When a data center gets proposed, the money questions come fast, such as Who’s paying for the substation? Is the developer getting a tax abatement? Will my electricity bill go up?
These are fair questions. The honest answer is that deal structures vary a lot from project to project – some are well-structured, some aren’t. The key to telling them apart is knowing the three separate pots of money involved.
Pot 1: Infrastructure
Building the substation, new transmission lines, water and sewer extensions, any road upgrades – that’s the buildout cost. It’s almost always funded by the developer, not by residents or existing utility customers. Utilities call this “contribution in aid of construction.” When a large new load connects to the system, the utility’s own rules require the new customer to pay for the specific upgrades needed to serve it.
This is the single biggest myth worth clearing up – a data center doesn’t just “plug in” and drain shared infrastructure. In a properly structured deal, the developer writes a check for what they require.
However, this only works if the interconnection agreement and the utility’s rate structure assign those costs to the new large load instead of spreading them across everyone. That’s one thing residents can ask about directly.
Pot 2: Property Taxes
Tax abatements – usually called PILOTs (Payments In Lieu Of Taxes) or TIFs (Tax Increment Financing) – are the most visible part of any data center deal, and the most misunderstood.
A PILOT typically works like this- instead of paying the full property tax bill right away, the facility pays a negotiated lower amount for a set number of years, with the understanding that (a) without the deal, the lot might sit empty and generate nothing, and (b) the full tax obligation eventually kicks in.
When this is structured well, the county and the school district usually come out ahead – more revenue than they would have had with a vacant parcel.
Port Washington, Wisconsin, recently put a check on the process – tax incentives above $10 million now require voter approval. Whether that’s the right structure depends on the community, but it reflects a reasonable expectation that big deals get appropriate public scrutiny.
The right question to ask at a public hearing is: “what does the county, the school district, and the town net from this deal over 20 years – compared to the parcel sitting empty?”
Pot 3: Utility Rates
Your residential electricity and water bills are set by a rate class for residential customers. A large data center should be on its own commercial or industrial rate class that pays its own way, including its share of generation, transmission, and capacity costs.
The legitimate concern nationally is that in some markets, utility planning has lagged data center growth, and the cost of new generation has been spread across all ratepayers rather than assigned to the large loads that drove the need for it. That’s a utility regulatory question, decided by state public utility commissions, not by the developer.
The question to ask: “is this facility on its own commercial rate class, so residential customers aren’t subsidizing it?”
Four Questions to Ask a Data Center Developer
A well-structured deal answers these cleanly:
- Will the developer fully fund the infrastructure upgrades – substation, water, sewer, roads?
- What tax revenue does the county, the school district, and the municipality net over 20 years, after the abatement?
- Is the facility on its own utility rate class?
- What’s in the Community Benefit Agreement (CBA) – workforce training, decommissioning bonds, enforceable operating commitments, investments in local priorities?
Asking these questions will give you a better understanding of who pays for a data center development.