Data center regulations elude Colorado lawmakers — again — as state grapples with booming industry

Colorado still has no statewide regulations or incentives to implement for new data centers after the demise of two bills in this year’s legislative session.

The sponsors of each had attempted to find the right combination of carrot and stick for the booming industry. Despite hours of testimony and hundreds of meetings, both a bill that offered tax breaks for new data centers and a measure that focused on imposing guardrails failed. Neither progressed past their first committee before the session ended May 13.

It’s the third year in a row that lawmakers have failed to pass legislation related to the industry, which has become increasingly controversial as larger facilities multiply across the country to meet the computing needs of an increasingly digital world and to train artificial intelligence models. While industry boosters promote the jobs and money the centers can bring, others worry about the facilities’ water and power consumption as Colorado experiences prolonged drought and strives to transition to renewable energy sources.

The failure of the bills — both sponsored by Democrats — has left Colorado with neither incentives to lure new development nor rules about the centers’ use of power, water and land.

“I think it’s an unfortunate outcome and, honestly, not what either side wanted to see,” said Alana Miller, the Colorado policy director for the Natural Resources Defense Council’s climate and energy program.

Bill sponsors and lobbyists said they struggled to find consensus on complicated topics from a wide range of interested parties, including environmental advocates, data center representatives, business development groups, labor unions, community organizations, utilities and local governments of a variety of political persuasions.

Data center lobbyists told lawmakers that state sales tax incentives were crucial to luring new development, which would spur new jobs and local tax revenue. Some lawmakers balked at giving up tax revenue while the state is in a prolonged budget crisis.

Environmental groups, for their part, pushed for rules requiring the use of renewable energy and the efficient use of water. Labor groups argued in favor of the construction jobs the incentives would allegedly attract, while community groups worried about the noise and air impact the huge facilities would have on their neighborhoods.

“It was one of the most complicated bills that I’ve run, given the number of people who have an interest — and competing interests,” said Sen. Cathy Kipp, prime sponsor of Senate Bill 102, which proposed regulations for the industry.

The status quo leaves all parties unsatisfied.

Without statewide guardrails, local governments are increasingly setting their own rules or temporarily banning the construction of new centers until they can create new code.

That patchwork of rules has created uncertainty for the data center industry, said Dan Diorio, the vice president of state policy for the Data Center Coalition, an industry group. The rules, plus the lack of a tax break, mean Colorado is not an attractive place for new data centers, he said.

“Colorado is not a competitive marketplace, and that is going to continue to remain the case,” Diorio said.

A last-minute effort

The sponsors of the more industry-friendly, incentives-focused bill, House Bill 1030 killed the legislation in the second-to-last week of the session, citing a lack of support. The bill would have given lengthy sales tax exemptions to data center developers that meet certain environmental and energy criteria, but would have imposed no regulations on developers who do not pursue the tax incentive.

Rep. Alex Valdez, a Denver Democrat and the prime sponsor, declined an interview for this story as he was on vacation. He previously said the failure of the bill meant Colorado would miss out on further data center development and companies would build in other states, like Wyoming.

Lawmakers also attempted to pass tax incentives for the industry in 2024 and 2025, but failed both years.

Kipp, a Larimer County Democrat, tried to push a new version of her bill in the final days of the legislative session but was unsuccessful. The rewritten bill was an attempt at compromise — pairing regulations and data-sharing requirements with a limited tax incentive that companies would have competed for.

Kipp said she didn’t want any incentives — she questioned the need to write a blank check to some of the richest companies in the world while the state suffers a budget crisis. But she added limited incentives to the bill in the final days as an overture. It wasn’t enough.

“We really tried to thread the needle and worked really hard,” Kipp said. “But we ended up not being able to get where we wanted.”

The outcome was frustrating, she said, but she was ready to continue the conversation. Kipp already pulled a bill title for a planned attempt next year and will use the rewritten bill as a starting place.

“We’re just going to have to continue talking to people all summer,” she said.

Local action in a state void

The void of statewide rules has prompted a handful of local governments across Colorado to enact moratoriums on all new data center development while they draft their own regulations. Others are considering outright bans.

At least five local governments have imposed temporary moratoriums — and a sixth is considering a ban on large data centers.

The Denver City Council this month unanimously approved a one-year moratorium on new data center development to give city leaders time to craft regulations. The construction of a large data center in northern Denver by the local company Coresite has intensified community calls for regulation — or an outright ban.

When complete, the company has said the three-building facility will use a maximum of 65 megawatts to 75 megawatts of power at a time — the same amount of power as up to 82,500 homes. The buildings will also require up to 805,000 gallons of water a day to cool the computer systems — the same as 16,100 Denverites’ average daily indoor water use.

The day after Denver’s May 18 vote, Jefferson County commissioners imposed a 10-month moratorium on new data centers. Also Tuesday, the Longmont City Council took a preliminary vote to advance a ban on hyperscale data centers, which it defined as a center with at least 70 megawatts of capacity. The council will make a final decision as early as June.

Logan County and Saguache County commissioners also imposed moratoriums, though Logan County has since lifted its pause after the creation of new rules. Weld County last month updated its ordinances to require developers of new data centers to prove they have adequate power and water supplies and to prohibit the construction of centers on land zoned for agriculture.

The patchwork of local action creates uncertainty for data center companies considering building in Colorado, Diorio said. Developers fear that moratoriums — like the one implemented in Denver — could morph into permanent bans, he said.

“This is going to make every company think twice about investing in the city of Denver,” Diorio said.

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