Ohio has hit the brakes on one of its most generous incentives for the facilities that train and run artificial intelligence systems. Gov. Mike DeWine directed the Ohio Tax Credit Authority to stop accepting new applications for sales tax exemptions on data centers after its June 1 meeting. The pause is temporary. It buys time for a newly formed legislative committee to examine the explosive growth of these power-hungry sites.
But the decision lands amid sharp sticker shock. State officials once projected the exemption would cost $136 million in fiscal 2025. Actual figures reached $554 million in 2024 and nearly $1.6 billion in 2025. That billion-dollar forecasting miss has lawmakers from both parties demanding accountability. Cleveland.com detailed the gap and the resulting frustration on Capitol Square.
DeWine himself supports the industry. In his announcement he called data centers “a critical component” of the economy and pointed to $37 billion in related investment over 2024 and 2025. His spokesperson Dan Tierney explained the timing. “The governor felt it was the right time to let the citizens know, let businesses know that we’re going to pause on new offers of this tax incentive while that process plays out.” The governor’s office released the full statement on its site.
Yet the move surprised some. Union leaders who build these projects voiced immediate concern. Dorsey Hager, executive secretary-treasurer of the Columbus/Central Ohio Building and Construction Trades Council, said he was upset and worried developers might reconsider projects already in permitting. Business groups and labor unions warned Ohio could lose ground to rival states.
The numbers tell a story of rapid expansion. Ohio ranks among the top destinations for data center construction in the United States. Thirty-eight states offer similar sales tax breaks, according to the National Conference of State Legislatures, many enacted before the AI boom accelerated after OpenAI’s ChatGPT launch in late 2022. Ohio’s version is broad. It covers not only building materials but also server racks, cooling systems and other expensive equipment that operators replace every few years.
Opposition has spread from rural towns to suburbs and cities. Residents cite soaring electricity demand, heavy water consumption for cooling, noise, few permanent local jobs and higher utility bills passed to households. A citizen-led effort aims to place a constitutional amendment on the November ballot that would ban construction of hyperscale data centers with power demand over 25 megawatts. Organizers must collect more than 400,000 signatures by July 1. If successful it would rank among the strictest statewide restrictions in the country.
Lawmakers formed the Joint Data Center Committee in mid-May. State Rep. Adam Holmes acknowledged the public sentiment. “We’re well aware of initiatives to limit Ohio data center development during this critical point in America’s history. This public concern has become a priority issue for us and could have dramatic impact on Ohio and American’s future.” The committee’s first hearings began shortly after the governor’s announcement. The Associated Press reported the full sequence of events and reactions.
Similar tensions surface elsewhere. In Virginia budget talks stalled for months over a proposal to scrap an annual $1.6 billion tax break for data centers. Governors and legislators across the country now question whether these incentives still make sense when facilities consume electricity equivalent to entire cities and draw millions of gallons of water daily. Bloomberg Tax noted Ohio’s pause follows comparable scrutiny in other states, with the Ohio Tax Credit Authority halting new applications while preserving review of pending ones.
The debate carries high stakes for the AI supply chain. Tech giants continue to pour capital into hyperscale facilities. Projections show U.S. data center electricity use could rise sharply. One analysis from earlier this year warned that without new generation capacity or efficiency gains, consumer rates could climb. Ohio utilities have already reported interconnection requests that dwarf previous forecasts. American Electric Power alone saw data center-related demand requests jump 367 percent in early 2026.
Water use adds another layer. Large facilities can consume 1 million to 5 million gallons per day for evaporative cooling. Central Ohio communities have begun raising rates and exploring recycled wastewater. Legislators have introduced bills requiring monthly water consumption reports and barring nondisclosure agreements that hide usage data from the public. Local papers document resident pushback at zoning hearings where noise, traffic and infrastructure strain dominate complaints.
Supporters counter with economic figures. One business leader cited $26 billion in output tied to the sector. Labor groups note construction jobs, though many are temporary. And proponents argue that without competitive incentives Ohio risks watching billions in investment flow to Georgia, Texas or Virginia. The pause does not halt construction outright. Existing projects and those without the tax break can proceed. But the signal is clear. Policymakers want fresh data before extending further subsidies.
DeWine is term-limited. The 2026 gubernatorial race already features Vivek Ramaswamy, the Republican nominee who envisions turning the Ohio River Valley into a technology corridor. His Democratic opponent Amy Acton could face the same ballot question on the data center ban. How the pause evolves may shape campaign rhetoric and eventual policy.
For now the Joint Data Center Committee holds hearings. Lawmakers seek accurate information on economic returns, environmental costs, grid reliability and community effects. Their findings could prompt changes to the exemption, new reporting rules or even broader reforms. In the meantime operators weigh whether to move forward without the tax relief or shift projects elsewhere.
The Ohio case reflects a national reckoning. States once raced to lure data centers with generous breaks. Today those same facilities power the AI race yet strain budgets, infrastructure and public tolerance. Short-term the suspension slows new deals. Longer term it forces a harder look at who pays for the compute that underpins modern intelligence. And whether the trade-offs still add up.
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