Data Center Regulation: Midterm Wins Shift Power to State Legislatures

Democratic candidates who pledged tighter oversight of data center development won control of Congress and five key governorships in the November midterms. These electoral gains place state legislatures in a strong position to enact binding rules on artificial intelligence infrastructure, even if President Donald Trump blocks federal legislation.

Campaign spending reflected the intensity of the issue. AdImpact data shows campaigns spent more than $380 million on television ads mentioning data centers. Democratic spending outpaced Republican spending by a ratio of more than three to one. A review by Data Center Watch found that 32 of the 34 winning gubernatorial candidates supported stronger regulation or restrictions. Twelve of those candidates specifically favored bans or moratoriums on new facilities.

State-level leadership will drive the next phase of policy. Wisconsin Governor-elect David Crowley said he now supports a moratorium and the elimination of a state sales tax exemption for the industry. He cited proposals that would require fuller disclosure of water and energy use and mandate community support for projects. In Texas, Governor-elect Gina Hinojosa defeated incumbent Greg Abbott after criticizing his support for the sector. Hinojosa stated she would deny permits to projects that do not benefit Texans or lack resident input. Clayton Tucker, the first Democrat elected Texas agriculture commissioner since 1986, attributed his victory to rancher concerns over shrinking water supplies.

The industry is adjusting to the political pressure. OpenAI released a framework on Thursday outlining commitments to host communities and requested rules from policymakers at all levels. Dan Diorio of the Data Center Coalition warned that moratoriums could reduce tax revenue and company payments to local governments. He noted that the sector also encourages investment in domestic manufacturing.

Market analysts view the election results as a signal of increased regulatory risk. Morgan Stanley analysts said the Democratic wins could divide states by their openness to development. They identified Hinojosa’s victory and the election of Ohio Governor Amy Acton as factors that increase the risk of project delays. The technology-heavy Nasdaq fell to 11 percent below its record high on Thursday as rising borrowing costs fueled fears of a slowdown.

Local voters have already signaled their preferences. Redbud Consulting tracked 47 referendums in 44 municipalities across 12 states and found that restrictions passed in 44 of the 45 completed contests. An Associated Press voter poll found that roughly three-quarters of voters nationwide opposed a new data center in their community. This opposition was consistent across both Republican and Democratic states.

While data centers influenced local outcomes, they were not the primary driver of congressional votes. The AP poll indicated that about one-quarter of voters described AI data centers as a crucial factor in their choice. This figure was substantially lower than the number of voters who prioritized government corruption or living costs.