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HARRISBURG — As Democratic Gov. Josh Shapiro attempts to thread a needle between attracting data center projects to Pennsylvania and satisfying their critics, members of his own party — and many Republicans — are backing a more aggressive regulatory approach.
The split between the governor and other lawmakers could be seen this week in a pair of conflicting bills the Democratic-controlled state House passed.
One was Shapiro’s own marquee data center proposal, which aims to incentivize developers to, among other things, be more transparent and reduce environmental impacts by putting conditions on a major state tax break. It passed 134-63 on Wednesday, with all but one Democrat in support, and 33 Republicans also in favor.
The other was a measure that would completely repeal that sales tax break, which applies to major purchases related to data center development and is expected to cost the commonwealth over $2 billion by mid-2031. It passed even more decisively on Thursday, with support from all but four Republicans and one Democrat.
The sponsor of the latter bill, longtime environmentalist state Rep. Greg Vitali (D., Delaware), had initially planned to propose the tax credit repeal as an amendment to Shapiro’s bill. House Democratic leaders, he told Spotlight PA, seemed sufficiently concerned that the amendments would pass and reshape the bill that they approached Vitali and promised to run his repeal bill separately if he withdrew them.
“It shows the sales tax exemption has fallen upon disfavor among both Democrats and Republicans,” Vitali said after his bill passed through committee unanimously on Monday.
“Hopefully it’ll send a signal to the governor to switch gears on this issue and call for an end of the sales tax exemption,” he said. Vitali lost his primary this spring and will leave the legislature at the end of the year.
The dueling bills reflect a larger debate as to what — if any — incentives the commonwealth should provide to data center developers. They come as the facilities proliferate rapidly across the state and country, inspiring hopes of economic development among politicians and public officials, but also spurring fear about skyrocketing electricity costs, grid instability, high water use and environmental consequences.
Proponents of Pennsylvania’s tax exemption have said it is essential for maintaining economic competitiveness, while opponents have said that it is unnecessary given the number of data center projects already underway across the state.
Still, state House Majority Leader Matt Bradford (D., Montgomery) told Spotlight PA that moving many bills, and particularly the two conflicting bills over the data center tax credit, should not be interpreted as a sign of Democratic disunity over Shapiro’s approach.
Bradford said he is “supportive” of both tax strategies.
“One is to incentivize, and one is to end the credit entirely. I think there are pros and cons to both,” he said, adding that “either one of those options provides a path forward.”
Rosie Lapowsky, a spokesperson for the governor, wrote in an email that the Shapiro administration is “working closely with the House Democrats on an appropriate package of data center legislation that will protect Pennsylvanians.”
Shapiro and Vitali’s data center proposals aren’t the only ones lawmakers are kicking around as state budget talks intensify before the June 30 deadline.
Lawmakers on both sides of the aisle have introduced a flurry of bills, including a measure that would allow municipalities to implement a 180-day pause on the consideration of a data center application. It passed the state House with only one opposing vote.
State Rep. Kyle Mullins (D., Lackawanna) said his constituents have “every” reason to be “outraged and object to being ground zero for data center speculation.” His district includes the borough of Archbald, which has seen some of the highest rates of data center proposals in the state.
“Among the things that they have demanded is a repeal of the sales tax exemption for an industry that now clearly needs no help,” he added.
Shapiro promoted the state House passage of his bill on X Wednesday, describing it as “strict standards to hold data center developers accountable and protect Pennsylvania communities” and saying developers “will be required” to do things like generate their own power and commit to environmental standards.
He did not mention that, under his proposal, following these standards would get data center developers a tax break and faster permitting. (A news release the administration put out at the same time included more detail, saying the standards would apply to “data center developers seeking state tax benefits.”)
Both tax bills now head to the Republican-controlled state Senate, joining several other data center regulation bills that have been passed by the House and now sit in Senate committees.
“There are concerns about that [data center sales] tax provision,” Majority Leader Joe Pittman (R., Indiana) told Spotlight PA earlier this month. “It’s certainly possible that discussion on what the right approach is will unfold in the weeks ahead.”
A spokesperson for the Senate Republicans did not specify which, if either, tax approach the caucus preferred.
“I am head scratching about why the Senate has completely left the field on this issue and why individual Senate members come out and say they support these things and then their leadership couldn’t be more Shermanesque and clear about their unwillingness to do anything,” Bradford said.
There is at least some bipartisan support in the state Senate for more aggressive regulation of data centers.
One bill, introduced by Sen. Katie Muth (D., Montgomery) would place a moratorium on new development, and has as a co-sponsor Sen. Rosemary Brown (R., Monroe). Three Senate Republicans have also sponsored a bill that would repeal the data center sales tax break and direct new revenue towards reducing the state’s gas tax.
That lawmakers are navigating how to regulate data centers amid ongoing budget negotiations adds an element of financial pressure to data center talks. The state is projected to spend more next year than it will bring in, and members are struggling to find revenue to cover that gap.
“I’ll continue to advocate with my leadership to include the elimination of these tax breaks in the budget deal, perhaps in terms of an amendment to our tax code,” Vitali said.
Vitali said that he doesn’t see his approach and the governor’s as “mutually exclusive.”
“I think that the better approach is to both eliminate the tax breaks and put stricter requirements on how data centers act,” he added.
First passed in 2016, Pennsylvania’s data center tax break was initially in the form of a tax refund capped at $5 million annually. In 2021, lawmakers amended the tax code to allow qualifying businesses to receive an uncapped sales tax exemption on data center equipment.
It exempts developers that generate a certain dollar value of new investment from the state sales tax rate of 6% for data center equipment, including costs to construct buildings.
Twelve data center projects currently receive the exemption, according to a February report from the Pennsylvania Department of Revenue.
A legislative memo circulated to House members on Wednesday from the Pennsylvania Chamber of Business and Industry expressed opposition to efforts to amend or eliminate the tax break.
“Eliminating an existing incentive threatens to place Pennsylvania at a competitive disadvantage and sends a troubling signal to current and prospective investors that the Commonwealth is willing to change the rules after the fact,” the memo read.
A coalition from the nonprofit advocacy group Food & Water Watch, meanwhile, was at the Capitol on Tuesday speaking to lawmakers in support of a statewide moratorium on data center development.
Ginny Marcille-Kerslake, an organizer with the group, said the exemption “absolutely should be fully repealed.”
“It’s good to see that it’s finally seen movement, but that should have been a no-brainer for Republicans and Democrats alike,” she said of Vitali’s bill.
Spotlight PA’s Stephen Caruso contributed reporting.
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