Texas Gov. Greg Abbott is facing growing calls to convene a special session to enact more oversight on data centers, though the Republican may be unlikely to budge from a planned legislative blitz next year.
Dozens of protesters gathered Monday on the steps of the state Capitol ahead of a state Senate Finance Committee hearing, demanding more action be taken between now and the next regular legislative session slated to begin in January.
In the hearing, lawmakers said they’re concerned that more data centers would get big tax breaks or draw on scarce water supplies before they can pass guardrail legislation next year. Monday’s meeting was part of the Texas Legislature’s interim work to prepare for 2027.
“I’m not trying to be political about this, but the question is whether or not we need to have a special session focusing in on this,” said state Rep. Royce West, a Democrat from the Dallas area.
Data centers and extra-high-voltage transmission projects have created a chasm among Republicans who control the state’s government. Some GOP officials from rural Texas districts have started to side with Democrats, pushing for a special session and more guardrail rules to prevent data centers from overpumping water or being too noisy.
It’s unlikely that Abbott will call a special session to tackle data centers this year, said Brandon Rottinghaus, a professor of political science at the University of Houston.
“I suspect he won’t,” Rottinghaus said in an interview Tuesday. “He generally reserves special sessions for issues he knows he can pass and only calls lawmakers back when leadership is united and there’s a realistic path to passing legislation.”
The governor’s office did not respond to a request for comment.
But Abbott, who has courted data centers in the past and last year called Texas the “epicenter” of artificial intelligence development, has changed his messaging in recent weeks.
He ordered electricity regulators in June to send him a memo about their actions and said he would support legislation during the regular session that would repeal data centers’ sales tax exemptions and require data centers to use less-water-intensive cooling technologies, among other things. The governor also announced last week that a data center project would not be moving ahead in East Texas.
Abbott is seeking a fourth term as governor in a race against Democratic state Rep. Gina Hinojosa, who has called for a moratorium on new data center developments until the state Legislature meets to take action.
It can be hard to find widespread agreement among Republicans lawmakers about how to balance Texas’ pro-business reputation with mounting concerns from voters about the effects of data centers on communities.
Some officials from suburban and urban areas have remained supportive of retaining tax breaks and regulatory leeway for data centers.
“The public has yet to really understand how much they use data centers already,” said state Sen. Paul Bettencourt, a Republican from the Houston area, during Monday’s hearing as he held up a mobile phone. “Everything on this phone — almost everything — is data centers.”
‘Rapid development’
The state Senate Finance Committee’s hearing was mainly focused on tax breaks data centers can receive in Texas.
A 2013 law gave data centers a state sales tax exemption for projects that meet specific capital investment and job creation commitments. And a 2015 law allowed larger data centers to also seek local tax exemptions through the state.
The number of data centers qualifying for the exemptions has also skyrocketed since those laws were passed. Between 2014 and 2020, only 10 data centers sought and earned the exemption.
Now, 138 facilities qualify for the exemptions, including 59 that applied and got their certifications this year, said Brad Reynolds, chief revenue estimator at the Texas Comptroller’s Office. Another five have applied and are awaiting certification.
The amount of tax revenue the state is missing out on has also ballooned from an estimated $14.6 million between 2014 and 2015 to at least $3.3 billion estimated in 2028 to 2029. Reynolds said Monday that the $3.3 billion forecast is likely a gross underestimate.
“I would say that the early estimates are significantly too low to begin with,” Reynolds said. “And, of course, we never anticipated the kind of rapid development — in numbers and in scale — that we see today.”
Of the data centers that have gotten exemptions, there’s little evidence to confirm that they’re meeting the requirements.
Reynolds said the state only audits data centers after they’ve had an exemption for five years. So far, only 20 have been audited.
Those audits found six had not met the tax exemptions’ requirements. One was not large enough, and five did not create enough permanent jobs, Reynolds said.
“Wow. If you can’t create 20 jobs, I mean, wouldn’t you just find somebody to, I don’t know, sweep the floors or something?” said state Sen. Lois Kolkhorst, a Republican from Brenham in east-central Texas.
Dan Diorio, executive vice president of state policy and government affairs at the Data Center Coalition, testified Monday that tax exemptions help data centers use less water and power by enabling them to buy more efficient cooling and computing technology.
He pointed to a Data Center Coalition-sponsored study that found data centers in Texas contributed about $2.2 billion in state tax revenue and $2.3 billion in local tax revenues in 2024.
Diorio said data centers are “long-term investments in Texas communities that create jobs, strengthen workforce development, support education and expand economic opportunity for Texans.”
Some lawmakers disagreed with that assessment.
“I personally think that the data centers benefit more from Texas than Texas does from the data centers,” said state Sen. Donna Campbell, a Republican who represents parts of central Texas.
