Data centers and housing — two issues challenging government and business leaders — were explored Thursday morning at the fourth annual In Business Madison Real Estate & Construction Symposium held at the Edgewater hotel.
The symposium brought together industry professionals to discuss trends in these critical areas and offer insight into how Wisconsin’s Capital Region can successfully navigate both.
The symposium opened with a data center panel moderated by Brittney Kenaston, staff journalist for In Business Madison.
Panelists included Alex Allon, community development director, village of DeForest, which recently rejected a data center proposed by QTS Data Centers; Tyler Byrnes, senior research associate for the Wisconsin Policy Forum; Coleman Peiffer, senior manager of data center services for Alliant Energy and attorney Kevin Ramakrishna, a shareholder in Reinhart’s real estate practice.
In the last year, the controversy over large, hyperscale data centers and their energy requirements (and effect on ratepayers) as well as land and water use issues have quickly risen to the top of the list of key development topics. The operations are needed to accommodate artificial intelligence demands, and have the potential to bring long-term construction jobs, sustainable employment during their operations, and significant increases to the local tax base to help fund schools and other community needs.
Yet the potentially negative effects — and, some panelists argued, the misconceptions around them — have contributed to intense opposition in several communities where such facilities have been proposed. A public backlash in the northern Dane County village of DeForest recently forced QTS Data Centers to withdraw plans for a data center there.
Peiffer said data center proposals are coming at a faster pace for several reasons, beginning with the 2023 passage of sales and use tax exemption for data centers in Wisconsin, essentially leveling the competitive playing field for data centers with neighboring states.
With the shift from cloud computing to AI tools such as ChatGPT or Microsoft Copilot, Peiffer said data centers no longer must be within reach of the main fiber trunks along the Interstate 80 corridor, the backbone for high-speed internet infrastructure across the U.S.
Several states along that coast-to-coast corridor, which runs from San Francisco to New Jersey, are reaching their power capacity, he said, so Midwestern states are becoming more popular data center sites.
Regarding the DeForest project, Peiffer also said a new electrical substation to serve northern Dane County was already in place, which provided more confidence about long-term generation, speed to market and the ability to build on an initial investment with data center expansion.
Even with the recent public pushback, “I don’t see that (interest) going away,” Peiffer said.
Tyler Byrnes of the Wisconsin Policy Forum recently put together a comprehensive report on how data centers could change Wisconsin’s utility landscape.
Byrnes said the public’s biggest fears are what AI could do to shrink the workforce and the data centers’ effect on utility and water rates, as well as municipal budgets and property taxes.
The WPF report said data centers would add demand for electricity and water but do so after years of declining usage of both. Planned data centers could require costly utility upgrades, so it will be important to ensure those potential costs are fairly distributed, the report said.
“One of these data centers could use about 1.5 to 2% of the electricity generated in the state in a year, and so that’s a pretty big number and it’s going to need new generating capacity and new transition capacity,” he said. “I think concerns about how this is going to impact our (utility) rates — they make sense.
“I think there’s a lot of effort by both legislators and the PSC (Public Service Commission) to make sure that the folks that use electricity pay for that.”
On the water side, there is less concern about conservation and it’s not only due to innovations such as closed-loop cooling systems, which recirculate water instead of having it evaporate.
“Let’s say these data centers use 10 million gallons of water a year,” Byrnes said. “That’s probably a high estimate but even still it sounds like a lot of water. Well, it does until you realize that statewide water utilities sell something like 130 billion gallons of water a year, and so the scale even at the high end of these water use estimates for these data centers is just completely different.”
In contrast, Byrnes said a paper plant could use 1.5 billion gallons of water a year, which is hundreds of times more than a data center would.
Panelists said the DeForest proposal was withdrawn even though the village has negotiated substantial public benefits.
Byrnes said his independent review of an annexation agreement between DeForest and the town of Vienna, which involved 1,600 acres, showed that QTS Data had agreed to pay for on-site EMS personnel, the cost associated with new roads that would be needed, costs associated with fire service, and $100,000 a year for Yahara River cleanup efforts.
“There was a lot of stuff that QTS was willing to put into the deal and comparing it to other investments, this was going to be about $10 billion or in that neighborhood,” he said.
Allon, who helped negotiate the deal, said the investment figure was closer to $12 billion, but even with all that, overwhelming public sentiment against the development carried the day.
“I would not argue against that (Byrnes) assessment at all,” Allon said, generating laughter from the audience of 200 attendees. “But again, to me it comes down to the basis upon making these decisions, so I don’t sit in the chair of the decision-maker of a local elected official who’s got to go to the grocery store and hear comments about this and understand how their community feels.”
Panelists also addressed how developers, municipalities and community members can work together to bridge the perception gaps and deal with the public’s uncertainty about how large data centers will affect their communities in the long run.
They recommended dealing with any misconceptions, and misinformation, head-on; reminding community residents of the kind of improvements an expanding tax base can fund; and negotiating agreements with data center operators to mitigate potentially negative effects.
However, as the DeForest case shows, they also acknowledged that until there is more experience with the long-term effects of hyperscale data centers, it’s a difficult sell, but the potential benefits are worth the effort.
Reinhart’s Ramakrishna said overcoming state levy limits imposed on municipalities, which make it more difficult to fund utility improvements, is one potential benefit.
“I know that there’s at least one data center that’s going up where one of the community benefits is they (data center operators) are fronting like $10 million of utility improvements in the municipality and then recovering some of that through pay-as-you-go TIF (tax incremental financing),” Ramakrishna said. “Those are the types of things that you need to be thinking about.
“You need to take advantage of these opportunities that are sitting in front of you,” he said.
