As data centers draw growing interest from developers across Michigan, residents may be surprised by how much, and how little, local government has a say in the outcome.
That question brought City of Parchment officials together with a University of Michigan researcher this month, in a session aimed at separating what cities and townships can regulate from what state and federal law already decides for them.
Not all data centers are the same
Dr. Sarah Mills, director of the Center for Empowering Communities at the University of Michigan’s Graham Sustainability Institute, told the audience that data centers have existed since the early internet era and often look like ordinary office buildings. What’s changed recently is scale. She urged officials to distinguish between small data centers, the kind many communities have unknowingly allowed for decades in office districts, with minimal impact, and “hyperscale” facilities that draw far more power and warrant closer zoning scrutiny. She suggested communities define that dividing line by energy capacity rather than square footage, since a facility’s power draw drives its heat, cooling, and infrastructure needs more directly than its physical footprint does.
Water use is a tradeoff, not a simple number
Data centers cool their servers either through evaporative systems, which use more on-site water but less electricity, or closed-loop and air-cooling systems, which minimize water use but require significantly more electricity. Mills noted that from a purely local perspective, closed-loop systems look more water-friendly, but if that electricity is generated by power plants that themselves rely heavily on water for cooling, the net water impact statewide may not actually be lower. Researchers are still studying which tradeoff wins out overall.
Any water pumping over 100,000 gallons per day, whether for a data center, a farm, or a utility, falls under state oversight through EGLE, with additional scrutiny above 2 million gallons per day. If a data center draws from a public water utility, that utility is legally required to protect capacity for existing customers before extending service to new ones.
Property taxes are the main financial benefit — and they’re uneven
Mills said the primary financial upside for host communities is property tax revenue, since data centers represent an unusually large capital investment per acre of land. However, that revenue isn’t stable year to year. Under Michigan’s personal property tax formula, data center equipment is taxed at a declining rate over its first several years, then jumps back up once aging servers are replaced — creating a “bumpy” pattern rather than a steady annual figure. Michigan does not exempt data centers from local property taxes, though it does offer state sales and use tax exemptions, and local governments have the option to offer additional incentives such as industrial facilities tax abatements.
Direct job creation from data centers is limited once construction ends, mainly security and HVAC maintenance roles, since the high-tech processing work is largely handled remotely rather than on-site.
Zoning silence isn’t neutral
Mills emphasized that under the Michigan Zoning Enabling Act, local governments cannot outright ban a lawful land use for which there’s demonstrated need — a principle that applies broadly, not just to data centers. But she cautioned that if a zoning ordinance is silent on data centers, that silence functions as a de facto prohibition, and can invite developers to argue the facility should instead be regulated like a public utility, which typically face far fewer local restrictions. Reasonable regulations are allowed, she said, particularly when they address verifiable impacts or apply consistently to similar land uses rather than singling out data centers alone.
On the question of moratoriums, which several jurisdictions have used or considered locally, Mills indicated they must be time-limited, tied to a specific stated purpose, and accompanied by real progress toward understanding the land use in question. She felt an indefinite pause isn’t legally defensible.
Planning for decommissioning up front
Borrowing from standards already used for large-scale renewable energy projects, Mills recommended communities require a decommissioning plan, a financial assurance mechanism such as a bond or insurance policy, and a decommissioning agreement spelling out exactly when a community can draw on that assurance — whether the developer initiates decommissioning voluntarily or the local government determines the site has been effectively abandoned. She suggested agreements can require the facility to report ongoing water and electricity usage as one measure of whether the facility remains active.
Get commitments in writing
Mills’s clearest practical advice: verbal assurances from developers about traffic routes, generator schedules, or promised tax revenue mean little unless they’re written into a binding development agreement. She specifically flagged backup generator scheduling — since generators are noisy and can be tested at inconvenient hours if a community doesn’t specify otherwise — along with construction traffic routing and property tax commitments as areas where communities have seen developers later argue for different terms than what was originally discussed.
Not just data centers
Mills noted that many of these same considerations — water use, decommissioning, zoning clarity, and written commitments — apply broadly to industrial development generally, not only to data centers specifically.
