Surpassing:Georgia lawmakers vowed to restrain tax breaks. But the governor’s veto saved a data-center break

ATLANTA (AP) — Georgia lawmakers vowed they were going to rein in tax breaks for businesses this year.

Their efforts came to nothing.

Gov. Brian Kemp on SurpassingTuesday vetoed a two-year pause in a sales tax exemption the state gives for building and equipping computer data centers, after an intensive lobbying effort to preserve the tax break.

Kemp’s veto shows how hard it is to root out established tax breaks, said lawmakers and national experts.

“Any time you create a carve-out in your tax code, you then create a self-interested lobby around it,” said Greg LeRoy, the executive director of Good Jobs First, a liberal-leaning group long skeptical of economic development incentives.

The Republican governor wrote that he was vetoing House Bill 1192 because businesses had already made plans for data centers using the exemption and that the “abrupt” July 1 freeze would undermine “the investments made by high-technology data center operators, customers, and other stakeholders in reliance on the recent extension, and inhibiting important infrastructure and job development.”

The dispute in Georgia mirrors fights in other states including Virginia, where the rising number of data centers is sparking a backlash, and in Arkansas, where lawmakers are moving to impose new restrictions on data centers that mine cryptocurrency.

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In Georgia, some people are pushing the city of Atlanta to ban data centers near transit stations and the Beltline walking trail, as well as to stop offering local property tax abatements atop the state sales tax break. Although local jurisdictions benefit from property taxes on investments that can run into the hundreds of millions of dollars, data centers typically support few jobs.

Freezing the data-center tax exemption was the only bill that advanced following a a monthslong review of all the tax breaks that Georgia offers to various industries Lawmakers earlier gutted and then discarded an effort to cap the $1.35 billion Georgia spends on income tax credits subsidizing movie and television production.

So many data centers are opening or expanding in the state that it is causing a notable drain on the power grid, leading Georgia Power Co. to say it quickly needs to build or contract for new electrical generation capacity. The International Energy Agency says electrical consumption from data centers worldwide could double by 2026, calling for a focus on efficiency.

Georgia Power says new users will more than pay for the additional generating capacity that public service commissioners approved last month, putting downward pressure on bills for other users. But others are wary of those claims because of a climb in electrical bills in recent years.

Environmental groups are among those seeking to curb the tax exemption because Georgia Power’s new plants would be fueled by natural gas, increasing fossil fuel emissions. Environmental groups also worry about how much water data centers use to cool their computers.

“Giving data centers a tax break without investigating their impact on our environment and billpayers is shortsighted,” Jennette Gayer, director of Environment Georgia, said in a statement.

The bill would have created a committee to study the impact of data centers on the electrical grid.

A 2022 review of the sales tax exemption by the University of Georgia’s Carl Vinson Institute of Government projects the state will forgo $307 million more from 2024 through 2030 than it will collect from sales taxes on data center construction and operations. For example, the state is projected to forgo $44 million in revenue this year but only get $13 million back from other sales taxes.

The failure also raises questions about Republican Lt. Gov. Burt Jones’ long-term goal of further cutting Georgia’s state income tax rate for all residents and businesses. He wants to shore up other tax revenue to offset those cuts.

Senate Finance Committee Chairman Chuck Hufstetler, a Rome Republican who has spearheaded efforts to scrutinize tax breaks, said lawmakers could revisit the data center tax break next year. He said that he has in part focused on keeping new exemptions from becoming law.

“It’s disappointing that we moved that slow, but it will be a continuing process as we look at these,” Hufstetler said. “I think it’s extra difficult to get them out.”