For years, Arizona’s conversation about data centers focused on investment, jobs and economic growth.

Far less attention was paid to who would bear the costs.

As data centers have expanded across Arizona, so too have questions from ratepayers, water users, local governments and taxpayers. Who pays for new transmission lines and substations? How will growing electricity demand affect utility customers? What happens when large-scale development collides with long-term water planning? And how should taxpayers evaluate incentives created more than a decade ago for a very different industry?

Those questions helped drive this year’s budget agreement, which includes a three-year moratorium on new data center tax incentives. The moratorium is projected to preserve approximately $57 million in taxpayer revenue over the next three years while policymakers evaluate whether incentives created for a different era still serve Arizona’s long-term interests.

The decision is significant. But it is not the finish line.

What Arizona does during the next three years will determine whether this moment becomes meaningful reform or simply a temporary pause.

Arizona first created data center tax incentives in 2013 and expanded them in 2016 as part of an economic development strategy designed to attract investment and position the state as a destination for technology infrastructure.

That strategy succeeded.

But the industry of 2026 bears little resemblance to the industry lawmakers envisioned more than a decade ago. The rapid growth of artificial intelligence and cloud computing has transformed data centers into major consumers of electricity, water, land and public infrastructure. As the scale of these facilities has grown, so too have concerns about impacts on utility systems, water supplies, infrastructure planning and taxpayers.

Residents are increasingly asking whether the benefits and burdens of growth are being shared fairly.

Arizona’s reassessment of these questions began during the 2025 legislative session.

Among the earliest efforts was HB 2893, legislation I sponsored with bipartisan support to shorten the qualification period for data center tax incentives and direct a portion of future revenues toward water infrastructure and agricultural irrigation-efficiency projects. While the bill did not advance, it helped broaden the conversation beyond economic development alone. For one of the first times in Arizona, lawmakers were formally debating the relationship between data center incentives, water security, infrastructure investment and public accountability.

That discussion accelerated in 2026. Lawmakers introduced roughly a dozen proposals addressing data center incentives, utility impacts, water use and development standards. The volume of legislation reflected a broader shift in public attitudes: The debate was no longer whether Arizona should attract data centers, but under what conditions.

The conversation expanded beyond tax policy. During budget negotiations, lawmakers considered proposals to streamline approvals for data center projects and explored the potential use of Small Modular Reactors to power future facilities. Together, these discussions reflected a growing recognition that data centers are not simply economic development projects. They are major infrastructure projects with implications for energy policy, water management, land use and local governance.

Arizona is not alone in confronting these questions.

Across the country, states are beginning to recognize that the next phase of digital infrastructure policy cannot be guided solely by recruitment incentives. Maine has explored restrictions on future development in response to energy and environmental concerns. Texas lawmakers have debated measures to protect the electric grid from large-load customers. Washington has linked major development projects to clean-energy objectives. While the approaches differ, they share a common premise: the public deserves a clearer accounting of the costs and benefits associated with rapid data center expansion.

Viewed in that context, Arizona’s moratorium is not radical. If anything, it is a historical shift in direction. 

Lawmakers have chosen to pause and reassess whether the public is receiving sufficient value in return. However, a pause without a plan is just a delay.

Arizona must use this window to establish clear standards on water use, grid costs, infrastructure planning and community impacts. Otherwise, the industry will simply wait out the moratorium and return under the same rules that prompted this debate in the first place.

Three years from now, lawmakers should not be asking whether data centers deserve incentives. They should be asking whether those incentives deliver measurable public benefits and whether the costs are being fairly shared among taxpayers, ratepayers, water users and local communities.

The moratorium marks a turning point. But it reflects a growing recognition that economic development and public responsibility are not competing goals.

The states that will succeed in the AI era are not those that offer the largest subsidies. They are the ones that ensure innovation strengthens communities rather than strains them.

With this vote, Arizona took an important step toward that future and put itself in a stronger position to compete, grow and lead in the decades ahead.

Rep. Junelle Cavero is a Democratic state House representative for Legislative District 11, covering areas of Phoenix.