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State lawmakers extended a lucrative tax break that helps lure data centers to Minnesota in a compromise bill passed during a special session earlier this month.
But they also added new regulations on the booming data center industry aimed at protecting the environment, including the state’s water supply and climate goals, as well as electricity customers.
The explosion of artificial intelligence and cloud computing has spurred a building boom of massive facilities that store computer servers and equipment. The largest “hyperscale” data centers can consume millions of gallons of water a year, and use as much electricity as the entire city of Minneapolis.
Some environmental and citizen groups who pushed for tougher rules on data centers don’t think the bill goes far enough.
“It represents just the start to actually effectively addressing the risk that data centers pose to Minnesotans,” said Aaron Klemz, chief strategy officer for the Minnesota Center for Environmental Advocacy.
The legislation will require data center developers to connect with the Minnesota Department of Natural Resources earlier to make sure a proposed location has an adequate water supply.
State Sen. Nick Frentz said data centers will need to share more information about how much water they'll use.
"Nowhere in the country do Google, Meta, Amazon have to report on water in quite this way,” said Frentz, DFL-North Mankato. “So I think it is nation-leading, and I think rightly so.”
Also in the bill: Utilities can’t pass the cost of supplying electricity to data centers onto other customers, or use the growth of data centers as an excuse to avoid meeting the state’s mandate for carbon-free electricity by 2040.
“That is the state’s standard for our clean energy goals. It’s really the bedrock rule that we want these data centers to understand,” Frentz said.
Large data centers will be required to pay $2 million to $5 million a year into an account to help low-income Minnesotans weatherize their homes and conserve energy.
State Rep. Patty Acomb, who pushed for tougher rules for data centers, said the bill includes about 80 percent of what she wanted. But she’s disappointed it doesn’t require an in-depth environmental review of new data centers.
"If you have a facility that big, you need to also be looking at the full environmental impacts,” said Acomb, DFL-Minnetonka.
The bill doesn’t include setback requirements, height limits or other protections for people living near large data centers, such as one proposed to be built on a former golf course in Farmington.
And it doesn’t stop cities from signing non-disclosure agreements that prevent them from sharing information about the projects, Klemz said.
“We think there needs to be much more rigorous and upfront disclosure to the public about what is being proposed in their community,” he said.
Environmental groups also say the water regulations largely reflect what's already in the law, rather than adding new protections.
Data centers that use more than 100 million gallons of water a year must consider using water conservation technology, such as closed-loop systems that recycle water for cooling. But those measures are not required, said Sarah Mooradian, government relations and policy director for the nonprofit Clean Up the River Environment, or CURE.
“There’s nothing in this bill that says a data center would have to employ any type of water conservation or efficient use of water, or even explain why they maybe chose one method over another,” Mooradian said.
CURE and other environmentalists also wanted the Legislature to prevent large data centers from avoiding scrutiny by using water provided by cities’ municipal systems, instead of seeking their own water-use permit. But the bill doesn’t stop this practice.
The compromise didn't entirely satisfy supporters of data centers, either.
Labor unions that view data centers as job creators are happy lawmakers extended a sales tax exemption on computer servers and other equipment for 35 years. It had been set to expire in 2042.
But the legislation takes away another sales tax break on the electricity that data centers use.
That will make Minnesota less competitive for projects, said state Rep. Shane Mekeland, R-Clear Lake, who points out that Amazon recently suspended plans to build a large data center in his district.
“They’re literally going to the neighboring states that extended that sales tax energy exemption weeks before we killed it off,” Mekeland said.
Some lawmakers didn’t want to see any tax breaks extended to data centers, which are often owned by some of the world’s biggest technology companies.
“The reason that I’m going to be a no on this bill is because I am anti-tax breaks for billionaires,” said Rep. Athena Hollins, DFL-St. Paul, during the floor debate.
Frentz said the question shouldn’t be whether the companies’ owners are benefitting, but rather, “what’s best for Minnesota.” Data centers provide thousands of well-paying jobs and pay millions in local taxes, he said.
“And with proper environmental protection — as every other state in the country is looking at — we want to encourage the development of these, just like we would any business,” Frentz said.
The debate over data centers is likely to continue at the state Capitol. Acomb said she plans to try again to pass tougher language.
In the meantime, Minnesota’s cold climate, available renewable energy and financial incentives likely will continue to attract data centers. At least 11 major ones are proposed to be built in Minnesota, most in the southern Twin Cities suburbs.
“I think we have lots of reasons that data centers will look to come here, and the tax cuts [are] just one more,” Acomb said.
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