Hawley's bill reprices the marginal opportunity zone data center

Between 14 percent and 17 percent of the data centers in the United States have been built, or will be built, in qualifying opportunity zones, according to one report, and Senator Josh Hawley's newly introduced No Tax Breaks for Data Centers Act would close the door behind them. The bill strikes data centers from the definitions of qualifying opportunity zone businesses and qualifying opportunity zone property — the mechanism by which a taxpayer applies the program's tax treatment to a purchase or a construction — while leaving the incentive standing for everything else the program covers.

Congress enacted the Opportunity Zone program in 2017 to pull capital into low-income communities, and the announcement of the bill frames the data center use of it as a diversion from that purpose. The legislation follows Hawley's bipartisan GRID Act, which takes up a different data center externality — the electricity load and the question of which ratepayers absorb its cost; the coverage describes the GRID Act as bipartisan, but it attaches no such description to this bill, names no co-sponsors, and gives no timeline.

For the private capital underwriting these campuses, the useful question is where the tax break actually sits in the return. Data center and power assets are priced off the energization calendar rather than the income statement, and a tenant's lease does not care whether the basis carried an Opportunity Zone stamp. The incentive moves the marginal deal instead — the site whose underwriting needed a better tax answer to clear, where the difference between a go and a no is often thin enough that the tax treatment decides it. Sponsors who penciled opportunity zone equity into a groundbreak now hold a political variable where they thought they held a basis point, and the right response is to re-underwrite it now.

The bill's second effect runs the other way. By reserving the incentive for all other eligible opportunity zone businesses and property, it makes every remaining eligible deal — the operating businesses, the non-data-center real estate — a relatively cheaper use of the same pool of capital, which suggests a modest tailwind for sponsors who have been bidding against data center developers for zone sites and the tax equity that follows them.

Demand, though, does not run on the tax code, and the same split showed up in Los Angeles soundstages, where box office ran 26 percent ahead of last year while the production market kept losing shoots abroad.

The coverage does not establish whether the exclusion would reach projects already under construction or only prospective ones. For anyone who has already closed, that is the difference between a repricing and a rewrite, and it is the line to read first in the bill text.