Arizona Pauses Data Center Tax Incentives Amid Water and Energy Concerns

Governor Katie Hobbs announced a three‑year freeze on new tax exemptions for data centers, a measure projected to save Arizona about $57 million. The pause is part of a broader budget and reflects state officials’ growing scrutiny of the sector’s electricity demand, groundwater use, and overall impact on public resources.

In Marana, supporters of a proposed data‑center project claim the site would use less water than the farmland it would replace. Critics argue the comparison ignores the water required to generate the electricity the center needs, estimating that powering a 1.1‑1.5‑gigawatt facility could consume roughly 11,000‑16,000 acre‑feet of water and produce millions of tons of carbon emissions. The dispute underscores wider concerns about water accounting and environmental costs as Arizona’s data‑center market expands rapidly.