Data centers are the unseen but indispensable infrastructure of the modern world, and Arizona has emerged as a national leader in the industry, reaping the economic benefits that go along with it. But Arizona’s advantage is threatened by growing municipal backlash—and that’s a trend that must be resisted if the state wants to maintain its competitive edge.
A new Goldwater Institute report—Data Centers: A Free Market Model for the Digital Future—makes the case for why leaders in Arizona should embrace policies that open the door for data centers to ensure the state can remain a dominant force in America’s future economy.
“Data centers are the physical backbone of cloud computing, artificial intelligence, digital commerce, and national security,” says William Beard, Municipal Affairs Liaison at the Goldwater Institute and co-author of the report. “They are core infrastructure, no different in principle from transportation networks, energy production, or large-scale agriculture built to meet the demands of a particular era. Arizona is thriving as a leader in data centers, the state is reaping the economic benefits, and policymakers must take steps to ensure that continues.”
Indeed, the Greater Phoenix area now ranks near the top of U.S. data center markets and is projected to exceed 5,000 megawatts of capacity—an expansion of more than 500 percent. That growth is not incidental, nor is it accidental. It is the predictable result of policy choices that favor investment rather than obstruct it: Arizona’s pro-business, low tax structure; predictable regulation; affordable land; reliable energy; and a legal environment anchored in strong private property rights. But continued growth is no guarantee, especially as local governments threaten data centers with restrictive policies.
“Arizona’s advantage is increasingly threatened by a growing municipal-level regulatory backlash, often driven by misconceptions about water use and electricity demand,” says Jen Springman, Coalitions Manager at the Goldwater Institute and co-author of the report. “Modern data centers are among the most water-efficient industrial facilities ever built. Electricity prices, meanwhile, are not a data center problem; they are a policy outcome. Blaming infrastructure for political energy choices obscures the real cause—and produces the wrong solutions.”
Restrictive zoning and ad hoc permitting do not eliminate demand for digital services. They simply push investment elsewhere and raise long-term costs for consumers who will still rely on the same cloud platforms, AI tools, and digital services—only now imported at a premium. Markets, not politicians, are better at driving conservation, innovation, and efficiency. Price signals reward better technology and punish waste far more effectively than fear-driven local obstruction.
Goldwater’s report recommends that the future should be met with freedom, not restrictions. State government should streamline zoning and permitting to ensure investment can move forward predictably and efficiently, allowing markets—not political anxiety—to make allocation decisions. Data centers are not a passing trend; they are a durable component of the modern economy, as essential to this century as railroads were to the last. Arizona’s choices will determine whether it benefits from hosting that infrastructure—or pays more to import it from states willing to welcome growth.
The digital economy will be built somewhere. The only question is whether Arizona continues to lead, or regulates itself out of the race.
You can read the full report here.
