March 20, 2026
Not All Data Centers Are Created Equal
The Case for Purpose-Based Restriction on Hyperscale Data Centers
By: Jeff Pierson
The debate over hyperscale data center construction in the United States has largely been framed as an economic competition — states racing to offer the largest tax breaks, the cheapest power, and the most permissive land use approvals. That framing is wrong. It skips the only question that actually matters: what is the facility being built to do?
A hospital and a slaughterhouse are both large buildings. We don’t permit them the same way. We shouldn’t permit data centers the same way either.
Existing federal, state, and local regulatory frameworks treat hyperscale data centers as a class of industrial infrastructure — roughly equivalent to a warehouse or a manufacturing facility. Zoning approvals, utility interconnection agreements, tax incentive programs, and infrastructure grants almost never distinguish between a facility hosting domestic financial services and one hosting surveillance infrastructure for a foreign-linked corporation.
This isn’t an oversight. It’s the product of aggressive lobbying by an industry that benefits enormously from keeping regulators focused on square footage, employment projections, and capital investment rather than what the servers inside actually do.
The result is that American land, American water, American power grid capacity, and American taxpayer dollars are being used to build infrastructure whose purpose, ownership, and ultimate beneficiary are often deliberately obscured.
That has to end.
Congress and state legislatures should establish a mandatory purpose-disclosure and authorization framework that conditions construction approval, utility interconnection, and any form of public benefit on what a hyperscale data center is actually built to do. The framework should operate on a tiered basis:
Facilities whose primary purpose is:
- Domestic commercial computing, cloud services, or enterprise IT
- Healthcare data processing and storage
- Financial services infrastructure
- Academic research and national scientific computing
These facilities may proceed through standard permitting with disclosure requirements and periodic auditing.
Facilities whose purpose includes:
- Media distribution and content hosting (social platforms, streaming)
- AI model training and inference at scale
- Telecommunications infrastructure
These require a disclosed use-case review, beneficial ownership transparency, and binding operational covenants before construction authorization.
Facilities whose primary or substantial purpose includes any of the following should not be authorized, full stop.
Hyperscale data centers purpose-built to aggregate, process, or store population-scale behavioral data — location tracking, biometric databases, communications metadata, financial transaction monitoring — represent a qualitatively different threat than ordinary commercial computing.
The distinction matters because scale is the product. A surveillance system that can process 10 million records is not merely larger than one that processes 10,000 — it is a different instrument entirely, one whose primary utility is coercive.
Domestic construction of such facilities should require a demonstrated lawful purpose, a constitutional nexus, and ongoing independent audit. Facilities that cannot satisfy that standard should not be built. This applies to private commercial surveillance operations — data brokers, behavioral advertising infrastructure, consumer profiling platforms — as much as it does to government-adjacent systems.
The legal foundation exists. The Supreme Court’s third-party doctrine has been substantially narrowed by Carpenter v. United States (2018). Congress has not caught up. A purpose-based construction authorization framework would be a meaningful step toward structural prevention rather than reactive litigation.
This is the category most likely to generate reflexive first-amendment deflection, so it is worth being precise about what is and is not being proposed.
The proposal is not censorship of content. It is a refusal to extend public subsidy and public infrastructure to the industrial-scale distribution of pornography.
The distinction is critical. A publisher has a constitutional right to distribute material. That right does not include a constitutional entitlement to:
- Tax increment financing
- Below-market utility rates negotiated through public utility commissions
- State and local economic development grants
- Infrastructure upgrades to roads, power, and water systems funded by taxpayers
No serious legal scholar argues that the First Amendment compels affirmative government subsidy of speech. The government is not required to build the printing press.
Hyperscale data centers hosting pornography as a primary or substantial use case should receive no public benefit of any kind — no tax abatement, no infrastructure grant, no utility preference. They may operate under existing law. They may not do so on the public’s dime.
This position is consistent with longstanding obscenity and community standards jurisprudence and does not require Congress to resolve any contested constitutional questions. It requires only that subsidy programs specify eligible use cases — a routine exercise of legislative appropriations authority.
This is arguably the highest-stakes category and the least adequately addressed by current law.
CFIUS reviews foreign acquisitions of existing domestic infrastructure. It does not adequately address greenfield construction of new infrastructure by entities with material foreign government ties, nor does it address operational relationships that give foreign governments effective access to data processed in nominally domestic facilities.
A purpose-based construction framework should prohibit authorization for any hyperscale facility where:
- A foreign government holds direct or indirect ownership of 5% or more
- Operational agreements, data processing contracts, or equipment supply chains create meaningful access rights for entities subject to foreign government legal compulsion (China’s National Intelligence Law being the most obvious example)
- The facility’s primary customer base includes foreign state-owned enterprises or government agencies
This is not a trade restriction — it is a sovereignty position. The People’s Republic of China does not permit American companies to build unrestricted data infrastructure on Chinese soil. Reciprocity is not protectionism.
The subsidy question deserves its own treatment because the numbers have become absurd.
State and local governments across the country have collectively offered tens of billions of dollars in tax abatements, infrastructure grants, utility rate preferences, and land deals to hyperscale data center operators. In many cases these concessions persist for decades. In virtually no cases are they conditioned on the nature of what the facility does.
The public policy rationale offered is jobs and tax base. The reality is that hyperscale data centers are among the most capital-intensive and least labor-intensive industrial facilities ever constructed. A one-million-square-foot hyperscale facility may employ fewer than 50 permanent workers. The jobs argument is almost always fictitious at the scale being claimed and it is debatable whether any subsidies ever offer an equal return, regardless of the industry.
Meanwhile the infrastructure costs are real and are borne by everyone else:
- Power: Hyperscale facilities are consuming grid capacity at a rate that is materially affecting electricity prices and reliability for residential and small commercial customers in affected markets. That is a direct wealth transfer from the general public to data center operators.
- Water: Cooling water consumption at hyperscale facilities is substantial and in arid western states represents a genuine resource conflict with agriculture and municipal supply.
- Roads: Construction traffic and ongoing logistics operations impose road maintenance costs that are rarely internalized by project developers.
- Transmission: Grid interconnection upgrades required by large loads are frequently socialized across ratepayers rather than charged to the benefiting customer.
The correct policy position is simple: no public subsidy of any kind for hyperscale data center construction, operation, or associated infrastructure. Not tax abatements. Not TIF districts. Not utility rate preferences. Not infrastructure grants. Not state economic development funds.
If the economic case for a facility requires public subsidy to pencil out, that is the market telling you the facility should not be built where it is being proposed. Listen to the market.
“This will drive investment overseas.” Investment in surveillance infrastructure and foreign-accessible data centers going overseas is not a loss — it is the goal. We should not be competing to host it.
“You can’t define purpose with enough precision to regulate it.” We regulate purpose in land use law constantly. We distinguish industrial from commercial from residential uses. We distinguish uses within those categories. Defining permitted and prohibited data center purposes is not categorically more difficult than any other conditional use permitting exercise.
“Foreign investment creates jobs.” See above. Hyperscale data centers do not create meaningful employment relative to their capital base, public subsidy received, or infrastructure impact. The jobs argument is a lobby talking point, not an economic analysis.
Federal action is preferable for foreign ownership restrictions, but states can move immediately on subsidy and land use questions:
- Require purpose disclosure as a condition of any economic development incentive application for data center projects above a defined capacity threshold
- Define ineligible uses in economic development statutes — surveillance aggregation, pornography distribution, and foreign-government-accessible facilities explicitly excluded from incentive eligibility
- Require beneficial ownership transparency to the same standard as CFIUS for any facility receiving public benefit
- Mandate utility cost internalization — require that any load above a defined threshold bear the full cost of grid interconnection and transmission upgrades without socialization to other ratepayers
- Establish a community impact review process for hyperscale facilities that explicitly considers purpose, water consumption, road impact, and grid effects on existing residential and agricultural customers
Idaho has the additional leverage of water law. Consumptive water use rights for industrial facilities are subject to state appropriation review. Purpose should be a factor in that review.
The hyperscale data center industry has successfully convinced most state and local governments that the question of what a facility does is irrelevant — that a data center is a data center, and the only variables worth discussing are jobs and tax revenue.
That argument benefits exactly one party: the industry making it.
The rest of us — the ratepayers subsidizing grid upgrades, the farmers competing for water, the communities absorbing infrastructure costs, the citizens whose data is being processed in facilities we helped build — have a legitimate interest in what these facilities are for.
Purpose-based construction authorization is not a radical idea. It is the application of a principle we already accept in every other domain of land use and industrial permitting to a sector that has so far successfully evaded it.
The evasion should end.
Jeff A. Pierson is the owner of Confidential Solutions LLC and a policy researcher. He writes on Idaho energy, land use, and technology policy at jeffapierson.substack.com.
