Wednesday, April 8, 2026

Texas Built Its Tax Break for Yesterday's Data Center Market

The Texas data center tax exemption that was supposed to cost $180 million by 2027-2028 is now projected to exceed $3 billion in that same window, and Senate Finance Chair Joan Huffman is moving to repeal it. Every active Texas pro forma built on that exemption is now a liability, and the developers stress-testing their numbers today are the ones who will still be building in 2027.

Today's Lead

Texas's data center tax exemption is bleeding $1.3 billion annually and accelerating toward $1.8 billion by 2030, prompting Senate Finance Chair Joan Huffman to announce legislation to repeal or substantially reform the incentive. The comptroller's office projected $180 million in costs by 2027-2028 just three years ago; that same window now projects over $3 billion, a miscalculation driven by AI demand no one foresaw.

This is the single biggest policy risk facing Texas data center developers today. The state leads the nation with 300 operating data centers and 142 under construction, but that dominance was built partly on an incentive structure legislators now call "unsustainable." Every active Texas project should be modeling scenarios without the exemption.

[1]

Politics

Texas tax break reckoning meets nationwide community resistance

Huffman's planned legislation arrives as grassroots opposition hardens across Texas. San Marcos, Amarillo, College Station, Waco, and Harlingen all face organized pushback. A Quinnipiac poll shows 65% of Americans oppose data center construction in their communities. The Data Center Coalition's Dan Diorio warned that curtailing the exemption would "give a lot of different companies pause," but legislators see the numbers: annual revenue loss now rivals the terminated Chapter 313 manufacturing abatement and could double the state's disaster relief fund.

The pattern isn't Texas-only. In Sangamon County, Illinois, Dallas-based CyrusOne won a narrow 17-10 zoning vote for a $500 million, 600-megawatt facility after a contentious hearing where law enforcement escorted out upset attendees. In Boulder City, Nevada, a petition with 2,100 signatures opposes an 88.5-acre project, with a November 2026 ballot measure looming. In Colorado Springs, overflow crowds forced fire marshals to turn people away from meetings about Raeden's proposed 50-megawatt facility. In Weld County, Colorado, commissioners voted 4-1 to restrict data centers to industrial zones only. The playbook for developers is clear: engage early, commit to concrete benefit-sharing, and participate in rulemaking before rules get written without you. The risk is that developers who wait for legislative or regulatory clarity will find the window for influence has closed.

[1]·[2]·[3]·[4]·[5]

Power

Williamson County hits critical mass while supply chain threatens the whole pipeline

Williamson County now anchors Central Texas's data center corridor, with 7,823 megawatts planned across the Austin-San Antonio region against just 1,154 megawatts operating. Of 615 megawatts under construction, 96% is pre-leased. Samsung's $17 billion Taylor fab pulled Oncor transmission assets into eastern WilCo, directly enabling the buildout. Hutto alone is drawing Zydeco Development (pivoting from a 173-unit apartment project to a 225,000-square-foot data center), plus Colovore and Iron Mountain. Meanwhile, in West Texas, PowerBridge signed a lease with LandBridge for 3,400 acres in Reeves County with 2 GW of on-site generation planned and a Generation Interconnection Request already filed.

But Sightline Climate's analysis is sobering: 30-50% of data centers targeting 2026 deployment will miss timelines or cancel. Of 140 projects targeting 16 gigawatts, only 5 gigawatts are under construction. Custom electrical transformers now take 52-86 weeks. Google's 933-megawatt gas plant with Crusoe Energy in Armstrong County, its third known gas facility recently, underscores that hyperscalers are building their own generation to bypass grid constraints. ERCOT's large-load queue exceeding hundreds of gigawatts of proposed demand creates the central bottleneck. Projects with locked-in equipment orders and confirmed interconnection windows will separate from the pack. Everyone else faces 12-18 months of slippage.

[6]·[7]·[8]·[9]·[10]

Water

The constraint nobody can engineer around cheaply

Water is emerging as a deal-killing variable nationwide. Modern data centers consume one to five million gallons daily. In Weld County, Commissioner Scott James pushed to ban evaporative cooling entirely, though the board deferred to state and EPA oversight. Colorado Springs residents invoked drought conditions against Raeden's 200,000-gallon-daily facility. Boulder City's developer backed away from plans to use treated wastewater after community pressure. In Reeves County, LandBridge's CEO cited "significant water availability" as a West Texas advantage, but long-term supply must be secured before operational scaling.

Liquid cooling systems can cut water use by 90% or more versus evaporative cooling, but they shift costs to power consumption and introduce procurement complexity. Zydeco's Hutto project touts closed-loop cooling as a community benefit. The structural reality: developers who conduct granular water analysis before land acquisition, secure long-term supply agreements, and model drought scenarios will close deals. Those who treat water as a permitting checkbox will face the cancellations and delays already hitting projects in Arizona, Colorado, Nevada, and Virginia.

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Sources we cited

11 articles across 11 publishers · 262 reviewed today

[1]Texas Tribune
Texas is giving data centers more than $1 billion in tax breaks each year
Apr 8, 2026·Texas will lose out on at least $3.1 billion in sales tax revenue over the next two years thanks to an exemption for the state’s booming dat…
[2]NPR Illinois
Sangamon County Board approves a controversial data center project
Apr 8, 2026·A $500 million data center in Sangamon County won approval from the Sangamon County Board Tuesday night before a large crowd at the Bank of …
[3]Las Vegas Review-Journal
Proposed data center draws ire of some Boulder City residents - Las Vegas Review-Journal
Apr 8, 2026·The data center could be the city’s first. A group of residents are at odds with developers and city officials, who see the potential for re…
[4]Colorado Springs Gazette
Community members fired up by proposed AI data center in Colorado Springs
Apr 8, 2026·Residents from the Chelsea Glenn area were fired up Tuesday night as they met face-to-face with a developer who wants to bring a data center…
[5]Greeley Tribune
Weld County commissioners approve industrial zoning for data centers
Apr 7, 2026·The Weld County commissioners on Monday approved a new zoning code that restricts the development of data centers to industrial zones only. …
[6]Hello Georgetown
The Data Center Boom Reshaping Williamson County, Texas
Apr 8, 2026·More than 70 projects are being tracked across Central Texas, with Williamson County emerging as the epicenter of a multibillion-dollar digi…
[7]The Real Deal
Zydeco switches from apartments to data center project in Hutto
Apr 7, 2026·An Austin developer is looking to trade rooftops for server racks in one of the metro’s fastest-growing suburbs. Zydeco Development Corpora…
[8]W.Media
LandBridge and PowerBridge sign lease agreement for digital campus in West Texas
Apr 7, 2026·LandBridge Company LLC has signed a lease development agreement with PowerBridge LLC that could lead to the construction of a large data cen…
[9]e360.yale.edu
Google to Use Natural Gas to Power Massive Data Center in Texas
Apr 7, 2026·This article was originally published by The Guardian and is reproduced here as part of the Climate Desk collaboration. A satellite image o…
[10]gadgetreview.com
Half of Planned US Data Center Builds Face Delays or Cancellations
Apr 6, 2026·Your next GPU upgrade just got more expensive, and it’s not because of crypto miners this time. Nearly half of the AI data centers planned f…
[11]JD Supra
The New Battleground—Water Rights and Data Center Development in the AI Era
Apr 7, 2026·While much attention has focused on the electricity demands of AI-driven data centers, a quieter crisis is emerging around water consumption…

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