(The Center Square) - Arizona needs to pursue free market solutions to remain a leader in the data center industry, according to a new report.
The Goldwater Institute presented that conclusion when it released a report titled “Data Centers: A Free Market Model for the Digital Future."
William Beard, a municipal affairs liaison at the Goldwater Institute, told The Center Square that data centers are digital information sources.
Phoenix, Arizona’s largest city, is one of the top places in America for data centers, the report noted. Upwind, a cybersecurity company, said Phoenix is projected to see a 553% increase in data center capacity.
Beard noted Arizona is thriving as a leader in data centers and policymakers must take steps to ensure that continues.
The report said Arizona has been a place people have wanted to locate data centers due to its “safety and stability”, “favorable economics” and “strategic position.” The state’s location is sought after by data center companies because Arizona does not experience severe weather events, the report said.
It also stated Arizona provides strong tax incentives, affordable land lot developments and a free enterprise environment.
To continue its success in the data center industry, Arizona needs to keep regulatory barriers to entry low, Beard said.
The report recommended the Arizona state government set clear zoning and permitting rules so that investment “can move forward predictably and efficiently.”
As data centers have become more prevalent in Arizona, local jurisdictions have tried to regulate them. The report noted Phoenix and other cities have used “regulatory backlash” against data centers.
Last year, Phoenix implemented new zoning regulations around data centers. The city now requires them to have special permits for noise, grid impacts, fire safety and power demands.
Cities such as Mesa and Chandler have also passed zoning regulations. Mesa implemented zoning standards around water usage, location, electricity and noise levels. Chandler included zoning standards for location and noise levels.
The report stated the backlash for these areas is “driven not by evidence, but by persistent myths — particularly surrounding electricity and water usage — that mischaracterize how modern data centers actually operate.”
The conversation policy people, politicians and public members are having surrounding data centers across the country, including in Arizona, is one based on fear, Beard said.
The topics of free markets, lower regulation and private property rights are missing from these conversations, he added.
When it comes to data centers, many politicians at the state and local levels are forgetting these principles, especially private property rights, Beard explained.
When private rights are violated, especially in Arizona, the consequences are serious, he noted.
Arizona passed Proposition 207 in 2006, which allows property owners to receive just compensation if their property declines in value due to regulatory changes. It also prevents the seizure of people’s property for economic development.
The report said cities that attempt to violate the proposition expose themselves to “significant” legal risk.
Two concerns surrounding data centers are water usage and power.
The centers have “one of the highest efficiency rates” of “inputs versus outputs” of power and water, Beard told The Center Square.
The concerns about water usage and increased power consumption are no different than when a new technology came along in the past and “revolutionized things,” Beard said.
“ The resource allocation changed. But the ability to use those resources and use them more effectively and efficiently was dramatically increased,” Beard explained.
The report stated rising electricity prices are the result of state policy choices rather than data centers. Electricity prices since 2021 have gone up nearly 30% nationwide, the report said.
“The real pressure comes from energy mandates and regulatory regimes that sideline reliable power and discourage infrastructure expansion,” the report explained.
From a power perspective, many data centers generate on-site power while also using solar and wind, Beard said. He added the centers also have battery storage onsite to maintain “peak power consumption throughout the day.”
For example, he highlighted the Tucson data center known as Project Blue. Beard said critics warned this project would increase consumers' electric bills.
However, he said, when a large consumer in any market puts out consistent power daily, it will subsidize the average consumer, such as small businesses or residential customers.
Data centers have long existed, but they are now becoming more efficient and larger, he explained.
Regarding water usage, current technology allows data centers to recycle water for reuse, Beard said.
The report noted market-driven solutions such as “closed loop cooling, aircooled designs and reclaimed water” have “reduced or eliminated portable water use.”
To illustrate, Meta’s data center in Mesa is going to be “60% more water efficient than the average data center,” said David Williams, Meta’s community development manager for the Mesa data center, according to SiteSelection.
Williams also said the facility would be “supported by 100% renewable energy.”
Looking ahead, the report said, “Arizona’s success has never come from fear-driven regulation, but from predictable rules, respect for property rights, and a willingness to let innovation work within an economic environment that supports free enterprise.”
