The AI boom's growing NIMBY problem

The AI gold rush is set to pay off this week, with Space Exploration Technologies Corp. set to go public on Friday and two other major companies, Anthropic PBC and OpenAI Inc., making confidential IPO filings with the Securities and Exchange Commission.

But as the AI investment frenzy hits new heights, bringing the overall stock market along with it, grassroots organizers are rebelling against the data centers needed to power the technology.

Monterey Park, a suburb of Los Angeles, became the first city in the nation to ban data centers last week by an overwhelming margin. Measure NDC was approved with 86% of the vote in favor.

The ballot measure passed even after Stratcap LLP, a subsidiary of HMC Capital - which sought to build a data center in the city - withdrew its application for the 250,000-square-foot facility after the city council approved a moratorium.

Data center opponents who backed the initiative, which was supported by Monterey Park officials, hailed the outcome, saying the centers use too much water, cause too much noise, and boost electricity bills.

Attorneys representing data center developers and utilities viewed the outcome with alarm, even though it involved only one city.

"Monterey Park is a significant milestone because it's the first ban in the country that was adopted through a public vote," said Tanya C. Nesbitt, a partner with Thompson Hine LLP who represents data center developers and utilities.

"It's a meaningful reflection about how the community is feeling about data center development," she added.

Cities and counties in other states have approved temporary moratoriums on data centers, and 14 states are considering moratoriums of up to three years or outright bans like Monterey Park's, according to the National Conference of State Legislatures.

Opposition to data centers does not fall along partisan lines; states and local communities considering moratoriums include both Republican- and Democratic-leaning jurisdictions even though President Donald Trump has been supportive of AI and data center construction.

California legislators are not proposing a statewide moratorium and are instead considering two bills that would permit streamlined judicial review of data center proposals under the California Environmental Quality Act in exchange for commitments not to raise consumers' electricity bills or use additional fossil fuels.

Those measures -- SB 886 and SB 887 by Sen. Steve Padilla, D-San Diego -- passed the Senate in late May and have been assigned to committees in the Assembly.

"What we have been working on is to try to ensure that data centers accelerate our progress on clean energy and decrease electricity rates," said Matthew E. Freedman, senior attorney with the Utility Reform Network, a supporter of the Padilla bills.

A third bill by Assemblyman Rick Zbur would establish a new classification for data centers with the goal of ensuring that costs would not be passed along to residential and small business ratepayers. AB 2383 passed the Assembly by an overwhelming margin on May 27 and is pending in the state Senate.

Freedman expressed concern in a letter that Zbur's bill would endorse the "status quo" without adding requirements that the data centers do not adversely affect the grid or other customers.

Bills in the California Legislature that would tax data centers have been killed, at least for now.

But if a statewide data center ban is not under consideration in California, despite the Monterey Park vote, restrictions are being considered elsewhere.

The Maine Legislature passed what would have been the first statewide moratorium on new data centers requiring more than 20 megawatts of power until November 2027. That limit would have included projects of virtually all commercial scales, not just so-called hyperscale facilities, according to Nesbitt.

Gov. Janet Mills, a Democrat, vetoed the bill in April because it did not include an exemption for one project. But Nesbitt added that the bill, while defeated for now, may be revived depending on the outcome of the midterm elections.

Critics may support data centers in theory, but not when the facilities are near residential areas, such as a controversial proposal in Imperial County.

Edgar Khalatian, a Los Angeles-based partner with Mayer Brown LLP who leads the firm's land use practice group and represents clients seeking to build data centers, understands voter fears about higher bills and, especially in the case of younger people, worry that AI is going to take their jobs.

"These are human nature concerns," he said.

But Khalatian said many of the concerns about data centers are overstated and do not account for advances that allow new facilities to use less water and produce energy that can alleviate concerns about higher electricity costs. "I don't think people realize there are solutions," he said.

"It's a process of educating legislators about why a statewide ban is not appropriate," Khalatian said, and adopting sensible limits, such as barring data centers from being constructed within 300 feet of a home or school.

Khalatian added that citywide bans, statewide moratoriums and excessive regulation leave the country in danger of falling behind in the AI race against China, which he accused of fomenting opposition to data centers in the United States.

He even suggested that the federal government should take control of approving data center regulation so that state and local political objections don't harm national security. "Federalization of data centers is something that should be on the table," Khalatian said.

No proposal to bring data centers under federal control is currently under consideration.

Nesbitt said that, as with all new technologies, opposition in local communities must be addressed -- but that AI and the data centers that power it are happening regardless.

"The world is changing and I don't think we can resist it," she said.