These States Are Slamming the Brakes on Data Centers. Can the AI Industry Handle It?

To bolster artificial intelligence in the United States, President Donald Trump has championed rapid data center expansion as part of his AI Action Plan, jump-starting those efforts with the launch of the Stargate project immediately upon his return to the White House. At first, many states were eager to get on board in the name of American innovation. They offered tax incentives and removed red tape so that tech titans could spend billions of dollars building out the vast infrastructure needed to power their increasingly advanced AI models. But this push hasn’t come without consequences. 

Data centers are notorious for consuming enormous amounts of electricity and water, often leaving local communities with higher energy bills and strained drinking water supplies. And if they don’t use efficient energy sources, they can contribute to air pollution as well. 

As a result, data centers have become a fairly polarizing issue in the United States, drawing bipartisan backlash nationwide and prompting politicians at both the state and federal levels to take action. A growing number of states are even trying to impose moratoriums, which would temporarily pause new data center construction until lawmakers can better understand their effects and develop appropriate legislation to regulate them. 

Such policies would not only throw a wrench into Trump’s AI agenda vision — they would also stall the momentum American tech companies enjoyed in 2025, and reignite fears around a potential AI bubble wrecking the U.S. economy. 

Related ReadingThese 12 Major Tech Laws Take Effect in 2026. Here’s What You Need to Know.

First, What’s the Problem with Data Centers?

Data centers are controversial for several reasons: Their size, the relatively few permanent jobs they create, the generous tax breaks and subsidies they often receive. But their biggest issue is the strain they place on local power grids and water supplies.

The rapid proliferation of data centers has led to massive spikes in electricity rates, with one Bloomberg analysis finding that some areas have seen monthly power prices inflate by as much as 267 percent between 2020 and 2025. Higher levels of energy consumption are doing more than just raising utility bills, though. According to a 2025 report by the North American Electric Reliability Corporation, large portions of the East Coast, Midwest and Pacific Northwest will likely face energy shortfalls and more frequent outages as soon as 2028.  

In addition to straining the grid system, data centers require massive volumes of water to keep cool and avoid overheating, competing with local communities for limited drinking water in regions ranging from the American West to the Great Lakes. And if developers don’t use sustainable energy sources to power data centers, this infrastructure could become a main driver behind increased fossil fuel production. 

More on the Energy Dilemma Plaguing Data CentersCould Modular Data Centers Solve AI’s Power Crunch?

States Considering Data Center Moratoriums 

Several local governments across places like Minnesota and Michigan have enacted rules that would temporarily pause the construction of new data centers. And six states are trying to do so at the state level. Here’s a closer look at what each piece of legislation would do, and what local politicians hope to accomplish if the laws pass. 

Vermont

While Senator Bernie Sanders’ push for a data center moratorium has largely been ignored on the national level, his fellow Vermonters have heeded the call. A few days into 2026, several senators introduced a bill in the Vermont General Assembly that would freeze the construction of new data centers in the state until July 2030. 

During this period, Vermont’s Public Utility Commission would lead an investigation into how these facilities could affect the state’s natural resources, communities and economy, as well as strategies for mitigating any risks. According to the draft, this would include studying data centers’ “environmental impacts” on factors like “water quality and availability, air quality, local ecosystems, noise emissions, and the availability of surrounding land for other purposes, including farming, conservation, recreation, and housing.” 

The commission would then present a report on its findings no later than January 15, 2027, giving Vermont legislators time to develop a “regulatory regime that would best serve the general good of the State.”

Oklahoma

Data centers will likely be the main focus for Oklahoma lawmakers this session, particularly a bill that proposes pausing data center construction until 2029, giving the Oklahoma Corporation Commission time to study their impacts. The commission would be tasked with inspecting how data centers could affect the state’s water supply, utility rates, property values and other variables to determine “ideal locations” for future sites. 

Upon completing its review, the commission would then submit a digital report that includes suggestions for building data centers while still preserving the state’s ecosystem and electric grid, as well as individual privacy for Oklahomans. 

“As data centers continue to grow rapidly across Oklahoma, we are confronting serious unknowns about how these large facilities affect our communities,” Senator Kendal Sacchieri, the bill’s sponsor, said in a press release. “We must be sincere in addressing these unknowns and finding the best solutions for the erection of these very large facilities. There may be better solutions out there than what we are currently doing — which is allowing data centers to be sited anywhere and everywhere without thinking through the long-term effects.” 

Maryland

Several Maryland counties are beginning to embrace data center moratoriums, and the state legislature may soon follow suit. The Maryland House is considering an emergency bill that would prevent the construction of any new data centers, but existing facilities and those with all proper permits would be left alone. Rather than set a specific timeline, this moratorium would come to an end whenever Maryland lawmakers pass “certain legislation regarding the co-location of and power generation for data centers,” according to the bill’s text  

The bill stipulates that data centers must be built in tandem with a natural gas- or nuclear-powered facility, including small module reactors. Each facility would also require a “power generation capacity that meets or exceeds the data center’s power needs.” It should come as no surprise that Maryland is taking a stricter stance on data centers, given that it spearheaded regional efforts in 2025 to reel in electricity costs.

Virginia

Virginia lies at the heart of the U.S. data center industry, boasting some 643 facilities — more than any other state, according to an October 2025 study by the Pew Research Center. Northern Virginia alone is home to roughly 400 operational and in-development campuses, earning it the nickname “Data Center Alley.”

But in late January, State Delegate Irene Shin introduced a bill that would halt all applications for establishing new data center sites, including special use, special exception and rezoning permits. The moratorium would last until July 2028, or until the “fulfillment of all pending requests for interconnection to distribution service by an electric utility customer that is a data center,” as stated in the draft.

Georgia

The Georgia Senate is mulling over legislation that would ban the development of new data centers for one year, starting on July 1, 2026. During this period, no local government officials within the state of Georgia can sign nondisclosure agreements for water or electricity usage with data center developers. The law would exclude any contracts finalized before July 1, 2026, though. 

Energy consumption has become a central concern for many Georgians, who are grappling with rising electricity rates due to data centers. Keeping these prices down is the intention behind this bill, setting up a tense showdown in the years ahead.  

“We welcome investment from technology companies, but our constituents need peace of mind on the short and long-term impacts of these projects on their communities,” Senator Jaha Howard, who introduced the bill, said in a press release. “Affordability is at the core of the issues we hear from our constituents, and the rapid growth of data centers is increasingly driving up costs for families across the state.”

New York

New York is the latest state to consider a data center moratorium, with lawmakers proposing a three-year pause on their construction. According to the draft, the New York State Department of Environmental Conservation would examine how data centers impact electricity and gas rates, water consumption levels, land availability and carbon emissions, among other factors. It would then issue a report to help shape future policies aimed at minimizing the harms of these facilities down the line. 

This legislation cites several concerns tied to the growing number of data centers, including higher electricity and water usage, greater reliance on fossil fuels and increased e-waste. However, the ultimate goal of this bill remains singular in focus: Protecting the “health, safety and welfare of the people of the state and their overall economic and social well-being.” 

“Massive data centers are gunning for New York, and right now we are completely unprepared,” Senator Liz Krueger, a co-sponsor of the bill, said in a press release. “New Yorkers are suffering from an affordability crisis and a climate crisis, and data centers are going to make both of those much harder to deal with. It’s time to hit the pause button, give ourselves some breathing room to adopt strong policies on data centers, and avoid getting caught in a bubble that will burst and leave New York utility customers footing a huge bill.”

What Lies Ahead for Data Centers2025 Thrust Data Centers Into the Spotlight. 2026 Will Test Their Limits.

What Does This Mean for the AI Industry?

Any data center moratorium would add to the growing patchwork of state laws that U.S. tech companies have long argued are a burden to innovation — laws that President Trump tried to override with an executive order in December 2025. If these proposals become law, they may also encourage voters to back pro-AI regulation candidates and policies during the 2026 midterms, signalling a broader public resistance to the industry’s unchecked expansion. 

More importantly, stricter restrictions on data center construction could delay the arrival of more advanced AI products, making it harder for tech companies to justify their exorbitant spending on AI and feeding fears of a bubble popping in the near future. In response, some companies may look to alternative solutions, including offshore or even off-planet data centers — an idea that Elon Musk is a strong believer in. 

Public skepticism toward AI is quickly translating into concrete policy, putting pressure on the tech industry and the Trump administration to act fast if they want to regain control of the narrative around data centers. Otherwise, they risk falling out of favor with Americans across the political spectrum who seem to be more focused on the pitfalls of AI rather than its potential for technological progress. 

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