New Legislation Could Decide Future Of Data Center Development In Colorado

Two opposing proposals in the Colorado legislature could either make the state a competitive home for data centers or dampen the potential for growth.

A bill designed to encourage data centers to develop in the state, House Bill 26-1030, proposes a 20-year exemption on sales and use taxes for projects that meet certain requirements. Another bill, which has yet to be introduced, is expected to require data center companies to offset their energy use with renewable sources. 

Colorado has almost all of the criteria to be an ideal place to develop data centers, such as access to fiber, demand from industries, strong construction and technology workforces, and available land and power, according to Dan Diorio, the vice president of state policy for the Data Center Coalition.

“The one thing that I think Colorado is lacking in all those conversations around what does it have, as far as infrastructure, power, workforce, is a good tax and regulatory climate,” Diorio said.

Eight members of the Data Center Coalition have headquarters or a significant office presence in Colorado but do not have large-scale data centers in the state, Diorio said. In total, there are 56 data centers in Colorado, according to the Data Center Map. Virginia has the most with 570, followed by Texas with 393.

Diorio said he believes HB26-1030 could “unlock” data center development in the state, noting that 37 states currently offer tax incentives to data centers.

“[Tax incentives] really are key to fostering broader economic development, especially around the data center industry and the digital infrastructure industry,” he said.

Jason Addlesperger, senior managing director at JLL, agreed that the new legislation has renewed optimism that Colorado will become a more competitive market for data centers. 

“At the same time, ongoing discussions around utility investment and grid development could further demand,” Addlesperger said. “While power availability may be constrained over the next five to seven years, interest in Colorado as a strategic location remains strong.”

Addlesperger added that the state is seeing sustained demand from a range of tenant types and activity has shifted to “a more developer-led model, with groups securing sites, infrastructure and power in advance of identifying end users.”

However, the other proposed legislation could prevent data center growth in Colorado by requiring energy offsets and mandating companies pay for all infrastructure upgrades needed to support operations.

Data center company Flexential recently relocated a planned data center from Colorado to Georgia, citing Colorado’s proposed energy requirements and its lack of financial stimulus, according to CEO Ryan Mallory. 

Both HB26-1030 and the other expected data center legislation would impose clean energy requirements if passed into law.

“It’s very disadvantageous when companies can go across the border and get an extremely significant tax break,” Mallory said.

Flexential, a Centennial-based company, has 42 data centers in 18 states, including three in Colorado. The company is currently building a fourth Colorado location, a 22-megawatt center in Parker, but Mallory said that development got started before more burdensome regulations were proposed.

To encourage more development, Mallory said he would ideally like to see Colorado invest in its natural gas industry, implement tax breaks, and ease zoning and environmental restrictions.

Without change, both Mallory and Diorio warn that the state will miss out on the jobs and revenue boosts that data centers can provide.

A PwC report for the Data Center Coalition found that the industry contributed 100,350 jobs in Colorado in 2023 along with $1.3B in state and local tax contributions.

Mallory predicts that development in Colorado will lag unless the state makes major changes. 

“I think until the political structure and climate changes at the state level and there is a willingness to attract technology companies, then there will be few and far between that come,” he said. “It would be unfortunate, because we have so many pluses here, for the state to get locked out of one of the biggest industrial technology booms since the turn of the 19th century.”

The next hearing for HB26-1030 is Feb. 12.