Midwest data centers: Why some proposals succeed and others fail

While moratoriums on artificial intelligence hubs and public pushback against data centers dominate the news, more than 800 Midwest communities have approved major data centers, with Illinois as a growing hotspot with 229 sites.

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These communities enjoy increased diversification of tax revenues, hundreds (often thousands) of jobs with higher pay and a healthy boost to their local business ecosystem.

On the flip side, opponents focus on data centers’ massive consumption of water and energy, citing noise and light pollution, increased carbon emissions, and water consumption.

Data center distrust often results from rumors, misinformation and opaque negotiations. In some cases, communities outright cancel data center development plans.

After months of pressure from the residents of Burns Harbor, Indiana, developers withdrew their petition for a data center in 2024. More recently, voters in Port Washington, Wisconsin, approved a referendum requiring city leaders to get voter approval before awarding tax incentives for projects over $10 million, including data centers.

This occurred after the city’s Common Council approved a development agreement, tax increment financing and zoning changes for a $15 billion, 1.3-gigawatt data center – all with limited public input.

Transparency

Why are some proposals successful and others not? One word: transparency.

The need for transparency is necessary from the point of data center inception. But this can be at odds for developers who call for non-disclosure agreements to keep projects confidential from competitors.

NDAs may be used to protect operator identity, incentive packages, and infrastructure demands. However, local citizens often interpret NDAs as a sign of secrecy leading to distrust. The NDAs may also conflict with legal and public records laws.

Communities are also increasingly pushing back on a lack of transparency involving power and water usage. Many citizens voice concerns about the impact on fresh water in local communities, including cities along the Great Lakes. Others cite concerns related to excessive energy consumption on the power grid, and the resulting impacts on local communities.

In the spirit of transparency, developers and cities should focus on community engagement and education in the earliest stages of discussion when a developer (or end-user) applies to the city’s economic development agency.

Once that application is reviewed, there will likely be some back-and-forth negotiations between the city and the developer. At this time, cities should offer citizens opportunities for public comment and input, particularly when it comes to incentives.

The incentive negotiation process could take four to six months. If the initial opportunity for public input is missed, it puts the developer and city at a disadvantage because local citizens could easily interpret a lack of information and communication as a breach of trust.

Early community outreach could be in the form of public town hall meetings, listening forums, dedicated project websites and direct mailers. Proactive engagement also includes the creation of community advisory boards with fact-based input from local influencers.

As data centers move toward approvals, local governments need to lay out clear processes, clear entitlements and clear incentive goals for data centers and tech companies. Developers should be prepared; community concerns are often focused on questions related to how data center projects drive more holistic community goals around affordable housing, workforce development, energy efficiency and environmental goals.

In an ideal situation, citizen benefits can be formalized in Community Benefit Agreements or Public Benefit Agreements.

These agreements represent input from the community to ensure local data center development aligns with local priorities, which could include agreements on workforce investment, public funding (i.e., improvements to the local education system), support of local non-profits, commitments on water usage caps, and noise and light pollution reduction.

In addition, because data centers often require major upgrades to the electrical grid, communities should be prepared to share who bears the upfront cost for transmission lines. These public agreements can also include claw-back language if data centers don’t deliver on their promises.

Although they take time to construct, Community Benefit Agreements create a competitive advantage when completed early on with thoughtful deliberation and public input, offering communities more leverage in negotiation talks and smoother agreements between different stakeholders.

Smart negotiations include multiple parties and collaboration. The city of Des Moines, Iowa, for example, included its utility, Mid-American Energy, in its negotiations with Meta, Google and Microsoft. They created a Joint Clean Energy Statement of Intent to Cooperate. The document addressed environmental and long-term sustainability concerns, with agreements relating to long-term hourly load forecasts, investment in renewable energy, and negotiations to ensure data centers bear their own connection costs related to substations and transmission lines.

Accountability

Accountability is also a key factor in data center development. One way to do this is through rigorous zoning and permitting with an emphasis on environmental transparency.

Public dashboards, available for viewing online, can be part of negotiations, with features like real-time metrics measuring variables like water consumption and air quality. Negotiations can also include conditional tax incentives tied to key performance indicators like high-quality local jobs created (not just temporary data center construction jobs).

These metrics can be tied to conditional tax incentives for the developer and tech company.

For example, Ohio, which ranks in the top five states for data centers, is using Community Benefit Scorecards to evaluate data center projects. The scorecards help data centers align with community goals, focusing on tax, infrastructure strain, and local investment.

Cities like Columbus focus on high-paying job creation to align with incentives and infrastructure development. The region is experiencing rapid growth of data centers, with more than 113 in the area at the start of the year. As such, they view data centers as part of the ecosystem, not stand-alone projects.

Community partnerships

Once the data center is complete, which can be anywhere from 12 to 18 months from breaking ground, transparency needs to continue. Ongoing community feedback can be facilitated with liaison and advisory roles, and public town halls.

An ideal data center development doesn’t focus on “us vs. them,” but instead rests on community partnerships, ongoing engagement and communication, standard evaluation, and, most of all, transparency.