Article
Data Center Backlash Reaches Municipal Credits; Investors See No Clear Pricing Premium
Relevant Document:
Goldman Sachs Asset Management Report (Oct.12)
Political opposition to data centers is testing the financial arrangements municipalities have made to attract these facilities, raising questions about tax revenue, infrastructure costs and the longer-term credit risks facing local governments and public utilities.
These questions are turning data centers into a political flashpoint ahead of the midterm elections. But whether those concerns have translated into higher borrowing costs or wider municipal bond spreads remains less clear, sources told Octus.
“We have not yet seen a consistent ‘data center premium’ in municipal spreads,” said Patrick Strollo, director of fixed income at Tolleson Wealth Management. Pricing differences are more likely to emerge “if large-load customers experience financial stress or fail to meet their contractual obligations,” he said.
Miriam Legrand, director of credit research and a portfolio manager at Community Capital Management, said credits backed by financially strong counterparties and long-term commitments “may not require a meaningful spread premium,” while those with greater uncertainty “could face higher borrowing costs.”
Investors historically focused largely on environmental factors such as energy efficiency, power sourcing and water use, she said. “More recently, community engagement and political opposition have become increasingly important, particularly ahead of the November elections.”
“Given the potential cost of development delays, data center operators may be more willing to offer community benefits or incentives to secure local support,” Legrand said. “Ultimately, these risks could influence both investor demand and credit pricing.”
At the center of the backlash is Ohio, where developers have announced 21.9 gigawatts of data center capacity in the state that has yet to break ground, the largest among states with competitive gubernatorial races, according to Cleanview data and election ratings from the Cook Political Report.
Across 10 states with closely contested governor’s races, about 67.4 GW of announced capacity faces an evolving regulatory environment, although the extent to which election outcomes will affect individual projects remains uncertain, according to a Cleanview report.
Both candidates for Ohio governor have proposed slowing development. Republican Vivek Ramaswamy has pledged to halt approvals of new projects until additional safeguards are enacted, while Democrat Amy Acton has called for a moratorium until developers meet conditions including paying their full utility costs.
An S&P Global Energy list identified 27 jurisdictions across seven states with data center ballot measures as of Sept. 16, including 16 in Ohio. Fifteen jurisdictions had proposals that would prohibit construction, often above specified electricity-demand thresholds.
| Measure type | What voters decide | Jurisdictions | Count |
| Prohibit construction | Bars construction of data centers. For a majority, the ban applies above 25 megawatts of aggregate monthly demand or peak load; several set lower thresholds of 7.5 or 10 megawatts. Some set no conditions and call for an outright ban. | Alhambra, Calif.; Edgewater, Fla.; El Dorado, Kan.; Emporia, Kan.; Conneaut, Defiance, Granville, Hubbard, Oregon, Pataskala, Piqua, Sunbury, Trenton, Upper Sandusky and Urbana, Ohio | 15 |
| Advisory votes | Voters support or oppose advising officials to permit construction and operation of new data centers in the township. | Chouteau, Granite City, Joliet, Nameoki and Venice, Ill. | 5 |
| Referendums on ordinances and resolutions | Asks whether ordinances changing the zoning of real property should be approved. Wilmington has four referendums tied to four parcels near a proposed Amazon Web Services data center. Asheville seeks to overturn a resolution on an agreement with EdgeConneX Inc. for two data center buildings and a natural gas plant. | Asheville, Ohio; Wilmington, Ohio | 2 |
| Voter approval | Asks whether voter approval is required before a city, municipality or township can decide on data center developments, expansions or property transfers. | Grove City, Ohio; Janesville, Wis. | 2 |
| Township zoning plans | Resolutions on zoning plans meant to preserve rural and agricultural character, set a predictable review process for higher-impact development, and ensure uses with significant impacts are evaluated and mitigated. | Monroe Township, Ohio; Sprigg Township, Ohio | 2 |
| Approved land use | Allows data center facilities as an approved land use within a specific area. | Boulder City, Nev. | 1 |
| Total | Seven states; 16 jurisdictions in Ohio | 27 |
For municipal bondholders, the concern extends beyond whether new projects receive approval. Local governments that have offered property tax abatements, committed infrastructure spending or become increasingly dependent on data center revenues must weigh the financial benefits against the potential costs of development, changing regulations and reduced future investment.
Ryan Ciavarelli, senior credit analyst at Belle Haven Investments, said the company “keeps a close eye on concentration risk, tax base risks, pressures potentially placed on local populations, political risks, cost escalation risks related to water/power bills etc. when evaluating a purchase at Belle Haven.”
Goldman Sachs Asset Management, or GSAM, sees limited near-term municipal credit risk from data center development, mostly because projects are generally privately financed. Data centers can expand the tax base and support redevelopment, but they also require significant electricity, water and infrastructure investment while generating relatively few permanent jobs compared with other industries, according to GSAM’s Oct. 12 report.
The extent to which data centers have contributed to higher electricity bills remains disputed. A Lawrence Berkeley National Laboratory and Brattle Group analysis found a mixed and uncertain relationship between electricity demand growth and retail prices, with effects depending on infrastructure costs, market conditions and how utilities allocate expenses.
Tax Incentives and Municipal Exposure
Strollo said his firm judges abatements by what the city nets, not by the size of the break. “We do not view abatements as inherently negative. We focus on the net economic benefit after accounting for incentives and required infrastructure,” he said.
“The key is whether the retained revenue and broader economic benefits adequately compensate the municipality for the infrastructure commitments and potential risks associated with the project,” he added.
The long-term fiscal implications become more pronounced in municipalities where data centers already account for a significant share of local revenue.
In Loudoun County, Virginia, home to approximately 250 data center facilities, the industry generates about half of the county’s property tax collections and accounts for 38% of general fund revenues, according to the GSAM report.
The county’s tax base has expanded 49% since 2021, and its general fund budget has increased 46%, according to the report. Data center growth has supported reductions in property tax rates for residents, and Loudoun has maintained AAA ratings from all three major credit rating agencies, most recently reaffirmed in 2026.
That dependence, however, also creates potential exposure if development slows. Goldman’s analysts warned that a decline in data center-driven revenue growth resulting from overbuilding or new regulation could materially affect the county’s budget. Loudoun County has also moved toward a one-year pause on new data center approvals as it reviews zoning and electricity supply constraints.
In Ohio, GSAM analysts highlighted the planned PORTS-Pike Technology Campus, a SoftBank-backed redevelopment of a former federal nuclear enrichment site in Pike County.
The project, which is expected to expand to 10 GW of computing capacity, could eventually generate 2,500 permanent jobs in a county with a population of approximately 27,000, according to the report. Because the development is located on federal land not subject to traditional property taxes, negotiations are reportedly underway for a payment-in-lieu-of-taxes agreement that could provide revenue to the county.
GSAM said the project presents significant execution risks because of its scale and complexity. A planned power plant and transmission upgrades are expected to be financed with private capital, although the project’s eventual impact on water and natural gas resources remains uncertain.
The analysts contrasted Pike County with the redevelopment of a former industrial site for xAI’s Colossus facility in Memphis, Tenn., where the initial project received no formal economic development incentives and the city’s credit profile remains driven primarily by broader economic and financial conditions.
Governments are increasingly reconsidering the incentives and regulatory frameworks that helped attract data center development, as seen below.
| Status | States |
| Enacted | Alabama, Arizona, California, Connecticut, Florida, Georgia, Idaho, Indiana, Kansas, Maine, Minnesota, Nebraska, Oklahoma, Oregon, Tennessee, Utah, Virginia, Washington and West Virginia; Washington, D.C. |
| Pending | Massachusetts, Michigan, New Jersey, New York*, North Carolina, Ohio and Pennsylvania |
Strollo said his firm views the backlash as a structural issue rather than an election issue. “Elections may affect the pace or details of implementation, but they do not change the fundamental credit question: Who pays if the expected load does not materialize?” he said.
Utilities Face Infrastructure and Customer Concentration Risks
Utilities may need substantial capital investment to accommodate large facilities, as shown below.
Santee Cooper, South Carolina’s state-owned utility, adopted a tariff in April 2025 for customers requiring at least 50 megawatts. The tariff includes longer contracts, higher minimum demand obligations and collateral or additional demand charges intended to protect other customers from stranded infrastructure costs.
Large-load tariffs can “meaningfully protect bondholders, but only if the underlying terms actually address stranded-cost risk,” Strollo said, adding that a tariff that recovers costs while the customer is operating does not necessarily protect bondholders if the customer ultimately walks away.
Disclosure of large customers “varies significantly,” he noted. Strollo wants more standardized disclosure on their share of system load and revenue, contracted versus projected demand, contract duration, minimum payments, termination provisions, collateral or parent guarantees and responsibility for infrastructure costs.
A municipal issuer that relies heavily on a single-data-center customer needs “strong contractual protections” to limit revenue volatility and customer concentration risk, Legrand said. The firm is not currently invested in municipal issuers directly tied to data center development.
“We would look for minimum revenue commitments, adequate collateral or other credit enhancement and termination provisions that protect the issuer if the customer scales back operations, the project is delayed or the customer experiences financial stress,” Legrand said. “The goal is to ensure that the municipality is not left bearing disproportionate financial risk.”
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