Community Benefits Agreements Can Build Trust in Data Center Development

As demand for data centers continues to surge, so too does scrutiny of the projects that support the nation’s digital infrastructure. Residents, policymakers and regulators are increasingly questioning how data center developments will affect local resources, infrastructure and quality of life. 

While many developers have long relied on traditional community outreach efforts to address these concerns, Community Benefits Agreements (CBAs) are emerging as an additional tool that can help align development objectives with community priorities.

CBAs are voluntary agreements between developers and community stakeholders that establish specific commitments intended to benefit the surrounding area. Depending on the project and community, those commitments may include workforce development initiatives, infrastructure improvements, environmental investments, educational programs, or other locally identified priorities.

While CBAs have been used in other industries for years, they may become increasingly relevant as data center developers seek to build trust and foster community support for new projects.

The need for proactive community engagement is becoming harder to ignore.

With seemingly every passing day, a new state or local government requirement emerges for data centers, whether in the form of a law, regulation, audit or disclosure mandate. The result often is greater scrutiny and the potential for lost tax incentives, delayed development, and extensive financial, energy and water-use reporting obligations. 

Texas Gov. Greg Abbott recently directed the Texas Commission on Environmental Quality to suspend processing data center permit applications until the state’s electric grid operator completes an assessment of the potential impacts of new data center development on Texas’ electric infrastructure. In New York, Gov. Kathy Hochul directed state agencies to develop guidance for communities considering data center projects, while Pennsylvania Gov. Josh Shapiro issued an executive order addressing data center development and consumer impacts. 

These are just a few examples of the scrutiny facing data center development as communities and policymakers weigh issues ranging from energy and water consumption to environmental impacts and electricity costs. Increasingly, those discussions also encompass noise, lighting, traffic, aesthetics and other local planning considerations, as well as broader concerns about how artificial intelligence may reshape society in the years ahead. 

More than 275 data center projects nationwide have encountered obstacles in the past year, and that number is growing. Yet demand for computing power also continues to grow, as does our reliance on the digital infrastructure that underpins modern life. 

So, if you are a data center developer, how do you navigate this complex environment? In our discussions with stakeholders throughout this fast-changing industry, two words keep resurfacing: trust and transparency. 

Building trust may require a level of community and local government engagement not previously envisioned by data center developers. Many industry participants will admit that the focus on community engagement was often overlooked in the past, when data centers largely operated under the radar and their scale was a fraction of today’s multi-gigawatt campuses. 

The first step toward building trust is often straightforward: Identify yourself. Names on deeds should be clear about intentions. Speak to communities about who you are, what you are trying to accomplish, and how it will directly benefit them, whether it be via job creation, improved public infrastructure, or increased tax revenue. 

Lack of transparency can create unnecessary challenges that ultimately delay projects or make them unfeasible economically. What cannot be tied up politically or during the entitlements process can be tied up in courts. 

For many projects, establishing a CBA may be worth considering, if not crucial, to building the trust and transparency needed to complete a data center development on time and on budget. CBAs are not new. Businesses ranging from big-box stores to solar developers have used them to create long-term partnerships with local communities. 

For data center developers, CBAs can serve several important purposes. Most fundamentally, they can help build trust by demonstrating that a developer is listening to local priorities, including safety, energy costs and quality-of-life concerns. 

They also can help address growing regulatory and public scrutiny of new projects. A well-crafted CBA can signal to regulators and other stakeholders that a developer has carefully considered a project’s local impacts and benefits, values transparency, and has engaged meaningfully with the community. Likewise, it can demonstrate that a municipality understands and supports the project’s objectives. 

Finally, CBAs can provide a framework for establishing clear expectations between developers and host communities. Depending on local priorities, they can address issues such as power infrastructure, noise mitigation, lighting, water sourcing, traffic management and road maintenance. 

There is little question that we need more data centers. Demand is not shrinking. It is growing, and exponentially so. 

At the same time, the evolving regulatory and community landscape suggests that traditional approaches to project development may need to evolve as well. Community Benefits Agreements are not a cure-all, nor are they appropriate for every project. But, for developers seeking to build trust, demonstrate transparency and proactively address local concerns, they may provide a framework for productive engagement before opposition takes root.

Transparency and honesty from the beginning will help light the way. A solid CBA may be a great place to start.

Stephen Malito, Shawn K. Ronda and Joshua B. Forman are shareholders at Greenberg Traurig, and members of the firm’s Global Digital Infrastructure Group.