Data center industry expands hopes in Western Pa., but its future remains uncertain

By JAMES ENGEL
Tribune-Review

Supporters and opponents of data centers see different futures for the industry in Western Pennsylvania.

Supporters use words like “speculation” and “renewal.” Opponents say the industry could hit the region like “a storm.”

Two things are clear: The industry is making a play for the Pittsburgh region, and residents are taking notice.

In the past year, developers have announced proposals for hyperscale data centers, massive facilities mostly focused on artificial intelligence, in nearly every county in the region.

Michael Archer, a civil engineer with Moon Township-based Civil and Environmental Consultants, said his company is involved in about a dozen data center projects in Western Pennsylvania, most of which he could not discuss.

Still, evidence of the influx is apparent. The $10 billion Homer City redevelopment in Indiana County — which will be fueled by enough natural gas to power more than half of the homes in the state — began construction this year.

Proposals in Springdale in Allegheny County, Shippingport in Beaver County and Upper Burrell in Westmoreland County have cleared some hurdles but need further approvals.

Aligned Data Centers, the Shippingport developer, declined to comment for this story. Developers in Homer City did not provide a comment for this story. .

Developers or landowners have expressed hopes to construct data centers in Aliquippa, Midland and Big Beaver in Beaver County, Monongahela in Greene County, and South Strabane in Washington County, among others.

Speculation

Some proposals are merely dollar signs in the minds of real estate speculators, said Brian Regli, a consultant for Dynamo DC. Formerly known as Allegheny DC Property Co., Dynamo DC is developing the data center in Springdale at the site of a former coal-fired power plant.

“You do have more speculation than reality,” said Regli, who has served as the main spokesman for the Springdale project. “There is much more smoke than fire.”

That’s because data centers are hardly a getrich-quick scheme, he said.

Many of the projects announced in the region come with multibillion-dollar price tags and yearslong timelines.

Still, amid the AI-driven economic hype, landowners and real estate firms are champing at the bit to attract developers.

“I’m exaggerating for effect, but right now it seems like everybody with a thousand acres and a gleam in his eye wants to announce a data center,” said Sean O’Leary, a senior researcher at the Ohio River Valley Institute, a think tank focused on economic development in Northern Appalachia.

To Brian Kennedy, that’s a problem. Kennedy, senior vice president for operations and government affairs for industry-advocacy group Pittsburgh Technology Council, criticized what he calls “phantom data centers.”

Those are projects where landowners, hoping to score interest from developers, are touting their sites as the future home of a data center without the ability to offer details to concerned residents.

That leaves a vacuum where misinformation about the industry thrives, Kennedy said.

And it makes developers’ jobs all the more difficult, Regli said.

“There are people who are going to succeed. I don’t want to diminish that — I hope, certainly, that we’re one of them — but fundamentally, one of the things that the public has had to face, I believe unnecessarily, are all of these speculative deals that are floating around in the real estate community for folks that are hoping to get the quick buck,” he said.

Still, even in this early, uncertain period, Western Pennsylvania has the capability to become a strong regional hub for the data center industry, Regli said.

There are several reasons, he said: Pennsylvania’s power generation capacity, the region’s history of industrial development and large workforce, and Pittsburgh’s strong intellectual base in institutions like Carnegie Mellon University.

Already here

Data centers have been in Western Pennsylvania for some time, largely flying under the public’s radar.

Ed DeHart has operated a small data center along Penn Avenue in Pittsburgh’s Bloomfield neighborhood for more than 25 years. The facility, called aspStation, was built as a data center for nearby West Penn Hospital before DeHart and his partners purchased it in 2000.

“No one knows what it is,” he said. “It’s just a big brown building.”

DeHart’s company rents server space to smaller companies that require 24/7 data services, a business model called co-location.

Other small centers exist throughout the region, notably at Nova Place on Pittsburgh’s North Side.

“People don’t know about data centers, but they know about the cloud,” DeHart said, referring to the internet’s vast storage and computing network. “The cloud is data centers. Our whole world relies on data centers.”

But the projects grabbing headlines and generating public backlash — mostly gigantic centers aimed at AI development — are orders of magnitude larger than DeHart’s center, a three-story concrete brick structure on a half-acre lot.

Regli said development of hyperscale data centers in Western Pennsylvania is unlikely to look like the massive build-up in Northern Virginia — often called “data center alley.” There, hundreds of mammoth centers are clustered together throughout Loudoun, Prince William and Fairfax counties.

The difference boils down to geography. The sections of Virginia with the greatest development are relatively flat and expansive, whereas Western Pennsylvania is replete with rolling hills and meandering streams — far less forgiving terrain for developers.

What this region offers is plenty of brownfields, sites formerly occupied by other industries.

Those sites are relatively cheap and flat and often have riverfront access. That means access to electrical infrastructure and fiber optic cables, making them attractive to developers.

Among the proposed projects in Western Pennsylvania so far, almost all are positioned at old industrial sites, including Homer City, Shippingport and Regli’s project in Springdale.

“I can’t tell you there’s thousands of communities or even hundreds of communities in Pennsylvania that want to say yes to a data center, but there are a lot of communities who do because they understand these old industrial properties don’t really have a bright future and aren’t just going to reinvent themselves or uncontaminate themselves,” Regli said.

Impact and regulation

For Kennedy, the data center boom is a chance to breathe life into blighted properties and build up the economy.

Kennedy said it’s not so much the centers but the components that go in them that excite him.

“I do think we have a story about data centers in Western Pennsylvania — it’s mostly a story of renewal,” he said.

He cited recent local expansions by electrical component firms Hitachi and Mitsubishi, both of which produce components vital to data center development and electrical grid upgrades.

Hitachi is spending $70 million to transform its facility near Mt. Pleasant in Westmoreland County into a high-voltage product manufacturing facility. Mitsubishi is investing $86 million, including almost $7 million in state money, to upgrade plants in Beaver and Allegheny counties for the manufacture of circuit breakers and other electronic components.

But O’Leary — at the Ohio River Valley Institute — is more skeptical. “When we talk about these huge numbers being invested, the question isn’t, ‘How much is being invested?’ The question should be, ‘How much of that investment is actually going to end up in local economies and end up as disposable income in those communities?’ — and the answer is very, very little,” O’Leary said.

Though data centers require significant labor during construction, full-time staff at big data centers is comparatively small after completion because the servers are mostly self-sufficient.

Still, taxes derived from the industry could have some impact on Western Pennsylvania, O’Leary said.

In Loudoun County, Va. — the epicenter of the nation’s data center industry — those taxes account for more than one-third of general fund revenues, according to the county. And, in recent years, Loudoun consistently has slashed property taxes, which now rank among the lowest in the area.

If the growth of the industry has a similar effect around Pittsburgh, that could lead to more disposable income for residents, but O’Leary said it would likely be isolated to local municipalities, not a regionwide trend.

Real estate taxes on land and income taxes on employee salaries would provide some bump to government coffers. But the biggest tax boost would come from sales and use taxes, which mostly benefit the state.

Even that wouldn’t be seen for some time. Pennsylvania legislators passed a bill in 2021 exempting data center developers from those taxes temporarily, in an effort to attract the industry. It worked so well that the state recently changed course to strengthen oversight of data centers after intense public backlash.

One bill, backed by Gov. Josh Shapiro, passed the state House in June with strong bipartisan support. It calls for establishing stricter transparency and environmental requirements for data center developers seeking state sales tax exemptions.

Another bill would eliminate sales tax exemptions for equipment purchased for data center development altogether. It passed the House with near unanimous support a day later.

Both bills are caught up in the state Senate. The vast backlash against data centers — and the government scramble to regulate them — isn’t isolated to Pennsylvania.

New York Gov. Kathy Hochul issued an executive order in July placing a one-year moratorium on hyperscale data center development in her state.

Pennsylvania Treasurer Stacy Garrity, Shapiro’s Republican opponent in the governor’s race, said she also supports an indefinite pause on development — though her larger regulatory proposal for the industry remains hazy.

The sudden influx of projects has left local governments rushing to create ordinances to regulate development.

East Deer, Oakmont, Tarentum, Upper Burrell, Murrysville and Gilpin, among others, have made moves to shield themselves from the industry.

Community reaction

The local level is where Lauren Posey typically finds herself.

A policy advocate with environmental group Protect PT, Posey has monitored the growth of the industry — especially projects in Springdale and Upper Burrell — for more than a year.

What she has seen hasn’t left her at ease. “It’s the fact that it’s the overwhelming scale of it. It’s not just a few facilities in isolation,” Posey said. “It’s this kind of storm that’s happening across our state and across the country.”

That storm has left deep frustrations in its wake.

Recent Quinnipiac polling suggests that 74% of Pennsylvanians would oppose the construction of an AI data center in their community, up from 68% in February.

The sudden political flashpoint has seen residents consistently lash out against projects.

“It’s somehow easier to get people to care about this issue than maybe other environmental issues,” Posey said.

Unlike other political issues — often centered in faraway Harrisburg or Washington, D.C. — fights over data centers often are set in cramped borough council chambers, a setting that’s more accessible than Capitol Hill.

Concerns about noise generated by data centers and rising power bills are tangible issues that prompt residents to resist, Posey said.

Much of the pushback also might be reflective of general unease about the proliferation of AI, she said.

Though often at odds throughout the Springdale project, Posey and Regli seem to agree on one point: Much of the backlash is also driven by a deeper issue — wealth and class disparities.

“It’s not as much about the data centers as it is about the money behind the data centers,” Regli said.

Regli — whose project is backed by multibillion-dollar hedge fund Davidson Kempner — said he believes many residents perceive the moneyed data center industry as taking advantage of small communities as many Americans continue to struggle through an affordability crisis.

As long as economic circumstances don’t change, he said he doesn’t expect pushback from residents to budge.

“It should mobilize people. People should ask questions. They should be engaged in civic communities. They should be fighting for more equality in the U.S., and the fact that data centers have become the fulcrum point of that conversation in many, many ways should not be surprising,” Regli said.

What comes next?

Still an AI acolyte, Regli said he’ll continue to push to expand the industry in Western Pennsylvania for what he called the “betterment of humanity.”

A third-generation real estate developer, Regli said the build-out will require “dialogue ” with communities.

That dialogue will have to involve community benefits agreements, contracts signed between developers and local governments that often seek further investment in the community or other project mitigation not outlined in ordinances, Regli said.

It also will have to involve regulation at the state level. Having formerly served as executive director of critical investments in the Shapiro administration, Regli said he’s supportive of the governor’s efforts to tie tax breaks to transparency and firmer industry standards.

Essentially, development “the right way,” he said.

But between the ramped-up use of fossil fuels to power the data centers and the increasing strain on the electric grid, Posey said she doesn’t expect the region to come out of the buildup unscathed.

For O’Leary, the most important thing is that communities go into bargaining cleareyed.

“I’m not saying we shouldn’t have data centers. I’m not saying communities shouldn’t welcome data centers. I’m just saying that they should make very sure that they’re getting a good deal as a result of it,” he said.

Ten years out, O’Leary said he expects a fair amount of data centers will be built in Western Pennsylvania, but he isn’t holding his breath for any sort of large-scale economic impact.

Western Pennsylvania isn’t likely to become the next Loudoun County, but time will tell whether it becomes a strong data hub — or a speculative building bubble that proves anticlimactic.