Democrats at the Colorado Capitol are split on how to regulate the booming data center industry.
On one side, a group of lawmakers is proposing luring data center companies to Colorado with a 20-year break on sales and use taxes. Without it, they argue, companies will build in other states offering cushy deals and Colorado will miss out on construction jobs and other tax revenue.
On the other side, a different group of lawmakers wants to require data center companies to offset their energy usage with renewable sources and pay for all necessary infrastructure upgrades to support their operations. Without it, they say, the energy-devouring hubs will blow the state’s emissions reduction goals, drain precious water supplies and increase energy costs for consumers.
The battling bills are set to face off this legislative session as lawmakers grapple — again — with how to approach the controversial sector that forms the backbone of daily digital life like the internet, cloud storage, video streaming and artificial intelligence.
“The future is technological,” said state Rep. Alex Valdez, D-Denver, a lead sponsor of the industry-backed tax break bill. “We're trying to do it the right way.”
To attract data centers, at least 37 states, controlled by both Republicans and Democrats, have offered incentives in recent years, including exemptions on property taxes and construction material purchases.
The industry-backed measure before Colorado legislators, House Bill 1030, would create a board of nine members appointed by legislative leaders and the governor to oversee data center development. It would be made up of people with experience in water resource management, renewable energy and data center development and representatives for contractors and construction workers.
The board would be tasked with making sure data centers meet certain standards to get the 20-year sales and use tax exemption that applies to computer equipment, software, energy storage or environmental control systems.
In exchange for the tax break, data center companies would have to invest $250 million in infrastructure in the first five years, create an unspecified number of jobs that pay at least 110% of the average local wage and break ground within two years of being certified by the board.
They would also have to use a closed-loop cooling or another similar system that recycles water to cool their massive computer networks and work to ensure that the data center doesn’t cause “unreasonable cost impact” for other ratepayers.
The bill would require that diesel generators used to power the centers meet or exceed standards from the U.S. Environmental Protection Agency. And in the case of a data center energy agreement with a utility company, any new energy needed for data center operations would have to be 75% noncarbon emitting, Valdez said.
The board could extend that tax break for an additional 10 years if companies create at least 10 additional jobs.
Valdez — who is working on the bill alongside House Majority Leader Monica Duran, D-Wheat Ridge, and state Sen. Kyle Mullica, D-Thornton — doesn’t know how much unrealized sales and use tax revenue the state would be giving up under the bill’s tax break provision. But, without the incentive, he argued, there wouldn’t be any revenue for local governments in the form of income from other taxes. He is confident the consumer protections in the bill are tight enough that everyday households wouldn’t face the surging energy bills seen in other states after data centers come to town.
The tax break is a necessary “trade-off,” Valdez said.
“We're not getting the revenue currently, because the companies are going elsewhere,” he said. “That's a trade-off that's made in every industry, historically. It's how business works in this country. And, like it or not, we're not going to change that as a small Western state.”
Not all Democrats at the Capitol see it the same way.
Some are far less concerned about making sure data centers choose to come to Colorado and more concerned about making sure if they do come, they are held to the highest environmental standards. They also want to make sure Coloradans don’t end up footing the bill for their hefty utility needs.
State Sen. Cathy Kipp, D-Fort Collins, is working on a bill she expects to introduce next month that she said would put stricter rules around data center development without the tax incentives.
“These are big companies like Meta and Amazon … They can afford to freaking pay their own way,” she said.
According to a draft version of the bill viewed by The Colorado Sun and KUNC, it would require data centers to match the amount of energy they use over the course of a year with renewable energy sources, like wind and solar, either by buying it from a utility company or generating it directly. They would also have to report annually on the amount of electricity and water the facility uses.
Data center operators would also be responsible for covering the costs of any infrastructure needed to connect their facilities to the existing grid and any upgrades needed to maintain grid reliability.
Utility companies would be prohibited from supplying electricity to a facility if doing so would adversely impact their ability to serve existing customers or would increase their greenhouse gas emissions over the next fifteen years.
The bill has placeholders for to-be-determined protections for data center employees and communities.
It’s unclear how the regulations in the two bills would work if legislators pass both of them.
Critics of the Kipp bill say the requirements are too heavy-handed and would discourage companies from building data centers in Colorado as the demand for them grows.
Dan Diorio, a lobbyist for the data center industry, said the requirements in the Kipp bill are “punitive” and unfairly single out the data center industry.
The tax breaks are an “important consideration” for data center companies when choosing where to build, he said.
“Colorado should look at its policies that will help it become a competitive market,” Diorio said.
Kipp said she believes companies will build data centers in Colorado regardless if there are incentives in place, but that they shouldn’t if they aren’t willing to meet the standards in her bill. She is open to trying to find a compromise with the other bill’s sponsors, but said it’s unlikely they will find common ground.
“They're insisting on remaining with the huge incentives, and we're like, ‘No, we just need to have guardrails around the future development so that we don't have negative impacts,’” she said. “That's a big difference.”
Polis said a failed bill last year offering tax breaks to data center companies, also sponsored by Valdez, didn’t do enough to empower state regulators to protect the state’s resources and consumers.
Polis has not taken a position on this year’s bills, but a spokesperson for the governor, Eric Maruyama, said in a statement that Polis’ “north star is ensuring that any data center development does not increase energy costs on Coloradans, and that data centers support sustainable grid upgrades and innovation.”
Kipp’s bill is backed by environmental groups, including Western Resource Advocates and Earthjustice. Western Resource Advocates policy advisor Deborah Kapiloff is concerned luring data centers without strict regulations would cause “backsliding” on the state’s emissions reduction goals.
“When you need to just have massive amounts of energy come online … what might end up being selected is a lot of new fossil resources that are then going to be online for decades to come,” she said.
Valdez argues available renewable energy sources simply can’t meet data centers’ power needs.
“I have no desire to add fossil fuel generation, but I'm also not in the fake la-la land where somehow we have a magical clean energy device somewhere that's producing terawatts of power,” Valdez said. “We don't.”
House Bill 1030 hasn’t been scheduled yet for its first hearing, which will happen before the House Energy and Environment Committee.
