President Donald Trump has been clear in both his policies and rhetoric that he wants to help America win the next wave of technological innovation. But earlier this month, NVIDIA CEO Jensen Huang sounded the alarm to the Financial Times: “China is going to win the AI race.” A critical step to help realize the President’s vision is to build more data centers, and South Dakota can help.
In America, we need more digital infrastructure. Essential components of that infrastructure are more data centers. These facilities house all the cloud storage for Americans and our businesses, and as we continue to use more tech tools, our need for more data centers grows. President Trump recognizes this need and is championing the rapid build-out of U.S. data centers for AI infrastructure, streamlining permitting and incentivizing investment so America creates good jobs and leads the global technology race. However, there have been three rising challenges to this build-out of critical digital infrastructure which must be addressed. Much of the information circulating on these topics as they relate to data centers is misleading at best: energy consumption, water use and taxes.
Data Centers Help Reduce Everyone Else’s Electricity Bills
By helping the state’s electrical utilities to modernize South Dakota’s grid, hyperscale data centers can build new power generation and transmission that improves reliability. At the same time, these large-load data centers will pay a greater share of the utilities’ fixed costs. This puts downward pressure on electricity bills for households.
New research for the U.S. Department of Energy by the Lawrence Berkeley National Laboratory found higher load growth from industries like data centers reduces electricity prices for other customers.
Berkeley’s research was featured in a Washington Post article, “There’s a reason electricity prices have been rising. And it’s not data centers.” Berkeley Labs found that North Dakota, which experienced a 40% increase in electricity demand thanks to new data centers, saw real electricity prices fall by 3 cents per kilowatt-hour. And Virginia, home to more data centers than anyone in the world, experienced a 14% increase in demand and a price drop of 1 cent per kilowatt-hour.
Berkeley Labs found that North Dakota, which experienced a 40% increase in electricity demand thanks to new data centers, saw real electricity prices fall by 3 cents per kilowatt-hour.
Moreover, in their 2024 study of Virginia’s data center industry, the Joint Legislative Audit Review Commission (JLARC) found that Virginia ratepayers are not footing the bill for data centers, and that the State Corporation Commission has the tools to continue to ensure ratepayer protection. According to Kansas electric utility Evergy, “Large load customers, including data centers, absorb a greater share of the fixed costs of operating grid infrastructure (power plants, poles and wires), thus lowering rates for all customers.”
Data centers invest in the local grid, bringing lower electricity bills and more reliable energy for South Dakota businesses and households.
Data Centers Use Less Water Than a Courthouse or Office Building
Many new large-scale data centers will consume less water than your average courthouse or office by using a high-tech version of the electricity-powered air conditioning similar to that which cools our homes, schools and businesses.
If there are parts of South Dakota where water is abundant, new data centers could use evaporative cooling on the warmest days of the year to reduce electricity demand. In those data centers, some of the water would evaporate into the skies above South Dakota, just like an irrigated cornfield, reservoir or golf course. The water that doesn’t evaporate is then returned to the municipal system or aquifer, as approved by local and state water authorities. This efficient technology ensures that local water resources are used smartly and sparingly to protect the community’s water supply.
Virginia again leads by example on getting to the root of this issue. Being the state with the most data centers in the country, it performed a state audit that found that the data centers using water do so in a sustainable and well-regulated manner.
Data Center Property Taxes Provide Relief for Residential Taxpayers and New Community Investment
Sales tax is commonly exempted for manufacturing inputs and equipment. 35 states–including South Dakota’s neighbors North Dakota, Iowa, Nebraska and Wyoming–already exempt sales tax for capital-intensive industries like data centers. Hyperscale data centers are not built in states where they’re disproportionately taxed due to an outdated tax code, so without modernization, South Dakota will lose investment, jobs, and tax revenue to other states.
Moreover, data center builders bring substantial new property tax revenue to the communities where they locate, which provides property tax relief for homeowners, and funds local schools and infrastructure projects. This modernization brings an increase in property tax revenue for cities and counties. For example, Virginia’s data center industry contributes $9 billion to the state’s GDP and funds local schools and infrastructure. Virginia’s Loudoun County states that data center tax revenue “has enabled the county to reduce the real property tax rate for homeowners every year for the past decade.”
Virginia’s Loudoun County states that data center tax revenue “has enabled the county to reduce the real property tax rate for homeowners every year for the past decade.”
Modernizing South Dakota’s tax code to attract new industries like data centers will keep the Mount Rushmore State competitive with its neighbors and attract good jobs, investment and new property tax revenues.
As President Trump noted in July, “We believe that America’s destiny is to dominate every industry and be the first in every technology.” Data centers, essential digital infrastructure for the next generation of technological advancement, have already contributed 4.7 million American jobs and nearly $800 billion per year to our economy. South Dakota shouldn’t miss out in reaping the benefits for its citizens and helping advance U.S. dominance in innovation.
Image via Unsplash.