State and Local Races, Not Congress, May Decide the Data Center Boom

By Olivia Hart

Hyperscalers are spending hundreds of billions of dollars a year on data centers, with forecasts for 2027 topping $1 trillion — and the officials who will decide whether that buildout continues are mostly not on your ballot's top lines. State and local officeholders, not Congress, hold the practical power over data center construction and energy infrastructure. That makes next week's lower-profile midterm races a bigger economic variable than the fight for the House or Senate.

How much does AI spending drive the economy?

JPMorgan has estimated that AI-related investment was responsible for about one-fifth of U.S. GDP growth over the past year. Analysts at ING believe AI will account for a third of growth in 2026. Those shares are unusually concentrated: one technology category carrying a fifth to a third of national growth means any political friction at the local level propagates quickly into headline GDP. The stock market has already sold off in recent days on fears the AI boom will go bust, with Election Day just over a week away and early voting in full swing in many states.

What would a 'blue wave' actually change?

If stocks slump further, it will be because a "blue wave" at the state and local levels ushers in lawmakers opposed to data centers, Thierry Wizman, global FX and rates strategist at Macquarie, said in a note on Monday. "For the direction of the U.S. economy, the composition and direction of governance at the state level may matter more than whether the Democrats 'win' the House or the Senate," he said. Expectations for big Democratic gains could weigh on the market on their own, in his framing — though a note of caution: this is a forecast about sentiment, not a measured mechanism.

The dynamic is already visible. On Tuesday, Amazon canceled a plan to build data centers in Loudoun County, Virginia, after reaching an agreement with local officials amid widespread resident backlash. Amazon Web Services had bought the project property in February for $427 million — a purchase that reportedly blindsided county leaders already uneasy with the explosion of data centers in recent years. Under the deal, Amazon vowed not to build data centers on the land, will repurpose most of it for mixed-use and residential development, and will donate 25 acres for a community arts center and recreational facility plus $5 million to a housing fund.

Where are the riskiest races?

Texas offers the sharpest test. Republican Gov. Greg Abbott has turned from a data center booster to a skeptic as he faces a tough re-election race against Democratic state representative Gina Hinojosa. Michael Pearce, chief U.S. economist at Oxford Economics, identified the key midterm races for data centers in Texas, the Carolinas, and Midwest states including Ohio, Illinois, and Wisconsin. The Trump administration has already used regulations and executive orders to facilitate construction, and any comprehensive legislation in Congress will be slow, he noted. Local officials pose the more immediate threats — via moratoriums, environmental reviews, and bottlenecks connecting new data centers to the power grid — he said in a note on Thursday.

"If this year's elections show that an anti-data center stance wins political contests, it could put data center regulation at the heart of the 2028 campaign," Pearce said. The midterms, in other words, are a rehearsal for the presidential cycle.

Can local opposition slow the economy now?

Not immediately, and that limit matters. Data center construction shifted sharply higher in the middle of the year — perhaps, Pearce wrote, in anticipation of a more hostile political climate. Most of the facilities' economic value comes from the computing equipment inside, and that spending lags construction by six to eight quarters, he estimated. "This year's surge will keep supporting business investment over the next couple of years, whatever happens on the ground," he predicted. Developers can also soften local opposition if they can show a data center will lower local tax bills or fund schools and roads.

Daniel Skelly, a portfolio manager at Morgan Stanley Wealth Management, goes further: a spending slowdown may actually help the AI boom. Despite recent volatility, the sector still enjoys solid growth and strong earnings, and the long-term AI investment cycle remains intact, he said in a note Wednesday. "Also, ongoing power deficits, a shortage of people to build data centers, and political pushback against them may elongate the cycle and lower the odds of a blow-off top," Skelly said. The bet, then, is that friction — political and physical — keeps the boom alive longer. Whether voters cooperate is the question a week of counting will begin to answer.