Hochul’s Silly War on Data Centers

The governor of New York, Kathy Hochul, has issued an executive order that places a one-year moratorium on the construction of data centers that use more than 50 megawatts of power to operate. Signing the instrument — which is the first of its kind in the United States — Hochul said that it was her “responsibility to take action and lead.” Indeed, it is. But this, alas, is not leadership.
Two elements of Governor Hochul’s approach are defensible. She has requested legislation that would repeal New York’s generous sales and use tax exemption for internet data centers, a subsidy from the early 2000s that is unfair to taxpayers and that has no place in a competitive free market. And she has demanded that the owners of new facilities contribute to a state fund that will be used to improve the electrical grid — an ask that, depending on the details, may be necessary to offset the increase in prices that can result from a sudden spike in demand.
The moratorium, by contrast, is a concession to Luddism and hysteria. It is one thing for a state to establish a set of working regulations or to insist that the cost of innovation must be borne by its beneficiaries. It is quite another to use government power to strangle a new market in its crib. Explaining her position on MS NOW, Governor Hochul made it sound as if the State of New York were a tiny island and she a dictator who had been charged with allocating its meager assets. “I have limited resources here in the state,” she said, “that I’m trying to preserve for the real innovation economy — the jobs like the Microns.”
One has to wonder what this can possibly mean. Micron, which is currently busy building a large manufacturing plant just outside Syracuse, N.Y., makes computer memory — a product that, at present, is primarily being bought by . . . data centers. Those Micron “jobs” that Hochul likes to tout — which are being heavily subsidized with federal and state grants and tax credits in exchange for company handouts to voters in the surrounding districts? They are the direct result of skyrocketing demand for Micron’s high-bandwidth memory hardware from the very cloud processing facilities that she is trying to keep out of New York. On MS NOW, Hochul tried to draw a distinction between the “real innovation economy” and the data centers she disdains. But this is absurd; they are one and the same. Logically, Hochul’s position is the equivalent of insisting that one is keen to attract the makers of tires, but that one doesn’t want to see the construction of any of those pesky car factories.
Why has Hochul taken this silly approach? Presumably, for the same reason that many other politicians have: because, over the last couple of years, tens of millions of people in the United States have been captured by a moral panic about “data centers” that is almost completely divorced from reality. The rise of artificial intelligence will certainly present some challenges, and we regret that its architects have sometimes been blasé about that or even played up potential disruptions. But data centers, which represent the building blocks of the internet as it exists right now, have been a mainstay of American life for nearly three decades. In many cases, the newer models are bigger. But the complaints that attend this are mostly myths. Data centers do consume large amounts of electricity, just as factories, steel mills, and aluminum smelters do, but utilities have long planned for the arrival of energy-intensive industries. They do not “produce nothing”; they provide the computing power that underpins banking, communications, streaming, cloud computing, e-commerce, and, increasingly, government. As for water? If this were the test, America’s irrigated farms, golf courses, and manicured suburban lawns would attract far more outrage than data centers. That they do not is telling.
True, not every place is ideally suited for building a data center — Manhattan or Brooklyn, for example. But Upstate and Western New York have plentiful water, lots of cheap land, and communities desperately in need of economic growth to hold off decades of declining population and prosperity. Hochul, who hails from Buffalo and presides in Albany, ought to remember that she is the governor of the state, not the mayor of New York City.
Earlier this year, Governor Hochul complained that Americans were moving out of New York to states such as Texas, Tennessee, and Florida, and taking billions of dollars in tax revenue with them. Her short-sighted executive order, placing a stop on one of America’s fastest-growing industries, suggests that she has not yet worked out why.