Texas Legislature Sets Its Sights on Data Centers and AI: What You Need to Know

Texas House and Senate leadership recently released their interim charges, which serve as “homework assignments” for legislative committees to study before the 2027 session. These directives often form the foundation for future legislation, and can signal leadership priorities for the upcoming session.  This year’s charges show a clear focus on the rapid growth of data centers, artificial intelligence (AI), and their impact on the state’s infrastructure and the conduct of private and public business in the state.

The Growing Pains of Data Centers

• Balancing Growth and Rights: Lawmakers are seeking ways to balance the economic benefits of data center growth against the impact on local landowners, private property rights, and community integrity.  Systemic potential economic benefit has brushed up against concerns local communities will have difficulty absorbing the impacts (Senate Business and Commerce Committee).
• National Security & Competitiveness: The state will study the development of data centers specifically in the context of their importance to global competitiveness and national security (House State Affairs Committee).
• Framework Adequacy: Committees are evaluating whether current statutory, regulatory, and infrastructure frameworks are sufficient to meet the rapidly increasing demand from large electric loads (Senate Business and Commerce Committee; House State Affairs Committee).

A Multi-Billion Dollar Tax Question

• Sales Tax Exemption Review: Leadership is reviewing the cost and consequences of the sales tax exemption for qualifying data centers first enacted in 2013 (Senate Finance Committee), and which has grown from $14 million to a projected $3 billion.
• New Safeguards: Lawmakers are tasked with recommending new “safeguards” for the program, to ensure that Texans are receiving a clear benefit from these massive data center investments in exchange for the tax benefits provided to data centers (Senate Finance Committee).

Keeping the Lights On: Grid Reliability

• Large Load Interconnection: Committees are closely monitoring the implementation of SB 6, which addresses the planning and interconnection for facilities requiring 75 MW or more (Senate Business and Commerce Committee; House State Affairs Committee).
• ERCOT Scrutiny: Policymakers will evaluate ERCOT’s proposed “Large Load Batch Study Process” and its impact on timing of large load projects (House State Affairs Committee; Senate Business and Commerce Committee).
• Battery Storage: Rules for battery storage and safety are under review to allow for continued deployment while protecting local communities (House State Affairs Committee).

The Water Equation

• Cooling Transparency: There is a new push to improve transparency regarding the “high-consumption cooling technologies” used by data centers (Senate Water, Agriculture, and Rural Affairs Committee).
• Protecting Affordability: A primary goal is ensuring that industrial growth does not compromise the affordability of water for Texas residents and agricultural producers (Senate Water, Agriculture, and Rural Affairs Committee).
• Water Usage & Stewardship: The House is examining total water usage by data centers and considering policy options to enhance water stewardship (House Natural Resources Committee).
• Aquifer Viability: Lawmakers will study whether current groundwater regulation is adequately protecting the long-term viability of the state’s aquifers (House Natural Resources Committee).

AI Impact on the State’s Economy, Budget, and Workforce:

• Balancing innovation with protecting consumer/privacy: Legislators are looking at regulation and use of artificial intelligence systems and the management of data by governmental entities as set forth in SB 1964 and regulation more broadly of the use of artificial intelligence systems in Texas under the state’s pioneering (along with several other states) AI regulation and use through HB 149 (Senate Business & Commerce).  In connection with public health, House members will evaluate potential risks to patient safety, privacy, and access to care for Texans attributable to AI use in the health care system (House Public Health).
• Looking at how AI impacts the Texas economy, public health and education, and workforce participation: Senators will study the impact of AI on the Texas workforce and its implications for economic competitiveness (Senate Economic Development Committee) while House members look at the role of technology and artificial intelligence in education (House Public Education). House members will also study the impact of social media platforms and artificial intelligence technologies on the mental health, cognitive development, and behavioral well-being of minors in Texas and the use of artificial intelligence in the health care system to improve access, quality, and efficiency of care (House Public Health).
• Texas DOGE via use of AI: Legislators will study how the state can leverage AI to detect fraud, waste, and abuse of taxpayer resources (House Delivery of Government Efficiency Committee).
• AI in Legal Practice:  House members will study the risks and benefits associated with using artificial intelligence in the legal profession and judiciary and how to mitigate actual or potential harms (House Judiciary and Civil Jurisprudence).

How We Can Help These interim charges signal that the era of unregulated data center growth in Texas may be shifting toward a period of greater oversight. Foley maintains strong ties with the leadership and committee members who will be conducting these studies. If you are concerned about how these policy shifts might affect your operations, or if you would like to have a seat at the table during these hearings, we are ready to help you navigate the process.

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