Commentary: Amid Budget Battle, Legislators Pass the Buck on Concrete Data Center Reforms. Again.

Oh, yay, another commission.

Leaders in the House of Delegates are continuing to tweak their version of a state budget, but they aren’t backing down from their fight with the Senate over data centers. What they are backing down from is their former insistence that data centers use clean energy. Instead, they propose to punt this and every other data center issue over to a commission.

Is that supposed to resolve the budget impasse? Because if that’s the idea, it sure seems like an odd way to go about it.

New House budget strips environmental standards for data centers, creates commission instead

Recall that Senate Finance Chair Louise Lucas, D-Portsmouth, wants to terminate the sales tax exemption that data centers have exploited to the tune of $1.6 billion lost from state coffers. (The total subsidy rises to $1.9 if you include the exemption from local taxes, but what’s a few hundred million bucks among friends?)

The tax isn’t something specific to data centers. It’s the same one all the rest of us pay. The argument that there are better ways to spend the money than to give it away to the world’s richest corporations has reaffirmed  Lucas as a bona fide social media star at age 82, and she is enjoying it very much.

In response to the new House budget proposal, Lucas tweeted out a tweak of her own: She now proposes to subject data centers to a nearly-equivalent fee that would generate $1.7 billion in revenue. Lucas and allies have launched a “listening tour” to build support for her approach.

But the House budget does not eliminate the exemption, leaving the two sides at an impasse.

The House is set to reconvene on June 18, and the Senate on June 22. The chambers will attempt to resolve their differences and adopt a budget before July 1 to avoid a government shutdown.

House leaders argue that data center operators relied on this tax exemption when they chose to locate in Virginia. They signed memorandums of understanding agreeing to a few minor conditions, and in return, they were promised they wouldn’t have to pay sales tax on computer chips and other equipment until 2035. (In the case of Amazon and any other corporation that sinks $50 billion into data centers in Virginia, the date has been extended out to 2045.)

But the House budget proposal originally incorporated provisions drawn from legislation introduced by Del. Rip Sullivan, D-Fairfax, requiring data centers that take advantage of the tax exemption to buy increasing percentages of renewable energy, refrain from using onsite fossil fuels as their primary energy source, and begin phasing out the backup diesel generators that threaten air quality. The bill passed the House but died in the Senate around the same time Lucas decided there shouldn’t be a tax exemption at all.

The disagreement left Virginia without a budget for the new year. Now, suddenly, the House has issued a new proposal that has the support of Gov. Abigail Spanberger. Instead of resolving the impasse, though, it actually goes backward in regulating data centers.

It still leaves the tax exemption intact, but now “includes explicit direction for the establishment of a Commission to thoroughly evaluate the direct and indirect costs and benefits of the data center industry.” The commission is to issue a report and recommendations for legislative and budgetary changes, which the General Assembly will then consider next year.

Are you feeling a little prickle of déjà vu? That’s because we have seen this before, and not very long ago. In December 2023, the General Assembly headed off action for all of 2024 by directing the Joint Legislative Audit and Review Commission (JLARC) to assess the impact of the industry on energy demand, state revenue, natural resources – essentially, the same things this year’s commission is supposed to look at all over again.

You remember the JLARC report. It sounded a dire warning against the consequences of “unconstrained” data center demand. The report made a stir in December of 2024 when it was issued. Statements were released, proposals were floated.

And thus warned, the General Assembly went into the 2025 session and did . . . nothing.

Doing nothing pretty much described 2026 legislative action on data centers, as well. Among the few reforms House and Senate Democrats seemed to agree on were that data centers needed to buy renewable energy and storage to limit the increase in Virginia’s carbon emissions and to decrease the pollution from diesel generators. The House did this by way of Sullivan’s bill; the Senate supported a different approach. Each chamber killed the other’s bill.

That left the House budget as the only vehicle for progress this year on one of the central problems of the data center buildout. By backtracking now, House leaders and the governor show they are willing to capitulate entirely to the data center industry and its labor allies.

Workers, Speaker Scott criticize plan to axe data center tax exemption as budgets advance

To be sure, a budget amendment this year that puts conditions on tax exemptions in future years would need to be followed with new legislation to lock in the requirements. And for that purpose, House and Senate members should definitely work together this summer to align their proposals, ensuring both chambers agree on the terms of the legislation before it is introduced.

A commission with that task could be useful. After all, the Commission on Electric Utility Regulation, now rebranded as the Energy Commission of Virginia, succeeded in bringing together House and Senate members around a striking number of good energy bills this year.

But a commission that is thrown together suddenly and instructed to retrace the steps of a report issued barely 18 months ago seems suspiciously like a substitute for action.

This is all too familiar. When it comes to data centers, inaction seems to be the point.

by Ivy Main, Virginia Mercury

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