Overview:
- The Michigan House of Representatives passed a bipartisan bill to exempt large data centers from sales tax.
- The bill, HB 4906, now heads to the Michigan Senate for final approval, alongside SB 237, a use tax exemption.
- Critics argue the legislation lacks safeguards to prevent power-hungry data centers from derailing the state's climate goals of 100% renewable energy by 2040.
- Environmental advocates warn that water used to cool servers could deplete Michigan's groundwater and raise utility costs for residents.
A bipartisan majority of lawmakers in the Michigan House voted on Wednesday to pass a sales tax exemption for large data centers operated by companies like Google and Microsoft.
This bill, HB 4906, will now go to the Michigan Senate for final approval, along with SB 237, a use tax exemption that the House passed in September.
Opponents say the legislation lacks guardrails to keep power-hungry data centers from undermining the state’s climate plan, which looks to achieve 100% renewable energy by 2040. Last year’s renewable energy legislation contains an “offramp” provision that allows fossil fuel production to stay online if there’s not enough capacity to meet demand.
Environmental advocates also say that water used to cool servers could deplete Michigan groundwater resources and that water and electric utility customers could see their prices rise.
Meanwhile, supporters of the legislation argue it would be a lifeline for places like the Benton Harbor area, which could see an estimated $21 million in annual property taxes from a proposed data center development.
Christy McGillivray, legislative and political director for the Sierra Club Michigan Chapter, told Planet Detroit it was a “disgrace” that Democrats refused to adopt language to protect utility customers and state climate goals.
“They just blew a hole in their own clean energy package,” she said.
The data center bill was one of several pieces of legislation passed by the House on Wednesday that would provide tax breaks for businesses, including a research and development tax credit and an innovation startup fund.
Some advocates questioned why Democratic leadership focused on tax incentives with bipartisan support during the critical lame-duck period before Republicans take control of the Michigan House next year.
Abby Clark, Midwest campaign manager for the Natural Resources Defense Council, said she was disappointed that House leadership was focusing on tax breaks when there was so little time left to advance Democratic priorities.
Clark argued that Democrats had just come off a “tough election cycle ” and should work to address resident concerns about high prices and ensure clean air and water.
“No one I know has ever heard (from) a voter that they want more tax breaks for California-based companies,” she said.
Water and energy costs ‘will be passed on to ratepayers,’ advocates say
The renewed push for data center incentives comes as reporting shows the potential drawbacks of building large numbers of these facilities, a boom driven by the artificial intelligence industry.
According to a recent story in The Washington Post, the Mid-Atlantic regional grid operator PJM Interconnection, which serves northern Virginia’s “data center alley,” saw an 800% spike in the price of energy for use by its member utilities during periods of extreme weather and high demand.
Maryland People’s Counsel David Lapp, a state appointee who monitors utilities, said that future energy price increases could lead to residents paying $40-$50 more on their monthly utility bills.
Are Virginia’s power-hungry data centers a warning for Michigan?
As Michigan considers tax breaks for data centers, Virginia environmental advocates warn data centers could kill state climate goals while thousands of generators may cause a spike in air pollution.
DTE’s Norcia tells shareholders data center bills have Governor’s support
Controversial data center bills could doom Michigan’s climate goals but be a boon for DTE shareholders.
OPINION: Data centers in Michigan pose the ‘other’ existential threat from AI
The rapid expansion of AI is driving increased electricity demand from data centers, threatening to undermine climate goals.
Amendments to HB 4906, shared with Planet Detroit in September, would require data centers to draw from municipal water systems and prevent residential energy customers from subsidizing lower energy rates for these facilities. However, advocates have said these measures are insufficient to protect groundwater resources and ratepayers.
Water and energy costs “will be passed on to ratepayers, ” Clark said.
She pointed out that industrial and commercial utility customers in Michigan already pay much lower rates than residential users.
“They could build these without tax breaks and still get favorable rates,” she said.
Charlotte Jameson, chief policy officer for the Michigan Environmental Council, previously told Planet Detroit that large water systems could cut their own deals with data centers, leaving other customers to pay more.
And data centers, which can use up to 5 million gallons of water a day to cool servers, could impact groundwater supplies if municipal utilities significantly increase their groundwater withdrawals to service them.
Nichole Keway Biber, an organizer with the nonprofit Clean Water Action, wants to see renewable energy requirements for data centers to protect the state’s transition to renewable energy. She said lawmakers should also mandate that facilities recycle water rather than use groundwater for cooling.
“This is the moment to get this right,” Keway Biber said.
Senate votes offer environmental advocates a final chance to add protections
Environmental advocates may have another shot to influence the data center bills before they are again voted on in the Michigan Senate.
Clark said the Senate had many environmental allies and members are now more aware of the legislation’s potential downsides than when the chamber considered the bills in the spring.
“We have the fixes; they just need to be added,” she said.
Michigan Gov. Gretchen Whitmer’s office did not respond to Planet Detroit’s question about whether she would sign the data center bills. However, DTE CEO Jerry Norcia has previously indicated on earnings calls that Whitmer supports the legislation.
McGillivray said that with Republicans taking control of the House next year, it was even more critical for the legislature to add environmental safeguards to the bills now.
“That is all the more reason to lock in every single protection that we know we need,” she said.