Data centers serve as the backbone of our digital economy, yet their role and impact remain largely misunderstood. Amidst growing debates and misinformation, the Goldwater Institute offers insights to clear common misconceptions about data center infrastructure. (Download as a PDF here.)
What Drives Data Center Growth Beyond "Big Tech"?
Data centers are essential for a wide array of industries, much like power plants and water towers in their necessity for modern infrastructure. These facilities support hospitals by providing real-time electronic health records, enable banks to process secure transactions, and power smart manufacturing lines. Everyday activities, from backing up photos to streaming entertainment, depend on the seamless operations of data centers.
As digital interactions increase, the need for expansive data centers grows. These structures, which may appear as oversized warehouses, are meticulously designed environments housing vast numbers of servers. They require significant cooling, advanced fiber optics, and substantial power distribution capabilities. Developers often build on large campuses to accommodate growing demands for AI and cloud resources while keeping a stable economic footprint.
Do Data Centers Deplete Water Resources?
The notion that data centers are "resource hogs" is outdated, overlooking advancements in technology. These centers represent some of the most water-efficient industrial operations, consuming less than 0.05% of U.S. freshwater withdrawals—far less than agriculture or manufacturing sectors. Unlike factories, data centers produce no chemical runoff or wastewater, as their main byproduct, heat, is managed internally.
Additionally, the cost of water incentivizes data center companies to reduce their consumption through innovation.
Impact on Electricity Prices and Grid Reliability
Data centers are not the culprits behind climbing electricity prices. A 2026 analysis indicates that price increases are typically due to regulatory policies, infrastructure investments, and generation costs. Data centers, as steady consumers of electricity, actually support grid stability and help utilities plan future projects. They often cover substantial portions of transmission costs, which can benefit residential users.
Furthermore, data centers can participate in demand-response programs, using their backup power during peak demands to aid grid reliability.
Funding Grid Upgrades for Data Centers
Developers, not taxpayers, usually bear the cost of infrastructure improvements needed for connecting data centers to the grid. These include substations and transmission upgrades, which eventually become public infrastructure assets funded privately. Many states require large-load customers to pay for necessary expansions, protecting residential consumers from added expenses.
Location Considerations for Data Centers
Choosing remote locations for data centers isn't always practical due to connectivity constraints. These centers need proximity to high-capacity fiber networks and transmission infrastructure. Speed, or latency, is critical; delays can hinder e-commerce and cloud services, necessitating locations near major population centers and fiber routes.
Placing data centers away from established infrastructure can lead to expensive taxpayer-funded expansions.
Local Government's Role in Data Center Development
Restrictive zoning or permits can infringe on property rights and are not recommended for blocking data center projects. Such measures can diminish property value, potentially resulting in government liability under regulations like Arizona’s Proposition 207. Development should proceed where market conditions and utility capacities are already favorable, respecting landowners' rights.
Economic Contributions of Data Centers
Data centers are lucrative for local economies, generating construction jobs and yielding high tax revenues per acre. Building a major data center can employ 1,500 to 5,000 skilled workers, with average salaries around $160,000—almost double the median U.S. household income. Once functional, data centers directly and indirectly support about 150 jobs per facility.
In places like Loudoun County, Virginia, data centers contribute 38% of the general fund revenue, providing $26 in taxes for every $1 used in public services—far surpassing the contributions of traditional manufacturing.
For more information on data centers, visit GoldwaterInstitute.org/datacenterfuture
