JLARC Report: Data Centers in Virginia
In 2023, the Joint Legislative Audit and Review Commission directed staff to review the impacts of the data center industry in Virginia. Data centers are specialized facilities that manage, process, and share large amounts of data. They enable the digital services that people rely on daily, including websites, electronic applications, and cloud-based platforms, such as email and media steaming. Northern Virginia is the largest data center market in the world, constituting 13 percent of all reported data center operational capacity globally and 25 percent of capacity in the Americas.
Multiple factors have contributed to Northern Virginia’s market prominence, including a strong fiber network, supply of reliable cheap energy, available land, proximity to major national customers, and the creation of a state data center tax incentive. The data center industry is growing rapidly in Virginia, both in established markets and newer ones. Significant new market growth is expected in counties outside of Northern Virginia and along the I-95 corridor to Central Virginia.
Data centers provide positive benefits to Virginia’s economy mostly because of the industry’s substantial capital investment. The primary benefit comes from the initial construction of data centers. Most construction spending likely remains in the state economy because much of it goes to Virginia-based businesses providing construction materials and services.Overall, the data center industry is estimated to contribute 74,000 jobs, $5.5 billion in labor income, and $9.1 billion in GDP to Virginia’s economy annually.
Localities with data centers can collect substantial tax revenues from the industry, primarily from business personal property and real property (real estate) taxes. Localities in economically distressed areas of the state could benefit from data centers through increased local tax revenue, but these localities could have difficulty attracting the industry.
Modern data centers consume substantially more energy than other types of commercial or industrial operations. Consequently, the data center industry boom in Virginia has substantially driven up energy demand in the state, and demand is forecast to continue growing for the foreseeable future.