Billions in private investment and union construction jobs have followed the state’s 2019 data center tax incentive — but rising electricity demand, water concerns, and affordability pressures are prompting leaders to reconsider data centers’ future.
By Johnathan Hettinger and Utsavi Shah
Climate Jobs Institute
The Data Center Investment Program, enacted in 2019 as part of the $45 billion Rebuild Illinois capital plan signed by Gov. J.B. Pritzker, has supported billions in private investment for data centers. It has led to hundreds of permanent high-paying jobs, and thousands of construction jobs tied to project labor agreements.
Now, with electricity prices rising, grid constraints tightening, and demand from data centers accelerating, state leaders are evaluating how the program functions in this new environment. In his February budget address, Pritzker proposed a two-year pause on authorizing new tax credit agreements. The proposal, which must be approved by state legislators, would not affect projects already approved. Instead, it is intended to allow further analysis of how continued growth intersects with energy demand, grid reliability, water use, and household electricity costs.
Since the Investment Program’s enactment, Illinois has emerged as one of the country’s leading data center markets; as of Dec. 31, 2024, 27 have been approved under the program. But more than 200 are operating across the state, according to many market estimates.
The discussion of what to do about data centers has become a focal point for legislators and local governments across the state. State and local policymakers are weighing economic development benefits — including construction employment and tax base growth — against infrastructure capacity and environmental considerations. At a time when electricity prices are already increasing significantly, grid operators are projecting tighter supply margins later this decade.
This moment reflects a new reality. The state has successfully attracted data center development, with support from the Data Center Investment Program, but the question now is how that framework should operate as deployment accelerates.
Here is what we know so far about how the tax credit has attracted data center investment in Illinois and how state and local governments are addressing growing concerns about data centers’ impact on energy and water.
A Boom in Data Center Development
Under the 2019 law, qualifying data centers must invest at least $250 million over five years; create at least 20 full-time quality jobs; be carbon neutral or meet at least one green building standard; and enter into project labor agreements for construction.
In exchange, companies receive exemptions from state and local sales and use taxes on equipment, servers, cooling systems, electrical infrastructure, and building materials for up to 20 years.
According to the Illinois Department of Commerce and Economic Opportunity’s annual report for the year ended Dec. 31, 2024, 27 projects have been approved, creating 534 (out of a projected 591) permanent jobs that pay at least 120% of the average county wage.
Construction impacts have been broader. Each project is estimated to support between 150 and 300 construction jobs during development. Across all approved projects, that translates to roughly 4,000 to 8,000 construction jobs statewide, according to DCEO. Industry-commissioned analysis reports even higher total employment impacts (more than 20,000 jobs in 2023 alone, according to the Data Center Coalition).
On the investment side, companies originally projected $8.1 billion in capital expenditures. As of the end of 2024, reported investment had reached $15.7 billion, DCEO reported.
The estimated value of the sales and use tax exemption is approximately 6.25% of qualifying investment. Across all 27 projects, the estimated value of those exemptions totals roughly $983 million. The state notes these exemptions apply to new capital purchases rather than reductions in existing revenue streams. A report by the Data Center Coalition found that, even with the incentives, $3.51 billion in state and local tax revenues were generated by the data center industry during 2022 and 2023.
All approved projects to date are located in the greater Chicago region, tying the industry’s footprint primarily to northern Illinois infrastructure and the grid operated by PJM Interconnection.
It is unclear if the projects would have come without the incentives.
Why the Debate Is Changing
The shift in policy is not about whether data centers create jobs or attract capital. They do. The question now is how the scale and speed of growth intersect with the state’s energy system and water infrastructure.
Data centers require electricity 24 hours a day, and artificial intelligence workloads are increasing demand – and prices.
Northern Illinois, where most of Illinois’ data centers are located, is served by the PJM grid, while central and southern Illinois are served by Midcontinent Independent System Operator (MISO). Both regional grids are managing rising demand from data centers, generator retirements, and long backlogs of renewable projects awaiting interconnection.
The Illinois Power Agency’s recent Resource Adequacy Study projects potential capacity shortfalls beginning in 2029 in the PJM/ComEd zone (northern Illinois) and 2031 in MISO’s downstate regions if additional supply is not brought online. Data centers represent a significant portion of projected new demand.
Independent modeling from the Union of Concerned Scientists suggests data centers will account for a majority of electricity demand growth in Illinois by 2030 under current trends, increasing system costs if new generation is not added in parallel.
Depending on design, some data centers require substantial cooling water; a single large data center can use between 1 million and 5 million gallons of water every day, according to the Alliance for the Great Lakes. Communities like Joliet have expressed concerns about data centers depleting their aquifer, and proposed legislation in Illinois would require data centers to report water usage. Some data centers are addressing this with closed loop technologies.
At federal, state, and municipal levels, policymakers are considering ways to address AI’s impact on energy infrastructure and water supply.
For instance, in March 2026, the Trump administration announced an initiative encouraging major technology companies developing artificial intelligence to pledge that they will help finance the power generation and grid infrastructure needed to support new data centers. The effort reflects growing recognition that AI computing demand is becoming a major driver of electricity growth nationwide and that new generation and transmission capacity will likely be required alongside data center development.
Illinois Policy Responses
The policy landscape in Springfield reflects growing concerns about the impacts of data centers on energy and water use. The Clean and Reliable Grid Affordability Act, signed in January 2026, addresses the rising demand from data centers by lifting the moratorium on new large-scale nuclear development and encouraging battery storage and demand-side management programs.
Governor Pritzker emphasized growing energy costs and the strain on electric grids when calling for a two-year pause on the tax credit program for data centers. In his February budget address, Pritzker framed the pause around affordability.
“Affording to have a home is one thing,” Pritzker said. “Affording to live in it is quite another. Electricity bills are eating up more and more of household budgets across the country, and that’s got to stop.”
He pointed to credits under the Climate and Equitable Jobs Act, noting that Illinois families will receive $803 million in bill credits this year, on top of $1.3 billion already delivered. But he also argued that long-term affordability requires careful management of demand growth.
“It is imperative that our growth does not undermine affordability and stability for our families,” Pritzker said. The governor’s proposed pause does not end the incentive. It presses pause while these questions are debated.
Additional legislation under discussion includes the POWER Act, which would require large facilities to procure new clean energy generation, rather than relying solely on existing resources, and would seek to prevent cost-shifting to residential ratepayers. The Illinois Data Center Energy and Water Reporting Act (SB 2181) would require annual public reporting of energy and water use.
Meanwhile, data center operators have raised concerns about Illinois’ Biometric Information Privacy Act, which regulates how biometric data such as fingerprints, facial recognition information and eye scans can be stored. The companies have proposed scaling back the privacy law and warned they may go to other states if changes are not made.
Communities Are Drawing Their Own Lines
While Illinois debates a temporary pause and regulations for data center development, local governments are already acting. Municipal approaches have diverged into two broad categories.
Precautionary approach:
- Aurora, which has two data centers that received tax credits, enacted a temporary moratorium on new large-scale data centers while drafting updated performance standards addressing energy demand, aquifer impacts, and noise.
- In Champaign County, a one-year moratorium on large facilities over 10,000 square feet is moving forward.
- Mundelein has proposed zoning changes setting a 55-decibel noise cap and 200-foot setbacks from residential areas.
- Joliet, facing aquifer concerns, bans once-through cooling and requires connection to a future Lake Michigan water pipeline.
Growth hub approach:
- DeKalb rezoned more than 500 acres for industrial use and approved long-term property tax abatements for projects including facilities from Meta and Edged.
- Elk Grove Village, which has had 10 of the state’s 27 data centers that receive tax credits, continues to fast-track projects through a technology park overlay district and dedicated infrastructure investments.
The different approaches highlight a tension playing out statewide: many communities want tax base growth and construction employment, but residents are raising concerns about noise, rising energy prices, water withdrawals, and long-term infrastructure costs.
Research in an Evolving Policy Landscape
For Illinois, the issue is no longer whether data centers bring economic benefits. They have delivered capital investment, union construction jobs, and above-average permanent employment. The question is how to align the next phase of growth with grid reliability, water sustainability, and household energy affordability.
The Climate Jobs Institute is continuing to analyze how data centers are being developed, how proposed reforms could affect job growth and ratepayer costs, and what lessons can be drawn as Illinois navigates this shift from recruitment to oversight.
Resources and support
- Illinois Extension’s Resilient Communities Webinars provide helpful information for communities navigating data center decisions. Their three-part series, “Watt’s Up with Data Centers” offers the chance to hear from experts who provide practical information to help local leaders and others understand the potential impacts of data-center development and make informed decisions about potential or ongoing development in their communities.
- The Illinois Department of Commerce and Economic Opportunity has details about the Data Center Investment Tax Credit on its website. The state also posts annual reports for how the tax credits are being utilized.
- The Data Center Coalition published a report in 2025 by PricewaterhouseCoopers about the economic impact of data centers.
- The Union of Concerned Scientists published a report in January 2026 about how clean energy can help meet data center electricity demands and the impact of data centers on electricity and energy prices.
- The Alliance for the Great Lakes published a blog in 2025 about the impact of data centers on water in the Great Lakes.