New York Data Center Moratorium Will Hurt Economy, Jobs, Innovation, & Risk Higher Electricity Prices

New York’s government seems keen on destroying the state’s business community. On July 14^th, New York Governor Kathy Hochul issued an executive order instituting a 1-year moratorium on new hyperscale data centers. This comes after numerous municipalities have passed their own data center moratoriums. As multiple state governments and the federal government weigh their own data center moratoriums, all eyes are on New York to see what the results will be. 

Based on the existing data, these data center moratoriums will not accomplish what proponents argue they will. In the executive order, Governor Hochul cites two common talking points from the anti-data-center crowd: data centers are hiking utility rates and drinking up too much water.

Neither of these claims holds up to scrutiny. The utility argument withers when comparing New York to Texas. According to the Empire Center for Public Policy, New York residents were paying an average of 29.45 cents per kilowatt-hour, compared with 16.99 cents per kilowatt-hour in Texas. At the same time, Texas has twice as many data centers as New York. 

Why is this? The calculation of a utility rate is more than just the number of data centers in a particular state. Fuel, power plant costs, and transmission systems all play roles in determining the rate. Simply blaming data centers in the state for rising utility prices does not track with the data and underlying reasons.

Looking at New York shows why rate increases are happening, none of which have to do with data centers. In 2021, New York retired the Indian Point Nuclear Power Plant at the behest of progressive activists like Senator Bernie Sanders (I-VT). This decision replaced stable nuclear energy with a more price-volatile source, such as natural gas, thereby spiking the median electricity price by 84%. Governor Hochul, who presided over this shutdown as the Lieutenant Governor of New York, has only made this situation worse by finalizing it in 2024 and pledging never to reopen the Indian Point Nuclear Power Plant. Given the state’s limited energy supply, it is no wonder utility prices have gone up.

Additionally, New York has made it harder to build transmission lines. High demand in the southern part of the state, coupled with the more rural, land-abundant north, means that building more transmission lines will help to make the state’s energy more affordable. Instead, a combination of bureaucratic and economic factors prevents further construction.

The New York Independent System Operator makes it harder to connect new projects to the grid because of the interconnection queue, effectively blocking 27 gigawatts of clean energy. Furthermore, state-backed renewable contracts often include high-wage requirements and apprentice-linked labor rules, adding costs to energy projects. These roadblocks to transmission lines prevent energy generation projects from connecting to the grid, further depriving New Yorkers of much-needed energy that would help reduce utility prices.

Even so, data centers can be part of the solution to higher utility prices. According to the Electric Power Research Institute, data centers have caused residential electricity rates to fall by 6% from 2019 to 2024. This is because of numerous factors. First, economies of scale mean that costs are spread more widely, making electricity cheaper overall. Additionally, the cost of developing new energy infrastructure has dropped, meaning energy becomes cheaper as older assets are replaced.

The other common anti-data-center claim is that these servers use too much water. However, much of this claim is built on faulty data and incomparable metrics. For example, data centers used 66 billion liters of water in 2023, which sounds like a lot but is dwarfed by the 2 trillion liters used by golf courses and the 1.6 trillion liters used by California’s almond industry. However, we rarely receive calls from the anti-data-center movement regarding the need for an almond moratorium. Additionally, much of the data on water use has been discredited. For instance, in her best-selling book Empire of AI, author Karen Hao, the main source for the water claims used by anti-data-center activists, had to issue a correction after relying on government figures that were off by a factor of 1,000. Furthermore, data centers have improved their water use thanks to innovations in closed-loop technology and potential zero-water solutions. Overall, the two main criticisms of data centers seem to be flimsy.

The main impact of this data center moratorium is the economic loss it will impose on the state of New York.  According to a multi-county analysis, data center development drove an 11% increase in construction employment and a 22% increase in the information sector over 6 years. This translates to 2,000 to 4,000 new jobs and wage growth of up to 4%. Much of these increases come from hyperscale data centers, which Governor Hochul is banning.

Looking more closely at New York, the state has benefited from spillover effects from the data center industry. A recent PricewaterhouseCoopers analysis found that 256,400 jobs in the Empire State were created directly or indirectly by this sector in 2023, translating to $25 billion in labor income and $30 billion in value added. This makes sense. As mentioned before, data centers support job creation across a wide variety of industries. Increases in jobs and wages enable more economic activity because workers have larger budgets, creating a multiplier effect that extends beyond the data center’s direct involvement. By imposing a moratorium, though, Governor Hochul is blocking this multiplier effect from occurring and constraining future economic activity.

Having data centers can also be a huge tax benefit. Because of the revenue data centers generate, lawmakers can enact tax cuts to make life easier for their constituents. For example, Loudon County, Virginia, the data center capital of the world, has been able to reduce its personal property tax on vehicles and eliminate the vehicle license fee because of data center revenue. This amounts to $5,800 in savings for taxpayers. This is not just an outlier, as places like Grant County, Washington have demonstrated the same phenomenon. Especially in a state that ranks at the bottom of tax competitiveness, has the 3^rd-highest individual income tax rate, and has the 10^th-highest sales tax in the nation, New York should welcome opportunities to reduce the tax burden on taxpayers, not try to deprive them of this benefit.

New York’s 1-year data center moratorium reflects the anti-business and anti-innovation mindset that afflicts the state. Even if the data center moratorium is temporary, New York has sent a signal to the business community: do not do business here, do it in another state. Innovation does not stop when governments stick their heads in the sand; it merely migrates, which is what will happen because of this data center moratorium. As Governor Hochul pushes harder for more regulations and taxes on data centers, she should not be surprised when the tax base flees.