The Dallas Morning News recently posted an article about Dallas reducing park-related expenses from its upcoming city budget:
The Dallas Park and Recreation Department has made limited progress toward its long-term goal of making money to rely less on taxpayer funding, a recent city audit found. City staff face pressure to cut $14 million from the parks budget, which could reduce recreation services citywide, slash dozens of jobs and shut down four community centers.
I’m sympathetic to municipalities attempting to use tax dollars wisely, so I like the idea of finding ways to be more efficient. But I hate cutting parks and recreation budgets simply because the services these departments provide seem less valuable. Parks are enormously important to the health and wellbeing of citizens, and long-term studies show no shortage of evidence pointing to health and life expectancy improvements as the result of regular physical activities.
But Dallas is not alone in these struggles. Closer to home, the city of Waco is experiencing similar budget constraints, but instead of targeting parks, this round of budget cuts includes further reducing library operating hours. (Hours were cut last year as well.) It seems hardly outlandish to think that further cutting these operating hours isn’t the best thing for the community.
If only there were opportunities for cities to quickly and massively grow their tax footprint without needing to massively expand their physical infrastructure…
Wait. I think I’ve read about an industry willing to spend, and spend quickly. I’ll acknowledge from the beginning that data centers can use a lot of power, need some degree of water (although as I wrote last year, the actual water usage is paltry compared with total water consumption, particularly in a state as big as Texas), and if there is on-site electricity generation, there can be some noise. With those as caveats, let’s project some numbers.
Year One — Construction Phase Revenue
Let’s consider small and large data centers ($1B vs. $10B) and their potential effects on local economies during the first year:
| Project | Value on tax roll (Jan. 1, ~20% built)¹ | City property tax @ 50% incentive² | Year-one taxable purchases³ | Local sales tax (1.5%)⁴ | Total Year 1 city revenue |
|---|---|---|---|---|---|
| $1B data center | $200M | $755,000 | $200M | $3.0M | ~$3.8M |
| $10B data center | $2.0B | $7.55M | $1.5B | $22.5M | ~$30.1M |
¹ Assumes ~20% of total project value (land, site work, partial construction) is assessed in the first January appraisal. Larger projects build over 3–5 years, so the $10B figure phases in similarly. ² Waco’s FY2025–26 rate of $0.755 per $100, reduced 50% by the assumed incentive (Chapter 312 abatement or Chapter 380 rebate). ³ Materials and equipment purchased/delivered in year one. Texas Tax Code §151.359 exempts qualified data center equipment from the 6.25% state sales tax only — the exemption explicitly does not apply to municipal sales tax. ⁴ Assumes purchases are sourced/delivered such that Waco’s 1.5% rate applies; actual capture depends on purchasing structure, and incentive agreements sometimes rebate a portion.
For Waco specifically, a $3B data center project has the possibility of plugging revenue shortages for 2027. A larger project could possibly provide a tax surplus!
Ongoing Annual Property Tax Revenue
There are different tax structures that data center operators negotiate with cities, but let’s assume a 50% incentive on local property taxes over the first five years. Further, let’s assume that taxable value grows at around 3%, and the 50% incentive expires after year 5:
| Project | 50% incentive property tax/yr (years 1–5)⁵ | With ~3%/yr growth (by year 5)⁶ | Full-rate property tax/yr (year 6+)⁷ | With ~3%/yr growth (year 6+)⁸ |
|---|---|---|---|---|
| $1B data center | $3.8M | $4.2M | $7.6M | $8.8M and rising |
| $10B data center | $37.8M | $42.5M | $75.5M | $87.5M and rising |
⁵ Full value × 0.755% × 50%: $1B → $3.775M; $10B → $37.75M. ⁶ Year-5 figure after four years of 3% compound growth in taxable value. ⁷ Full value × 0.755% with no incentive, before growth: $1B → $7.55M; $10B → $75.5M. ⁸ Year-6 figure on value grown 3%/yr for five years ($1B → $1.16B; $10B → $11.6B), continuing to grow ~3% annually thereafter if refresh investment continues.
Will data center construction solve municipal revenue shortages? No, I don’t think the world is nearly that simple, but we’d be remiss not to consider those benefits, particularly if the feared AI job apocalypse is even partially correct. Having data centers means that jurisdictions with property tax will have more tax revenue to soften the blow from job losses or other structural changes.
If I were a developer wanting to build a data center, I would lean into this fact. Municipalities also have an opportunity here: they can leverage the anti-AI sentiment that seems to be rising to negotiate more favorable terms for any tax abatement arrangements. Perhaps it’s not 50% abatement over the first 5 years…perhaps it’s 0%, but I won’t dive into specifics.
In the end, these developments need to be advantageous to the companies building them as well as the communities that already live there. I think there are opportunities to do both.
Waco’s projected FY2027 budget gap is $10.7 million. The city’s proposed libraries and museum closures will save $191,000. (In Waco, note that of the $0.755 rate, $0.5845 funds day-to-day operations.) Also, this assumes that the facility sits outside a Tax Increment Financing zone — inside one, the general fund would collect taxes only on the land’s pre-development base value for the life of the zone, so it wouldn’t solve any issues.
Sources: City of Waco FY2025–26 adopted tax rate; The Waco Bridge (July 17, 2026); Texas Tax Code §151.359; Waco local sales tax rate per Texas Comptroller. Growth, phase-in, and purchase-capture assumptions are the author’s estimates.
Note: Claude Fable 5 helped generate these tables from publicly available tax data.
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