Data Centers
This is part one of a multi-part series on the Fredericksburg Chamber of Commerce’s annual State of the Burg economic summit that was held on May 13. Part one will focus on the impact of data centers on the Texas economy.
Last Wednesday, businessmen and women from all over Fredericksburg shuffled into St. Joseph’s Halle for the State of the Burg, the town’s annual economic summit.
This year’s conference began with a presentation by economist Dr. Lynn Krebs on largescale factors influencing the Texas economy and how those may impact the town. The influx of data center construction and shifts in rural land sale trends were striking in Krebs’ lecture.
“One of the best compliments is that markets seem to work more efficiently when people have a lot of information at their means,” Krebs said at the start of his talk.
Krebs introduced himself as a research economist for the Texas Real Estate Research Center. Established in 1971, the center studies and publishes data pertaining to land and housing markets across the state. During his presentation, Krebs reviewed grandscale factors influencing the Texas economy as well as data specific to the Hill Country region.
Since the close of the pandemic, Texas has experienced a ricochet of growth in population, total personal income and real estate investment. Notably, data centers have surged in the state.
Texas is at the No. 2 spot in the nation for data centers. Krebs said that of the more than 300 centers that already exist in the state, 180 are in the Dallas-Fort Worth metroplex area. Construction of these computing warehouses has crept upwards since the launch of ChatGPT in Nov. 2022. Presently, the national rate of data center construction has surpassed that of office construction.
It is not entirely accurate to compare the AI boom to the dot com era, Krebs said. Big investments in this new age of intelligence are “already producing revenue and they’re projecting a lot more of it,” he said.
While some of those companies will inevitably fail, Krebs said that he foresees many more succeeding. He predicted that the rise of AI would be “more revolutionary” than the inception of the internet.
While AI transforms everything from the economy and job market to the patterns of how humans learn information, it will also continue to transform the landscape of Texas. Krebs said that his friend Dr. Doug McIntyre, dean of the college of business at Hardin-Simmons University, claimed that a data center construction outside of Abilene is projected to bring a 5,000bed workers’ camp and a 3,000-site RV park to the area. This will have a significant impact in terms of “the economic energy that [the development] brings to a community, long term,” Krebs said.
In another example, Krebs brought up Grimes County, just outside of College Station. According to local media outlets, a proposed data center belonging to Space-X wants to move in. Krebs said the county is stirring about a tax abatement for the project, which would sit along Gibbons Creek reservoir. The abatement would reduce property tax for the $100 billion facility, and the county would agree to collect fees from a $46 billion valuation instead, Krebs said. He noted that this influx of tax money would impact nearby school districts on a grand scale, as they receive funding from property taxes. Abatement for companies that generate hundreds of billions of dollars is hotly contested as it’s a tax cut for some of the wealthiest corporations in the state. However, Krebs suggested that abatement does give a county a bargaining chip with these developments which have been the center of much environmental concern. In the case of Grimes County, an abatement may provide a greater semblance of control over the facility’s operation while still raking in millions in tax revenue.
For all the boomtown eras in the U.S. and Texas, few have seen an influx of wealth on this grand a scale. Krebs stated that he did not mean to support or forsake the new data center industry, but he wanted to note the potential massive economic impacts that the developments could have on rural areas in particular.