Why It Matters
Issue 4– July 2026
Data Centers – Financial Risks
In the last “Why It Matters” Issue # 3, we took an initial look at data centers to get a sense of what they are and what they are used for.
Here is a summary of the points covered in this issue of Why It Matters to help you digest the information:
1. Small governments are attracted to the idea of large projects like data centers because it will allow them to raise your property taxes.
2. Data centers require huge amounts of costly infrastructure to be built. Costs the small governments can’t pay for. The developers front the money and use Tax Incremental Financing (TIF) to recoup those funds from the community in which the data center is built. [Tax Incremental Districts (TID) are the geographic areas associated with the TIFs]
3. When a project is funded with TIFs, then taxes go up for existing residents because the tax payments from the data center owner do not contribute to the local government’s general fund until the Tax Incremental District (TID) closes (in 20 or so years).
4. If a project is not TIF-funded, then taxes do not go up because the data center tax payments cover the increase in the tax levy.
5. Data centers increase the financial risk to a community due to their sheer size and the speed with which it is expected they will become obsolete.
To start, let’s look at some of the motivations that might prompt local leaders to welcome data centers and why the promises don’t pencil out.
Why, you ask, would local townships and rural counties be interested in bringing in data centers when there currently are so few protections for the communities where they are being built? Why welcome data centers when they have a reputation for consuming huge amounts of water to function and generate the electricity that supports the operations? Why allow data centers into your community when they consume so much good farmland? Why accept this kind of development when there is so much public pushback?
1. Small governments are attracted to the idea of large projects like data centers because it will allow them to raise your property taxes.
Property taxes are perhaps the biggest reason small local governments welcome hyperscale data centers and the reason they should be rejected. Sound confusing? Let’s unpack what’s behind that statement.
In the state of Wisconsin, “improvements” (development) is the only vehicle available for raising tax rates
For example: Pierce County is looking at its budget for 2027. Contract costs go up annually from 3% to 5% every year, according to Jason Matthys, Administrative Coordinator for Pierce County, who spoke about the budget at the June 23 Pierce County Board of Supervisors meeting. When you have a 5% escalator on a contract, the county is required to pay that. Every department is being asked to develop a 2027 budget with a 0% increase in operating expenses, so they will need to closely examine those areas they have cost control over. This may include cutting spending on office supplies or canceling contracts when in-house employees can do the same job for less.
And Pierce County is not as budget-constrained as other counties. Chasing revenue to provide services is a struggle in small units of local government all over the country.
Why is revenue so tight?
State statutes place a tax levy limit on local governments. The law provides that local governments cannot increase their annual tax levy for qualified operating costs, except for an amount equal to their growth in new construction, sometimes called “improvements.”
State tax law does not allow for factoring inflation into tax levies. This means that year after year, the county, cities, townships and the state are coming up short. Your taxes keep going up, but at a slower rate than inflation. You are paying more and getting less in part because inflation is eating away at the purchasing power of local governments to maintain roads and provide other services.
The promise of large-scale development to mayors and town and county chairs is that it means they can then raise your property taxes.
Why are large scale developments so financially damaging to small communities?
When a developer comes to a rural community that is land-rich but cash-poor and offers a multi-million-dollar project, it is understandable that the local leadership would want to explore the possibilities.
So why, when a multi-million-dollar project is built in a rural area, is the community further impoverished? It is counterintuitive.
To understand why, we must look at how our property taxes are calculated, at the terms offered by data center developers and how they are financed.
How taxes are calculated: Taking the previous year’s equalized value,1 add up the value of last year’s construction. Divide the total value of the new construction by the equalized value and that gives you the percentage of net new construction (NNC) 2 that each property owner will have to pay.
For example, working with round numbers, if last year’s equalized value was $50,000,000 and there was $500,000 in new development, dividing the value of the new development by the equalized value gives you the percentage of the net new construction that each property owner will have to pay. ($500,000/50,000,000=0.01, or 1%
Then, you allocate that new levy limit3 to each individual property proportional to their valuation.
My tax bill for 2025 was $5,741.63. If I add 1% to that, my taxes would only go up to $5,799.05, or about $4.80 per month. A small increase.
If a data center comes in and builds a $1 billion project, that changes the calculation enormously. Dividing the value of the new construction by the equalized value looks like this: ($1,000,000,000/50,000,000 = 20 or a 1,900% increase). What would the added value of a billion-dollar data center do to my tax bill? $5,741.64 X 20 = $115,981.00.
I would have to sell my home and move in with my kids. How many people do you know who could afford a jump in property taxes of 1,900%? (This is simplified for illustration purposes only.)
The scenario above assumes that the property owner is using Tax Incremental Financing (TIF) to pay for the initial infrastructure buildout. It is a type of tax break for the developer. TIFs are described in # 2 and # 3 below.
Tax breaks are used to rehabilitate blighted property. The expectation is that the development will provide new jobs in the area. With new jobs, people will move in, buy or rent homes, shop at local businesses and add tax revenue to make up for the lost revenue from the tax break.
If an area was truly blighted and a data center were to produce a large jump in long-term employment, resulting in diversified development of restaurants, stores, more housing and new businesses, some kind of tax break might be justified. Historically, that has not been the case with data centers.
Data centers, even hyperscale data centers, don’t add very many jobs beyond the construction phase. If a community gives the data center tax breaks, they are giving away revenue that was the very reason for wanting to attract developers in the first place.
2. Data centers require huge amounts of costly infrastructure to be built. Costs the small governments can’t pay for. The developers front the money and use Tax Incremental Financing (TIF) to recoup those funds from the community in which the data center is built.
A lot of infrastructure is built to support a project of this size. Things like water main and water treatment plant expansions, power station upgrades, wastewater treatment upgrades and expansion, oversight, and third-party fees. For Port Washington, the total estimated cost is $458,565,144.00. The City of Port Washington’s annual tax revenue is around $9 million. No lender in their right mind would lend the City of Port Washington the kind of money needed for this massive infrastructure.
And let’s be clear, this is not infrastructure the community needed. This is not roads, schools or health care support. This is infrastructure the developer needs to enable the data center to be built.
3. When a project is funded with TIFs then taxes go up for existing residents because the tax payments from the data center owner do not contribute to the city’s general fund until the TID closes (in 20 or so years).
TIF: The developer will front the money to build the infrastructure needed by the data center. The Tax Incremental Financing (TIF) means the taxes the developer would have paid to the community is not collected. Instead, the funds not paid are counted against the initial costs the developer paid to build the infrastructure that made the data center possible. In short, the developer gets to build what they want in a way that shifts the cost of that development from the developer to the community.
In Beaver Dam, the community is giving back $110 million. TID Case Study - Beaver Dam — WI Data Center Document Repository In Port Washington, the developer paid $180 million for infrastructure but the community is paying that back to the developer with 7% interest. Port+Washington+TID+No+5+Project+Plan_2nd+Draft_2025930+1.pdf (See page 26)
In the case of the City of Port Washington, the community will not receive a dime of usable tax revenue until the TID is paid off (estimate is 2045 but that could be longer depending on whether the building schedule and cost estimates are realistic and whether the technology built today will still be usable in 20 years).
Here is a link to the City of Port Washington Tax Incremental District No. 5
Port+Washington+TID+No+5+Project+Plan_2nd+Draft_2025930+1.pdf
4. If a project is not TIF-funded, then taxes do not go up because the data center tax payments cover the increase in the tax levy.
Suppose TIF financing were not used? This is where local governments could potentially cash in at least temporarily on receiving a big jump in tax revenue without raising the taxes of existing residents.
Let me introduce you to Prescott Balch. Prescott is a retired technology executive with a 38-year career in large corporate software development and a resident of Caledonia, Wisconsin. He has been advising communities about the financial pitfalls of hyperscale data centers since pushing back against a tech company that wanted to build a data center campus in a residential area of his village. Prescott provided me with an example of what it would look like to have a large project come in without using a TIF. For simplicity’s sake, the example is of a large home instead of a data center:
Assume current levy (total revenue raised from property taxes) is $10,000.
10 homes in the city worth $100,000 each, for a $1 million total valuation.
Each home pays $1,000 in taxes.
1 new big home built worth $1 million.
Allowable levy increase is 100%, or $10,000.
If the city takes all the allowable increase, the new levy is $20,000.
Big homeowner is 50% of tax base, so he pays $10,000.
Remaining homeowners pay the other $10,000, meaning they see no increase in their tax bills
The local government could even lower your taxes, taking only what was needed to provide services. Wouldn’t that be peachy?
If a data center really wants to locate in your community, tell them they must pay for everything associated with the development. Everything.
Many of the other risks associated with that type of large-scale development would still need to be addressed.
5. Data centers increase the financial risk to a community due to their sheer size and the speed with which it is expected they will become obsolete.
There is something called “the 12% rule.” It was created to prevent a community from taking on too much financial risk. When you have multiple commercial developments with different owners, you reduce risk. When you have one large commercial development that makes up more than 12% of the tax base, you are increasing risk.
Assume the commercial development has done well for itself. The community has suffered through 20 years of having to pay the developer back for the initial infrastructure investment (TID). The commercial development is finally contributing to the tax base. This commercial development is responsible for 30% to 50% of the city’s tax revenue, but the data center is no longer competitive due to technological advancements. The city will do anything to try to keep that commercial development running because it can’t afford to lose 30% to 50% of its revenue overnight.
But wait, we have the 12% rule, so communities are not allowed to take on such risk, right?
The state Senate approved, 29-3, and the state Assembly, 91-6, and Governor Evers signed bipartisan legislation making an exception for data centers so Beaver Dam and Port Washington could move forward with their data center development. ab140.pdf
Who will rescue these communities when the data centers now being built close?
Another complicating factor is that the data center owners at a future date can challenge their tax valuation in court. Commercial real estate value is based on net operating income level. If they are paying taxes, they can justify a reduction in tax payments based on the reduced value of their operation. Everyone else will have to make up the difference.
I haven’t touched on how, due to their sheer size, hyperscale data centers also put public education financing at risk or how they exacerbate the inability of the community to keep pace with inflation and curtail future development. In addition, the state agreed to subsidize hyperscale data centers by giving them a sales tax exemption. Wisconsin (that’s you and me) lost out on $2 billion in sales tax revenue in the 2023-25 state budget. Wisconsin data center tax break costs more than $2 billion in lost revenue
Data centers have been touted as the answer to the economic needs of rural communities. Instead, communities subsidize the costs of doing business and big business gets the profit. What our communities need are practical solutions that build our prosperity over time.
Some Solutions:
Unaddressed is what can be done to help local governments keep pace with inflation without driving landowners into tax default.
Pierce County is already doing what they can with what they have to work with:
As mentioned earlier, since revenues for 2027 are not expected to go up, all departments are expected to either hold or reduce spending on things they have control over like office supplies. A good example is that prior to Covid, the county found it was less expensive to contract out janitorial services than it was to pay in-house employees to perform those services. When Covid happened, those third-party janitorial services raised their rates significantly. For 2027, the county received a bid for $276,000. The county can hire staff at a cost of $230,000 to self-perform janitorial serviced including the new judicial facility.
The Wisconsin Counties Association continues to lobby for changes to help Wisconsin counties, according to Jason Matthys quoted earlier. One thing that would help is if the state changed tax law to allow local governments to raise taxes at the rate of inflation. This would be a small incremental increase that would allow counties, cities and townships the ability to provide a better level of service that benefits everyone without the sticker shock associated with chasing large development.
Source:
Wisconsin Counties Association - Home
In Michigan, the state tax law allows the rates to increase according to inflation plus any new improvements.
Source:
Michigan State Property Tax Laws - Search
North Dakota has a State Bank. It was started during the 1900s in response to the squeeze put on farmers. Grain dealers outside the state suppressed grain prices, farm suppliers increased their prices, and banks in Minneapolis and Chicago raised the interest rates on farm loans sometimes up to 12%.
Since its inception, the North Dakota State Bank has been at the center of protecting farmers, educators and fostering economic development.
Source:
If Wisconsin established a state bank patterned after the one in North Dakota, imagine what help could be provided for struggling rural communities today.
For additional recommendations that get into tax law details go to page 18 in Data Centers in Wisconsin - The Perfect Storm of Incentives (For those who want more detail this document is a good primer)
What can we do?
Never doubt what a small group of people can do when they organize their neighbors.
Stay informed and engaged with the help of Wisconsin Farmers Union Home | Wi Farmers Union and or GROWW Home - GROWW
Attend your local township and county board meetings. If you live in a city, attend city council meetings. Testify about the need to establish moratoriums giving time for elected officials to become informed about the many impacts such large-scale developments have on every aspect of our communities. (River Falls Township has established a subcommittee to come up with language for a data center moratorium.)
Ask to meet individually with your elected representatives. Start the conversation by thanking them for their service. Share a bit about your own formative years that shaped your values. Ask them to share something about their own lived experience that formed their motivations to serve. Discovering shared values lays the foundation for cooperation to solve problems regardless of other differences.
At this point you can ask, “I hope you can help me understand something.” Present what you know about the impact of data centers on property taxes, (or any other aspect of data centers that you know about). “How can the community work together on this to protect itself? Would you be willing to support a moratorium to give time for the community to study the issue further? What can I do to support you in this effort?”
Talk to your neighbors, find out what their concerns are regarding data centers. Offer to bring them along to public meetings.
Start conversations with your neighbors and elected officials about changing state tax laws and what a State Bank could offer Wisconsin small businesses and farmers.
Track data center locations Data Center Map - Colocation, Cloud and Connectivity
If you look at the map, you may be shocked to see how many data centers have been built or are proposed all over the world.
The interactive map on the link above allows you to zoom in and find the locations of data centers in your area and look up the name of the company if available. For example, there is a proposed data center in Menomonie, Dunn County. The developer is Balloonist LLC, a “foreign LLC” registered in 2024 with principal offices in Delaware, according to the Wisconsin Department of Financial Institutions, and is “believed to be linked to a major tech firm,” according to Data Center Map
According to the Data Center Map, the proposed Menomonie facility could consume approximately 75,000 gallons of water daily. This estimate does not include the amount of water that would be needed to generate the electricity needed for the facility to operate.
Coming up:
Concerns such as water usage, utility rates, insufficient insurance coverage, lack of emergency plans, property value decline, and others will be looked at in a subsequent newsletter.
Reference information:
How a tax rate is calculated
https://www.ehlers-inc.com/newsletter-story/key-considerations-for-wi-levy-limit-worksheets/
Levy Limit explained
Definitions:
1 Equalized value = valuation used primarily in property taxation to ensure that assessments are fair and comparable across different municipalities or taxing districts. It represents an estimate of the full and fair cash value of all taxable property, adjusted to account for differences in local assessment practices and assessment ratios
2 NNC = Net New Construction = new construction minus improvements removed (destroyed) between the previous year and the current.
3 Levy limit percent = a percentage calculated by dividing the current year net new construction by the prior year Equalized Value of a municipality or county.
Additional terms:
A TID = Tax Incremental District is a specifically defined geographic area where local governments aim to encourage development or redevelopment. The purpose is to concentrate development efforts in a particular area that might not otherwise attract investment without incentives (like tax breaks).
TIF = Tax Incremental Financing – is the funding mechanism used to finance improvements within a TID. When a TID is established, the current property values within the district are frozen as the base value. Taxes collected on this base value continue to go to the usual taxing jurisdictions, such as the municipality, school district, and county. As development occurs and property values increase, the additional tax revenue generated from this growth – called the tax increment – is captured and used exclusively to pay for improvements within the TID. (tax monies paid by the property owner pay for the expenses incurred during development, not the community writ large) Once the TID reaches the end of its life or project cost are fully covered, the increment revenue is returned to all taxing jurisdictions, expanding the overall tax base.
Source: Definition of TID and TIF - Search
Mill rate = the amount per $1,000 of property value used to calculate property taxes.
Link to Department of Revenue common questions:
DOR County and Municipal Levy Limits
Wisconsin Data Center Tax Revenue Worksheet to determine multiple tax scenarios. Worksheet developed by Prescott Balch. “This spreadsheet is what I used to do all the calculations for the different scenarios. You can plug in the community name, then find a couple of variables in publicly available docs, and voila, out comes all the impact. I'm hoping it's self-explanatory.”
Wisconsin Data Center Tax Revenue Worksheet - Google Sheets