They always say, “Follow the money.”
When we do that, we wind up in some interesting places. In the case of the money we’re about to follow today, well, just hang on.
At last week’s meeting of Virginia’s Health Insurance Reform Commission, the State Corporation Commission Bureau of Insurance announced that monthly premiums for the state’s Healthcare Exchange are being reduced.
That’s a lot of titles with capital letters to get through, but it’s not every day that rates for anything go down.
Keven Patchett, executive director for the Virginia Health Exchange, told the commission that about 200,000 people will benefit from the lower rate. He attributed this to the $150 million that the General Assembly had added to the program’s funding this year.
Democratic legislators were quick to point out that they were able to increase this funding because the state’s treasury will be fattened by $600 million in revenue from Virginia’s new tax on the electricity that data centers use.
That tax was the compromise between those who wanted to eliminate the sales tax exemption on data centers eight years early and those who felt that would set a bad example by going back on the state’s word that the exemption will run through 2035.
Not long after last week’s commission meeting, Senate Democrats sent out a news release: “Virginia Senate Democrats Applaud Newly Announced Virginia Healthcare Exchange Premium Monthly Reductions Funded by Data Center Consumption Tax.”
This somewhat stretches the definition of “newly announced” because Cardinal healthcare reporter Emily Schabacker wrote back in July that these premiums would be going down, but let’s move on.
The Democrats’ release went on to say: “The Virginia Premium Savings program represents a decisive action by Virginia’s Democratic majority to protect healthcare coverage for working families following Congress’s failure to renew enhanced federal Affordable Care Act premium subsidies that expired on December 31, 2025. The new premiums announced at the HIRC meeting demonstrate the remarkable impact of this historic investment.”
It went on to include several charts to show what the release said were “Real Examples: How Virginia’s Data Center Tax Funds Healthcare Affordability.”
Here’s one of them:
Now, as Paul Harvey used to say, here’s the rest of the story.
On the one hand, this action demonstrates how that tax revenue from data centers’ electricity consumption is being used to fund what General Assembly Democrats consider worthy priorities. There’s another way to look at this, though: Virginia is now yoked to data centers as a way to fund healthcare — and other things.
The current law taxes data centers at a rate of $0.011 per kilowatt hour on all electricity consumed at each center on a monthly basis. There’s a philosophical question here we won’t get to today: Why are data centers singled out for their electricity use? Yes, they use a lot of power, but so do other things. A Walmart Supercenter might use more power per day than some small data centers. On a square-footage basis, cannabis growhouses — which we’ll soon have — use more electricity than data centers. If we’re now taxing electrons, why are we singling out one industry? Why shouldn’t we treat all electrons equally? If we’re taxing data centers just because they’re unpopular, is that a good precedent? Those will have to be questions for another day.
The new law caps this tax at $600 million in revenue, with any excess returned to data center companies. Laws, though, can change and laws that set a particular dollar figure are often susceptible to changes when inflation changes their value.
Let’s assume that Virginia’s current number of data centers — the Data Center Map puts their number at 674 but other sites give different figures — is sufficient to generate that $600 million in revenue. This seems a good assumption.
Based on that, this particular tax does not create an incentive for Virginia to add more data centers — because they’d just wind up paying electricity taxes in excess of that $600 million cap, so the money would get returned. There are other incentives for Virginia to attract more data centers (primarily local tax revenue) and, of course, some disincentives (power consumption, water consumption, political blowback).
However, what happens when a future Virginia legislature decides it wants more than $600 million a year from data centers? Maybe those future legislators cite inflation for devaluing that $600 million. Maybe they cite growing demands that need to be funded. Maybe they cite both. We know both will happen eventually.
At what point does Virginia decide that it needs more data centers so it can fund whatever it wants to fund? At whatever point that is, then data centers turn from a nuisance into a necessity.
Let’s suppose that the $600 million cap is lifted someday so that the tax brings in whatever amount it can bring in. If that were to happen, then Virginia has a clear incentive to want more data centers because more data centers would mean more power consumption — which would mean more tax revenue to pay for the Healthcare Exchange and other things.
Years ago, we saw the lottery sold to Virginia voters as a way to fund schools. (This is often misunderstood. The lottery revenues can never equal the amount schools need, so the lottery doesn’t generate “extra” revenue for schools. It’s just an accounting measure under which the first part of school funding comes from lottery revenue, the rest from the general fund.)
We’re currently seeing off-track betting presented to voters in Amherst and Pulaski counties as a way to generate tax revenue that can help reduce pressure on property tax bills. In 47 localities around Virginia, we’re seeing a proposed local sales tax pitched as a way to generate revenue for school construction and renovation.
It does not take too much of a leap of imagination — none at all, really — to see a situation where the pitch is “accept this data center because we can use the revenue to fund (fill in the blank).” Or conversely, “if you block this data center, you’re denying healthcare (or something else).” The latter might be unfair, but politics often are.
The point is that now that Virginia is taxing data centers’ electricity use, it has an economic incentive to keep the data center industry healthy — and possibly even growing. Before this new tax, the primary beneficiaries of data centers, tax-wise, were local governments and their taxpayers. Loudoun County and Mecklenburg County are the standouts; they’ve been able to reduce local tax rates because they have so much data center revenue flowing in. Mecklenburg County now has the lowest real estate tax rate in the state due to the Microsoft data center complex there. Now there’s a statewide stake in data centers.
At first glance, taxing data centers for their power usage seems bad news for data centers; nobody likes to pay more taxes. A closer look, though, raises the question of whether Virginia is now hooked on a revenue stream that we need to make sure keeps coming.
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