How Loudoun County Monetized the Data Center Boom and What Other Communities Can Learn

From March to August of this year, data center projects in the U.S. tripled. While hyperscalers are confident about the business benefits, many communities are assessing whether these projects are equally beneficial for them. Some believe data centers bring jobs, significant money, and lower taxes.

The discussion surrounding data centers is about ensuring a fair deal for all parties involved, balancing corporate interests with community welfare.

Former President Donald Trump has expressed strong support for data centers, asserting they are a positive development for America. He argues that they generate substantial wealth and increase property values.

Trump has also warned against rejecting data centers, suggesting that such decisions could lead to 'poverty, crime, and squalor.' He frames the decision as a clear choice between economic prosperity and decline.

Paul Serrano, a resident of Ashburn, Virginia, in an area known as Data Center Alley, has observed firsthand the economic impact of living near these facilities. Since moving to the area in 2013, the value of his property has increased by nearly two-thirds.

Despite the increase in property value, Serrano reports that his property taxes have remained almost flat. He attributes this to a steady decline in the tax rate. When factoring in inflation, the real dollars he pays for property taxes are 12% less than they were 13 years ago. Serrano indicates he is not complaining about living next to a data center.

Loudoun County, an affluent area historically known for its horse country, has become famous for its abundance of data centers. These facilities are projected to generate approximately $1.3 billion next year, accounting for about 40% of the county's total tax revenue.

This substantial revenue has enabled the county to fund significant public projects. An unidentified official cited the launch of a new $144 million high school last year, equipped with "all the bells and whistles," and the addition of numerous recreation facilities. The official credits the tax revenue from the commercial sector and data centers for making Loudoun County a very livable community.

Buddy Rizer, the Executive Director of Economic Development in Loudoun County, explained that the county's pivot to data centers was a strategic response to the 2008 housing bubble burst. Before this shift, 81% of the county's revenue was derived from residential real estate, making it largely a 'bedroom community' dependent on that sector for its tax base. The housing market collapse led to significant revenue loss, prompting Rizer to join the county as an economic developer tasked with finding new commercial revenue sources.

Loudoun County had existing assets from the dot-com era, including a vast amount of fiber optic cable, skilled talent, and unoccupied buildings. These assets were remnants of a building boom in the late 1990s and early 2000s, driven by companies like AOL and Unanet. Rizer decided to pitch these empty buildings and existing infrastructure to emerging internet infrastructure companies such as Amazon, Google, Microsoft, and Digital Realty, a strategy that has proven very successful for the county.

Rizer noted that this strategy has resulted in various improvements for Loudoun County, including "amazing" roads and "beautiful landscaping."

Despite its success, Loudoun County is now facing limits to its data center expansion. The county currently hosts about 230 data centers, with another 20 to 30 in the pipeline. However, in September, due to increasing local opposition and concerns about energy supply, the county decided to pause approvals for some new data centers.

Buddy Rizer stated, "We're at the end of our life cycle." He explained that data centers can no longer be built 'by right' in Loudoun County, though already permitted projects will proceed. Rizer emphasized that until the energy situation is resolved and there's a clearer understanding of the county's capacity, they are not actively seeking new data centers. He noted that future growth will be more selective and thoughtful, acknowledging that while the county has capitalized on opportunities, they don't wish for data centers "everywhere."

Mark Muro, a senior fellow at the Brookings Institution, suggests that communities possess more leverage in data center negotiations than they might realize. He believes that proactively asking for what they need during the negotiation process can lead to significantly better outcomes.

Muro's insights come from a paper he authored titled "Turning the Data Center Boom into Long Term Local Prosperity."

An unnamed expert highlighted the critical need for data centers to be part of a community's future plan and regional identity strategy. Many communities, according to the expert, lack a well-defined vision for their future, which can hinder their ability to negotiate effectively with data center developers. This strategic void often prevents communities from articulating their specific needs and desired outcomes.

The expert recommended that local governments should engage in tough but fair negotiations, aspiring to extract valuable concessions from developers. These could include partnerships with local universities for compute resources, addressing housing needs, or providing workforce training. The historical fear of losing developers to neighboring counties or states, often driven by a 'fear of missing out,' has previously led communities to be 'cowed' and reluctant to ask for more.

Loudoun County provides ongoing advisory to global entities on effective data center siting practices, sharing lessons learned from its own experience. The county emphasizes that strategic placement is key to minimizing negative impacts on citizens.

An unnamed expert stressed the importance of defining the opportunity and deciding where data centers should be located. For example, placing them within an industrial park where infrastructure is already present can prevent residential encroachment and avoid overtaxing existing resources. By ensuring that all necessary infrastructure is in the right places, communities can build data centers in a way that is not overly impactful for citizens.

Adaire Fox-Martin, CEO of Equinix, an Internet and data center company based in California, explained that Equinix operates over 281 data centers globally. A key differentiator for the company is its focus on connecting businesses to businesses, which leads them to build facilities primarily in metro locations, close to users.

Fox-Martin clarified that Equinix's facilities are not enormous. The average size of their data centers is approximately 10 megawatts, with the largest in the U.S. being around 35 megawatts.

Adaire Fox-Martin noted that the vast majority of Equinix's work underpins very ordinary daily activities, such as buying stocks, making video calls, or accessing healthcare and banking apps. She believes there is an "education problem" within the industry regarding how widely understood these essential functions are by the public.

Fox-Martin stressed that not all data centers are built for the same format or function, just as not every building needs to be a skyscraper. She asserted that the industry has a duty to educate the public about the different capabilities data centers provide and their impact on communities and the environment. Equinix sees itself as a neighbor, not a visitor, and its strategy involves early engagement, transparent communication, and listening to community needs.

The demand for data centers is expected to continue growing due to significant capital investment in AI, presenting a challenge to meet this demand without alienating local communities.

Adaire Fox-Martin highlights a significant disconnect in public perception regarding data centers. She referred to a New York Times poll indicating that 71% of American adults do not want data centers in their communities.

Conversely, 96% of American adults use the internet every day. Fox-Martin points out that data centers are not the end product but the essential infrastructure that enables daily activities like conversations, sending texts, liking posts, taking photos, and online shopping. She believes this evident 'disconnect' needs to be addressed.