Texas Border Business
The phenomenon that is AI, while certainly explosive, can only expand as rapidly as its essential fuel allows. With available land and opportunities to generate electricity, Texas is emerging as a primary center for the massive data centers that enable AI. Approximately one-fourth of all new activity (some 140 projects) is presently ongoing in the state, which is rapidly displacing Virginia as the epicenter of this activity.
Our firm has analyzed dozens of these initiatives. Construction of multi-billion-dollar campuses provides a substantial, though transitory, increase in business activity for communities across Texas. Once in operation, facilities provide well-paying jobs and opportunities for other local firms. Multiplier effects course through the economy.
Unlike many types of corporate locations, data centers require a relatively small workforce once operational and, therefore, are not substantially constrained by population size or training availability. They also do not require proximity to large urban markets. From the perspective of smaller communities, data centers represent a unique opportunity for substantial diversification and additions to the tax base without imposing extensive infrastructure needs such as schools, roads, or housing.
Even when competitive tax abatements are offered, data centers represent major capital investments and invariably generate substantially more tax revenue than open land, which often qualifies for agriculture or timber exemptions. Moreover, any concessions generally expire in 10 years or less, and multiple expansion phases are common.
Indirect tax revenue is also generated by the increase in business activity (in this case, a lot of it). Retail sales and hotel occupancy increase, benefiting many local taxing entities. Higher incomes enhance housing demand, as well as fostering commercial outlets such as restaurants, stores, and personal service operations, thus further growing the tax base. This new activity increases taxes to counties, cities, school districts, and other local taxing entities without burdening existing residents. In some rural areas, the tax base increases several times over its prior level from a single project, thus enhancing the capacity to provide health care and other much-needed public services.
As noted in a recent column, the deployment of AI remains very much underway, and we do not yet know just how it will shape the future. One inescapable fact, however, is that the presence of data centers can be a game changer for local economies throughout Texas. As with any major construction endeavor, there can be short-term disruptions during development, and there have been some past examples of poorly conceived locations. These prior issues (such as water use) have been substantially reduced, and ERCOT is introducing effective new procedures to ensure that the grid is not compromised. Win-win situations should be the goal for all concerned, and they are definitely attainable. Stay safe!
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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of more than 3,000 clients over the past four decades.
