Senators move to strip data centers from the rural OZ tier

Josh Hawley voted for the One Big Beautiful Bill Act last year, the law that turned the Opportunity Zone tax break into a permanent fixture of the tax code and drew a new line between urban parcels and rural ones. This month the Missouri Republican introduced legislation that would cut data centers out of the program entirely, and the bill was referred to the Senate Finance Committee, where the ranking Democrat has been moving toward the same destination with a broader instrument. Before either proposal moves far enough to become law, rural land prices are likely to begin registering which version of the program Congress actually meant.

Hawley framed the measure as a subsidy question rather than a development question, saying in a statement that “Big Tech companies are getting major tax breaks they don’t need to build data centers communities do not want.” Sen. Ron Wyden of Oregon, the top Democrat on Finance, went further in a policy paper framework offered earlier and not as legislation: that proposal would strip Opportunity Zone benefits from data center developers and also block them from using other tax breaks included in the One Big Beautiful Bill Act. Hawley’s is a bill with a committee referral; Wyden’s is a negotiating position from the ranking member of the committee that would have to act on it.

The politics moved underneath the program faster than the developers moved, as public opinion has soured on data centers — on their place in the artificial intelligence buildout and on the utility costs and power demand that arrive with them — and that souring has reached members of Congress who voted the incentives into permanence. Data center developers are already planning projects that lean on the new rural benefits, and some rural officials are competing for the property tax revenue and the jobs a campus brings. Both groups are underwriting a benefit whose durability is, as of this month, a live question in the Senate rather than a settled premise. Permanence is what made the rural tier bankable in the first place: a benefit that expired with a ten-year pilot gets discounted by anyone holding a long-dated asset, while one written into the permanent code can be carried into a project’s exit math.

The benefit at issue is a step-up in basis, which reduces the gain an investor owes after holding an asset through a defined deferral period; urban parcels get a 10% step-up and the rural benefit triples it. Opportunity Zones were created in 2017 as a one-off, ten-year program aimed at distressed and underinvested parts of the country, and the second iteration, known as OZ 2.0, uses generous tax breaks to push development toward rural areas in economic decline, with the tripled step-up as the carrot.

Backers of permanence were not subtle about which industry the rural tier was built to attract, as Simon Wang, an analyst at the National Community Reinvestment Coalition, an advocacy group promoting equitable economic development, recalled that supporters “were very open about the fact” that the stepped-up benefit would be great for a data center.

Catherine Bazley, a partner at the accounting firm Cherry Bekaert, said the Opportunity Zone questions reaching her desk tend to come from two kinds of client: small developers using the program for a passion project such as needs-based housing, and data center developers. Those two client types are bidding for the same rural tracts, which is the uncomfortable fact at the center of Hawley’s bill and why the eligibility question cannot be settled as a technical matter.

A step-up in basis is a land subsidy before it is anything else: it lowers the effective cost of the parcel and improves the after-tax equity at exit, and a benefit of that shape capitalizes into acquisition prices wherever the underwriting can see it. That is what makes eligibility a site-selection variable rather than a compliance detail, and it is why these two proposals should be read as land-market events first and construction events second. As this publication has argued, the OZ break mattered to data centers mainly at the margin. Wyden’s framework would reprice that margin twice — once by removing zone eligibility, once by closing off the other credits in the same law — and the effect lands on the pro forma of a speculative rural site long before it lands on a campus that clears on power and interconnection.

There is a case for leaving eligibility alone: a rural county with a substation and a fiber route captures tax revenue and jobs from a project that the zone benefit helps tip from a field into a construction schedule, and that tipping is the OZ 2.0 theory of the case. Hawley’s bill undercuts it for the one industry rural officials were told to expect. The counterargument is that the program’s stated purpose is economic development in distressed places, and a stepped-up basis that flows into the price of farmland is development of a narrow kind — good for the seller, and only incidentally good for the county. A rural tier cannot be a data center incentive and a needs-based housing incentive at the same price, and the Senate is now deciding which one it meant.

The mechanics run through the Senate Finance Committee, where Hawley’s bill sits and Wyden holds the ranking seat, while the tract map is being drawn on the old assumptions: New York will file its recommended tracts by the Sept. 28 deadline, and rural nominations are being assembled against a step-up whose data center use is an open question on the committee of jurisdiction. Land comps in those counties will register the answer before any vote does.