capture.

The Market Solution

#1 Water Usage

Allow AIDCs to collect rainwater. Incentivize and allow the transport, purchase and storage of industrial water on-site. Raise the price of water purchased by AIDCs and new demanders from municipal water utilities. Require AIDCs to pay all expenses associated with the construction of new water infrastructure, and permit side payments to locals affected by its construction. Assign property rights to water resources in aquifers, rivers and lakes, entitling water rights owners to draw water at a regulated rate and amount from private wells located on-site.

#2 Electricity

Require AIDCs and all electricity users with power demands equal to or in excess of 10-50MW to pay for, construct and own all necessary power generating infrastructure on-site. Permit and fast-track the creation of private grids which operate independently of the utility regulators. Implement the BYOP/CRE (Bring Your Own Power/Consumer Regulated Utilities) initiative proposed by ALEC, and the private grid proposal as articulated by Cato's Travis Fisher.

Private power is a significant expense for AIDC developers but by no means the largest. If ATC's recent bids on the competitively-bid BECI and WISE projects are any indication, private power can be done at a 20% lower cost. Furthermore, assuming that 1 GW of natural gas capacity can be reasonably developed for $1-1.4 billion, even at a cost of $2 billion per GW, Vantage/Oracle's AIDC in Port Washington (3.5GW at full buildout) would need to spend $7 billion. That's 47% of the cost to construct the AIDC shell, but only 16% of the total cost when hardware expenses are included. Power's proportion of the total cost decreases further with each hardware refresh cycle, which in the best case scenario occurs every five years at price parity (i.e. the initial hardware expense of $30 billion is recurring every 5 years), but likely every 18-24 months.

#3 Zoning

Rebuild zoning law from the ground up. Zoning's purpose ought to be to assign property rights to common resources such as air to mitigate the negative effect of pollution in the form of waste, sound and light. Residents in residential areas have a reasonable expectation of protection against sound and light pollution that ought to prohibit nearby industrial developments unless sound and light mitigation standards have been met, and unless they have waived their rights to these reasonable expectations by locating within zones which permit mixed uses. Pollution standards ought to be applied equally to all permitted use cases within each zone, not crafted or applied selectively to AIDCs or any other use.

#4 Taxes

Abolish TIF districts. TIDs enable local governments to double-tax property owners outside the boundaries of the TID in an amount equal to the taxable value of the property within the TID. The TIF system is a crony capitalist arrangement that subsidizes developers within the TID by forcibly transferring wealth from those outside the TID to pay for TID residents' public services without requiring voter approval. Given that AIDC developers are willing to spend billions to construct the AIDC shell, and 2-2.5 times that amount to purchase necessary hardware, they can more than afford the 10-150 million dollar expense of preparing their sites. The principal purpose of the TIF system is to afford local governments the means to increase taxes on residents to provide financial support for pet projects which are otherwise uneconomical, and is done at cost, plus interest. This financing and the associated risk is normally borne by the individual project developers, but is instead borne by taxpayers, and without their consent.

#5 Subsidies

Ban subsidies––i.e. transfer payments to businesses and individuals. Local governments are subsidizing AIDCs in two ways: siting them within TIF districts; and promising "developer reimbursements" financed at taxpayer expense via developer agreements. Government's role is not to promote business or consumption. It's role is to define the rules of the economic game and enforce those rules to ensure fair play; it is not to pick winners and losers by engaging in central planning. Communities which erect TIDs and grant subsidies are actively engaged in central planning, and especially so when they seek out AIDCs. Communities which are in need of economic growth ought first to ask why growth is not meeting their expectations, and what obstacles they can remove to incentivize––not promote––business and other developments.