- Tension: A policy backlash is visibly accelerating in specific states while the underlying incentive structure remains intact almost everywhere else.
- Noise: Each state action reads as a discrete local story — a pause here, a ban there — obscuring the fact that it’s one national pattern arriving at different speeds.
- The Direct Message: The backlash is real, but it is happening at the margins of a system that, for now, remains mostly unchanged. Watch the 38, not just the four.
June 2026 produced more state-level action against data center tax incentives than any prior month. Illinois paused its program. Arizona enacted a moratorium. Oklahoma’s ratepayer protections took hold. A California city banned data centers outright. And in the background, the incentive structure that made data centers a fixture of state economic development remains active in most of the country.
Illinois pulls back, but doesn’t reverse course
Illinois directed its economic development agency to stop processing new data center tax deals starting this July, after lawmakers left Springfield without passing the reforms the governor asked for. Governor JB Pritzker’s directive to the Department of Commerce and Economic Opportunity applies only to new applications under the state’s Data Center Investment Program — existing agreements are untouched. Pritzker paired the pause with a seven-point framework calling for data centers to pay their share of grid and water costs, to accept interruptible service during grid strain, and to fund their own clean energy resources, and he urged lawmakers to take the framework up when they return for veto session.
The context matters here. Data center demand has already raised electricity costs by an estimated $13 billion across the 13-state PJM grid that includes Illinois, and one state projection put Illinois-specific data center demand at another $37 billion in added costs in coming years. Pritzker’s pause is a pause on new deals, not a rollback of old ones, and it came only after the legislature failed to act on the underlying policy question of who pays for that demand.
Arizona trades a permanent ban for three years
Arizona’s budget deal, negotiated between Governor Katie Hobbs and Republican legislative leaders, installed a three-year moratorium on the state’s data center tax exemption, running from July 1, 2026 through June 30, 2029. Hobbs had sought a permanent repeal, telling reporters that Arizona’s data center industry — nearly 98 facilities operating and 86 more planned or under construction — has already achieved what the tax break originally set out to do. She settled for a three-year pause instead, which her office estimated would save the state $57 million, money Democratic lawmakers argued could go toward child care, health care, and food assistance instead.
The freeze produced an immediate rush of developers filing applications before the window closed at the end of June, a sign that the exemption’s value to industry hasn’t diminished even as its political standing has. Industry representatives called the outcome a blow to long-term confidence in the state’s commitment to the program. Hobbs, for her part, said the point was never to stop data centers altogether. “Nobody’s talking about a moratorium on data centers themselves,” she told reporters. “There are places where they make sense, where they provide economic opportunity and where they’re not sucking the groundwater and overtaxing the utilities.”
Oklahoma protects ratepayers, not the tax base
Oklahoma took a narrower approach than either Illinois or Arizona. House Bill 2992, the Data Center Consumer Ratepayer Protection Act, was signed by Governor Kevin Stitt in May and took effect July 1. It doesn’t touch any tax exemption — Oklahoma’s data centers still receive some of the country’s largest property tax abatements, including one Google complex in Mayes County that has collected more than $363 million in property tax breaks since 2013. Instead, the law targets electricity costs directly: it defines “large load customers” as facilities adding 75 megawatts or more of demand and bars them from shifting infrastructure costs onto residential and small-business ratepayers. It also requires 60-day advance notice to neighboring landowners and county commissioners before land acquisition for qualifying projects.
The bill passed both chambers unanimously, with 36 lawmakers from both parties signing on as co-authors — a level of consensus that tax repeal proposals in other states have not come close to matching. That gap is instructive: protecting ratepayers from cost shifts draws bipartisan support almost everywhere it’s been proposed, while touching the tax exemption itself remains politically contested even in states with the most public backlash.
A California city goes further than any state
The most decisive action of the month came from the smallest jurisdiction. Voters in Monterey Park, a Los Angeles County city of roughly 60,000, approved a permanent ban on data centers with about 86 percent support, becoming the first U.S. city to outlaw them by ballot measure. The vote followed months of opposition to a proposed 247,000-square-foot facility that would have sat less than 500 feet from the nearest home and drawn roughly 50 megawatts of power at peak demand. The developer withdrew its plans in March as opposition mounted, but the city pursued the ballot measure anyway.
The reasoning behind that choice is worth noting. As Mayor Elizabeth Yang put it, a city council ordinance can be reversed by a future council; a voter-approved ban can only be undone by another citywide vote. Monterey Park’s measure was built to outlast the current political mood, not just respond to it. National polling suggests that mood is not unique to one city: roughly seven in ten Americans surveyed oppose having a data center near them, according to a March 2026 Gallup poll. No state legislature has enacted anything as absolute as Monterey Park’s ban. A single city of 60,000 people just did.
The direct message
June’s four actions are evidence of a shift in political mood, not evidence that the incentive model is ending. A pause, a moratorium, a ratepayer law, and one city’s ban all address the visible symptoms — electricity bills, water use, siting fights — without repealing the underlying subsidy structure most states still run. The story isn’t that states are turning against data centers. It’s that a handful are managing the backlash loudly and visibly while the other 38 keep the exemptions on the books, largely out of the headlines, and largely unchanged.
The pattern beyond the four
Illinois, Arizona, Oklahoma, and Monterey Park are the sharpest examples, but they are part of a wider wave of state activity in 2026. Massachusetts Governor Maura Healey paused her state’s data center tax incentive pending stronger protections on energy bills, water use, air pollution, and noise. Texas Governor Greg Abbott directed state regulators to ensure data centers pay for their own grid interconnection costs, and said he would push to phase out the state’s data center sales tax exemption in the 2027 legislative session. Minnesota went further than most, actually removing its sales tax exemption for large data centers in June and replacing it with a new annual fee tied to energy use.
Connecticut, Georgia, and Washington have advanced what the National Conference of State Legislatures calls “off-ramp” proposals — measures that restrict who can qualify for incentives going forward without touching existing agreements. Pennsylvania and New Jersey have considered tying tax benefits to prevailing-wage requirements on data center construction. None of these amounts to the kind of outright termination Good Jobs First and other critics have called for. Most are guardrails bolted onto programs that remain fundamentally intact.
The 38 states still running the program
Set against all of this is a baseline that hasn’t moved. The National Conference of State Legislatures counts 38 states currently offering dedicated data center tax incentives, typically a sales and use tax exemption on equipment and electricity. In 2026 legislative sessions, lawmakers in at least 28 of those states introduced bills adding guardrails — cost controls, energy-demand management, transparency requirements — rather than repealing the incentive itself. Only nine states have seriously considered full repeal: Arizona, Connecticut, Georgia, Maryland, Michigan, Pennsylvania, and Virginia among them, per NCSL’s April summary.
Georgia is the starkest illustration of how little some of this activity has changed the underlying math. According to a Good Jobs First analysis, the state’s data center sales tax exemption is now expected to cost $2.5 billion in fiscal 2026, 664 percent above its original $327 million estimate, with projected costs near $3 billion the following year. The incentive remains fully in place. Virginia’s legislature debated ending its roughly $1.6 billion annual data center sales tax exemption this year and ultimately preserved it in the final budget. During the debate, state Senator Mark Obenshain said Virginia had moved from the “NIMBY” phase to the “BANANA” phase — Build Absolutely Nothing Anywhere Near Anything.
These are not stories of incentives disappearing. They are stories of incentives absorbing criticism and continuing largely unchanged.
