Texas’ data center boom is facing a significant challenge with the election of Gina Hinojosa as governor, who plans to impose a development moratorium that puts about 13 gigawatts of announced projects at risk. This is enough power to supply more than 10 million homes in the state, according to Jefferies Equity Research.
The shift in political leadership across Texas is likely to reduce the speed at which new data centers are constructed nationwide, with the Lone Star State currently leading the way—hosting roughly 26% of all planned data center capacity in the U.S. Meanwhile, the state’s grid operator, ERCOT, reported in June that proposed data center developments have collectively sought over 400 gigawatts of electricity.
Power Struggle
Financing for new data center initiatives may become more challenging following the election results, potentially stalling future developments, according to Northmarq Managing Director Warren Hitchcock. While he noted that funding won’t vanish entirely for Texas projects, he warned that banks will now demand even stronger guarantees of project success and reliability.
During her campaign, Hinojosa urged then-Governor Greg Abbott to impose an immediate freeze on new data center approvals until lawmakers could draft and pass safeguards. She reiterated this stance in her final weeks on the trail, pledging to halt what she called the ‘data center takeover.’ In a recent interview with Houston’s KPRC, she argued that while Texas prides itself on business-friendly policies, these massive facilities are causing disproportionate strain on local communities.
Tax Revenue Loss
The state forfeited over $1 billion in sales tax revenue last year due to exemptions granted to qualifying data centers. Officials project this loss will climb by 33% over the next five years, potentially reaching nearly $8 billion in total, based on data from the state comptroller. For example, OpenAI and Oracle’s $3.5 billion Stargate AI data center complex in Abilene secured an 85% local tax reduction last year.
This April, Guadalupe County approved a $500 million tax relief package for Cloudburst Data Centers’ planned $14.5 billion facility in central Texas. The Texas Legislature is set to reconvene on January 12, with Hinojosa’s inauguration scheduled for January 19, just one week later.
Impact on Data Center Development
Jefferies analysts predict that Hinojosa’s victory and any subsequent statewide development freeze would push Texas from Tier 3 to Tier 4 in their rankings. Projects that already have power contracts and regulatory approvals, especially those backed by experienced sponsors, will still attract financing more easily than those facing regulatory or construction uncertainties, Hitchcock explained.
Even with the moratorium in place, smaller projects requiring less than 75 megawatts of power, exempt from Abbott’s freeze, continue to attract strong interest from both tenants and investors. ‘Demand for computing power remains relentless,’ Hitchcock noted, suggesting this trend will persist regardless of policy changes.
Regulatory Framework
Hinojosa’s proposed data center policies align closely with Texas’ existing large-load regulations and Senate Bill 6 from last year, which requires these facilities to cover grid upgrade costs, standardizes power requests from utilities, and mandates participation in grid stability efforts.
Hinojosa has stated she will enforce a moratorium until new laws eliminate tax breaks for data centers and shield residential utility bills from rising costs. However, Jefferies analysts suggest her most significant impact may lie in shaping the Public Utility Commission of Texas (PUCT), since the governor appoints its members, though replacements would occur gradually over time.
