Shapiro Pitches Incentives for Data Centers to Be Environmentally Friendlier as Budget Deadline Approaches

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HARRISBURG — Gov. Josh Shapiro’s office has released a full, detailed version of its proposed incentives for data center developers ahead of Pennsylvania’s June 30 budget deadline.

The proposal would add conditions for the projects to receive a major state tax exemption and participate in preferential tax zone programs. These standards, which the administration is calling the Governor’s Responsible Infrastructure Development, are an “important part” of “broader conversations as budget negotiations continue,” a spokesperson for the administration told Spotlight PA.

Shapiro and other governors are balancing the desire to attract data centers and their economic benefits — particularly construction jobs — with concerns from environmental groups and affected communities about the impact the projects will have on air and water quality, water supply, and energy prices.

The majority leader for the Republican-controlled state Senate, Joe Pittman (R., Indiana), previously told Spotlight PA he wants to ensure Pennsylvania remains competitive when it comes to attracting data centers.

“I see this as something that is an increasing priority for members generally, and if there are ways that we can address it in the context of the budget, we can certainly look to do that,” he said last month. “I don't think getting a budget done is contingent on data center issues.”

In a more recent interview, Pittman said the “broad construct” of the administration’s proposal aligns with his concerns and that he expects legislative discussions to continue “throughout the coming months.”

Rob Bair, the president of the Pennsylvania Building & Construction Trades Council, said the administration’s plan “checks all the boxes” when it comes to environmental, labor, and economic development, but he’s unsure about its legislative prospects.

“Can we get it through the Senate? I don't know,” Bair told Spotlight PA. “There are going to be some Democrats in the House that aren’t going to vote for it because they want a moratorium.”

A spokesperson for the Pennsylvania chamber of commerce, meanwhile, said that while it broadly supports Shapiro’s approach to attracting data center investment, it has “initial concerns,” particularly about the proposal to add conditions to the projects’ eligibility for the state’s tax break on major purchases related to data center development.

That proposal “introduces complexity that could make Pennsylvania less competitive,” the spokesperson said. “We oppose repealing or conditioning this exemption, just as we would oppose any comparable legislative bait-and-switch that creates a perception of Pennsylvania’s business climate as unreliable and unpredictable.”

Reactions from environmental groups have ranged from hopeful to hostile.

Katie Blume, the legislative director of Conservation Voters of Pennsylvania, called GRID an important step, but emphasized the need for additional legislation to regulate data centers, pointing to a comprehensive bill the state House passed in March.

She’s worried that should GRID become part of budget negotiations, the incentives will be watered down.

“I really need the House and the governor to stand firm if this gets looped into negotiations,” Blume said. “My concern with the budget process is that there’s a little less transparency.”

Other groups are more skeptical of Shapiro’s proposal. The Better Path Coalition, a grassroots consortium of environmental groups, pointed to the administration’s behind-the-scenes communications with Amazon, which is developing multiple data centers in the commonwealth, as a cause for concern.

A group of Montour County residents who organized against data center development obtained a trove of emails from the administration through a Right-to-Know request, which showed that a top staffer sent an Amazon lobbyist a “feedback draft of the principles” that the administration planned to lay out in GRID before the standards were public.

The records, which were previously reported by Heatmap, also included an email that state Secretary of Community and Economic Development Rick Siger sent to Amazon. He told the company the GRID standards are “intended to be voluntary,” and said Shapiro is “not proposing to ban or even discourage data centers or other large loads that don’t agree to implement them from siting here.”

That, the Better Path Coalition wrote in a recent statement, shows Shapiro’s GRID standards are “strictly performative.”

A Shapiro administration spokesperson told Spotlight PA that this was part of an engagement process that “included conversations with numerous companies and organizations representing the data center and energy industries, environmental community stakeholders, as well as local government organizations and labor groups.” That feedback helped the administration develop its proposal, the spokesperson said, and the process was “typical in any policy development process the Administration undertakes.”

What is Shapiro proposing?

Shapiro first introduced the broad strokes of his data center incentives in his February budget address. He wants developers to bring their own power generation to the grid or pay for the energy they used; to commit to transparency; to hire and train local workers; and to follow environmental protection guidelines.

Following these standards could get developers faster permitting, officials later said — something the administration can offer unilaterally.

But in the full standards released last week, the administration publicly confirmed for the first time that it also hopes to rewrite a major sales and use tax exemption. Under the planned revision, developers would have to follow the new standards to receive the exemption.

Currently, data center developers that meet certain financial benchmarks do not have to pay the state’s 6% sales tax on purchases related to building and maintaining their campuses, including their expensive servers. The exemption is projected to cost the state over $2 billion in tax revenue by mid 2031, and some lawmakers have called to repeal it.

To add new conditions to the exemption, Shapiro would need the state legislature to pass a bill rewriting the program.

The administration is also proposing that data centers be required to meet GRID standards in order to participate in economic opportunity zones, which allow investors to receive tax breaks if they build projects in specific places. That too would require action from the legislature.

A spokesperson for the administration said it intends to propose legislation that would “create those requirements for data center developers seeking Commonwealth tax benefits.”

The administration’s new, detailed descriptions of its GRID standards include:

Escalating requirements for the amount of clean energy data centers must build or buy to power their operations, which would top out at 32% of total usage by 2035.

Creating at least 200 construction jobs.

Paying $1.5 million annually in total wages after four years of operation.

Submitting environmental sustainability plans that detail how the data center will employ “leading technologies to limit water and energy consumption.”

In order to get GRID benefits — whatever they end up being after legislative negotiation — the administration currently plans to have data centers submit applications to the state Department of Revenue and the Office of Transformation and Opportunity, which Shapiro created in 2023. Those agencies will assess whether companies’ plans meet Shapiro’s standards.

The administration plans to accept applications annually.

Shapiro isn’t alone in trying to initiate new data center regulation.

Lawmakers in the state House have in recent months passed bipartisan legislation that would regulate data centers’ interactions with utilities, monitor their energy and water usage, and mandate they pay into low-income energy assistance programs. Pittman previously told Spotlight PA he didn’t want to commit to those proposals.

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