AI data centers are often framed as a technology story. Increasingly, however, they are a public finance story.

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The rapid expansion of artificial intelligence infrastructure will influence where new tax base is created, how utilities plan for unprecedented load growth, how communities manage increasingly constrained power and water resources and how the municipal market finances the infrastructure that connects private investment to public benefit.

Those themes were at the center of a June 9, 2026, panel at the National Association of Securities Professionals’ 37th Annual Financial Services Conference in Detroit, Michigan. The session, “The AI Data Center Supercycle: Capital Markets, Incentives, Power & Water: How Wall Street and Main Street Can Win Together,” brought together leaders from public power, investment banking, economic development and local government to examine the opportunities and challenges emerging from the next wave of infrastructure investment.

Moderated by Dr. Dell Gines, senior advisor and former Chief Innovation Officer at the International Economic Development Council, the panel featured Adam Barsky, Executive Vice President and Chief Financial Officer of the New York Power Authority (NYPA); Harry Singh, Managing Director at Goldman Sachs; Neal Richardson, Director of Housing and Economic Development Advisory Consulting at Baker Tilly; and Joseph Deason, Executive Director of the Madison County Economic Development Authority in Mississippi.

Rather than focusing on the magnitude of the market’s investment in AI, the discussion centered on the practical realities shaping the sector’s future, including infrastructure constraints, community readiness and the financing mechanisms required to support sustained development.

Power as the Defining Constraint

Like the infrastructure revolutions that preceded it, the AI data center buildout is poised to reshape America’s and the world’s economic landscape. Railroads, electrification, interstate highways and telecommunications networks each redirected capital, commerce and opportunity which often produces uneven outcomes across regions and communities.

The AI data center buildout differs in one critical respect: access to capital is not the primary constraint. It is the industry’s access to power that is causing that logjam. Singh illustrated the scale of the opportunity by noting that while the telecommunications boom of the late 1990s generated roughly $300 billion in capital formation, AI-related data center investment could ultimately approach $5 trillion. U.S. installed data center capacity, currently estimated at approximately 40 gigawatts, is projected to more than double by the end of the decade.

These are not incremental investments. They represent a fundamental expansion of the nation’s digital infrastructure. As a result, the primary question for the site selection industry has become increasingly straightforward: can a community provide reliable power at the scale and speed hyperscale operators require?

Barsky described the growing mismatch between development timelines and electric grid realities. A hyperscale facility requiring hundreds of megawatts of capacity, often representing billions of dollars in investment, cannot always wait years for traditional interconnection processes and transmission upgrades to be completed.

That reality is reshaping energy strategies across the sector. Behind-the-meter generation, fuel cells, natural gas-fired generation and phased power solutions are increasingly being deployed to bridge the gap between immediate demand and long-term grid expansion. While effective in the near term, these approaches also raise important questions regarding cost allocation, reliability, emissions and long-term system planning.

Over the longer term, small modular nuclear reactors may offer a more durable answer. Their scale is well suited to hyperscale data center demand, and they provide the reliable, emissions-free baseload generation that increasingly constrained grids will require. Yet commercial deployment remains years away, making them unlikely to alleviate the immediate power shortages influencing today’s investment decisions.

The broader lesson is that energy infrastructure has become economic infrastructure. Communities that can deliver reliable, affordable power will be best positioned to compete for AI-related investment, while those that cannot may find themselves increasingly sidelined.

For issuers, utilities and public finance professionals, power is no longer a secondary consideration. It is becoming one of the primary determinants of growth, credit strength and long-term economic opportunity.

Traditional Economic Development Metrics Are Under Strain

Data centers challenge many of the assumptions that have long shaped economic development policy.

Unlike manufacturing facilities, distribution centers or corporate headquarters, hyperscale data centers are extraordinarily capital-intensive but comparatively light on permanent employment. They require significant investments in land, power, water and transportation infrastructure, yet the number of long-term jobs they generate may appear modest relative to the scale of the investment. As a result, traditional measures of economic impact do not always tell the full story.

Richardson noted that communities are frequently asked to provide zoning approvals, tax incentives, utility commitments and political support for projects whose benefits may not be immediately visible to residents. Evaluating these investments solely through the lens of direct job creation can leave local officials struggling to explain the value proposition to taxpayers.

Deason offered a perspective informed by Madison County, Mississippi, where hyperscale investment has emerged as a significant economic development catalyst. Over the past two and a half years, the county has announced more than $21 billion in private investment commitments and approximately 1,700 jobs.

While those jobs are important, Deason emphasized that the broader fiscal impact may ultimately be more transformative. The expansion of the county’s tax base is expected to support investments in schools, transportation, water and wastewater infrastructure, broadband expansion and other public assets that strengthen both quality of life and long-term economic competitiveness.

That distinction is particularly important for policymakers and public finance professionals. The value of a data center investment cannot be assessed solely through direct employment figures.

Rather, it should be evaluated through its broader economic and fiscal contribution including tax base growth, infrastructure improvements, utility system enhancements, workforce development initiatives, local procurement opportunities and the long-term financial capacity it creates for local government.

In many respects, the rise of data centers challenges communities to rethink how economic development success is defined. For projects of this scale, the more meaningful measure may not be the number of jobs created within the facility itself, but the extent to which the investment expands public resources, strengthens critical infrastructure and creates enduring economic value for the community as a whole.

Water Is Emerging as a Critical Site Selection Factor

While power remains the primary constraint on data center development, water is rapidly becoming an equally important consideration.

As communities increasingly scrutinize the environmental and infrastructure impacts of hyperscale facilities, water consumption has moved to the forefront of the site selection process and local permitting discussions. Cooling technologies, conservation practices and long-term water sourcing strategies are now central components of the development process.

Deason pointed to Madison County, Mississippi, as an example of how communities are beginning to address water constraints through infrastructure innovation. Several hyperscale operators are utilizing reclaimed water sourced from treated residential and industrial wastewater rather than relying exclusively on potable water supplies. Through advanced treatment processes, including ultrafiltration and reverse osmosis, reclaimed water can be purified to a standard suitable for data center cooling operations.

This distinction is quite important. As water availability becomes a more prominent public concern, communities are increasingly scrutinizing projects that place additional demands on drinking water systems. In the alternative, investments that expand reclaimed water capacity, modernize wastewater treatment infrastructure and improve overall system resilience can align economic development objectives with responsible resource management.

For bond market participants, water is no longer simply an operational consideration. It is increasingly a factor in project feasibility, permitting risk, infrastructure investment requirements and long-term credit analysis. As competition for data center investment intensifies, communities with sustainable water strategies and the infrastructure to support them may enjoy a meaningful advantage in attracting and retaining large-scale development.

The Capital Stack Extends Well Beyond the Hyperscaler

Data center development is often viewed through the lens of large technology companies deploying capital directly into new facilities. In reality, the market has evolved into a far more sophisticated ecosystem involving merchant developers, infrastructure investors and a diverse range of capital providers.

Increasingly, facilities are developed on a speculative or pre-leased basis with hyperscale operators serving as long-term customers under service-level agreements. These agreements typically impose rigorous performance and availability standards supported by meaningful financial remedies in the event of service disruptions. As a result, they create highly predictable contractual revenue streams that can underpin a variety of financing structures.

The predictability of those cash flows has important implications for capital formation. Long-term service agreements can support project finance structures as well as attract institutional capital and, in certain cases, facilitate asset-backed securitizations and other capital markets transactions. As the sector matures, data center financing is becoming increasingly sophisticated which broadens the pool of capital available to support growth.

Barsky highlighted another financing tool with direct relevance to the municipal market: prepaid power transactions. NYPA recently completed nearly $1 billion of prepaid solar transactions in which tax-exempt bonds were used to prepay for power generation. By leveraging the differential between taxable and tax-exempt borrowing costs, the structure reduced the effective cost of energy to the end user by an estimated 7% to 10%. One recent transaction involved Google as the power purchaser.

The significance of these transactions extends beyond any single project. They illustrate how municipal finance tools can help align public infrastructure assets with private-sector demand, creating opportunities to reduce costs, improve efficiency and support long-term investment.

The same principle applies to the broader infrastructure required to support data center growth, including transmission upgrades, substations, water and wastewater facilities, transportation improvements and utility extensions. Where hyperscale development creates durable sources of tax or utility revenue, local governments may be better positioned to finance infrastructure investments that would otherwise be difficult to undertake.

Deason noted that Madison County is preparing a significant public infrastructure financing supported, in part, by the expanded tax base generated through hyperscale investment. The example highlights a broader trend: as AI infrastructure investment accelerates, the municipal market is likely to play an increasingly important role in financing the public assets that enable private-sector growth.

For issuers, advisors and investors, understanding the evolving capital stack behind data center development may prove just as important as understanding the facilities themselves. The most significant opportunities may lie not only within the projects, but in the infrastructure systems that make those projects possible.

Community Benefit Cannot Be an Afterthought

If power is the defining technical challenge of the data center buildout, public trust may be its defining political challenge.

Across the country, proposed data center developments have encountered moratoriums, litigation and growing community opposition. In many cases, that resistance is not rooted in opposition to growth or investment. Rather, it reflects uncertainty about who will benefit, who will bear the costs and whether the promised economic returns will ultimately materialize.

Richardson argued that the challenge is often structural rather than ideological. Too frequently, communities are asked to evaluate complex projects only after key decisions have already been made. Local officials are then left to explain complicated questions involving power demand, water consumption, tax incentives and land use under intense public scrutiny and compressed timelines. A more effective approach begins well before a developer arrives.

Communities that establish clear frameworks for evaluating major projects are often better positioned to negotiate outcomes that align with local priorities. Those frameworks may address workforce development, local contracting opportunities, infrastructure investments, utility cost allocation, revenue sharing, environmental performance, transparency measures and accountability provisions.

Such preparation benefits both sides of the transaction. It provides elected officials with a clear basis for evaluating and explaining proposed investments, while offering developers greater certainty regarding community expectations and approval processes.

Viewed through that lens, community benefit agreements and similar public benefit structures are not simply negotiating tools. They are mechanisms for managing risk. By establishing expectations early, they can reduce delays, strengthen public confidence and improve the long-term durability of a project.

Deason emphasized the importance of translating large-scale investments into outcomes that residents can readily understand. In Madison County, community support grew as residents began to see the connection between hyperscale investment and tangible public benefits.

Discussions about billions of dollars in capital investment became more meaningful when framed in terms of expanded school funding, improved roads, enhanced water infrastructure and broader access to broadband.

The lesson is straightforward. Community engagement is not a procedural step to be completed after a deal has been structured. It is a fundamental component of project success. Communities are far more likely to support transformative investments when they understand how those investments advance local priorities and when they are treated as participants in the process rather than observers of it.

What the Municipal Market Should Do Now

The AI data center buildout is advancing at a pace that often outstrips traditional public-sector planning and decision-making processes. The appropriate response is not to accelerate approvals at the expense of diligence. Rather, it is to begin planning earlier and engage more strategically.

For public finance attorneys, municipal advisors, investment banks, issuers and economic development professionals that starts with viewing data centers as infrastructure transactions as much as economic development transactions. The most important questions are often not about incentives alone, but about the public infrastructure required to support long-term growth.

Can the electric grid support projected demand? How will water resources be managed? What infrastructure investments will be necessary to accommodate development? Who will bear those costs? What revenues will support public financing? How will incentives be measured and enforced? And how will local governments protect themselves if investment projections fall short of expectations?

The panel discussion highlighted the broader significance of these investments. Barsky noted that data centers are increasingly viewed not simply as economic development projects, but as critical infrastructure with implications for national competitiveness and security. The communities that host the physical infrastructure supporting artificial intelligence will play an important role in the next phase of economic growth. Securing that opportunity, however, requires more than attracting private capital. It requires a deliberate strategy for translating investment into lasting public benefit.

The moderator Gines and panelists also challenged the perception that only major metropolitan areas are positioned to compete. In many cases, rural and secondary markets may possess advantages that larger markets increasingly lack including available land, lower development costs, greater flexibility in infrastructure planning and stronger community alignment. Madison County’s experience illustrates that there are several communities that are willing to do things to understand the industry and its needs in addition to preparing proactively and negotiating from a position of strength and clarity. This type of approach can successfully attract transformational investment.

For the municipal market, the opportunity extends beyond incentives. Prepaid power structures, utility revenue bonds, tax increment financing, infrastructure financings supported by expanding tax bases and other public finance tools can help communities leverage private-sector investment to build public assets that create value long after a project is completed, for example new schools, parks, libraries, better roads and other infrastructure improvements.

The AI data center expansion is not a future possibility. It is already underway. Communities across the country will experience its effects either directly or indirectly. The more important question is whether local governments, utilities, economic developers and capital markets participants will work together to shape those outcomes or whether communities will find themselves reacting after key decisions have already been made.

Detroit provided a fitting setting for that discussion. Few places understand more clearly both the transformative potential of infrastructure investment and the challenges of aligning that economic growth with broad-based community benefit.

The next major infrastructure cycle has already begun. The municipal market has an opportunity, and a responsibility to help ensure that that cycle is structured in a way that creates lasting value for communities and investors alike.