Arizona must continue embracing free market principles and limit government regulation if it wants to remain a national leader in the data center industry, according to a new report released by the Goldwater Institute.
The report, titled “Data Centers: A Free Market Model for the Digital Future,” argues that Arizona’s success in attracting major digital infrastructure depends on predictable rules, low regulatory barriers, and respect for private property rights.
William Beard, a municipal affairs liaison at the institute, told The Center Square that data centers serve as the backbone of the digital economy by storing and processing massive amounts of information.
Phoenix, the state’s largest city, is already one of the top locations in the country for data centers. According to cybersecurity firm Upwind, Phoenix is projected to see a 553% increase in data center capacity in coming years.
Beard said Arizona has become attractive to developers because of its safety, economic stability, favorable tax environment, and strategic location. The state’s lack of severe weather events has also made it appealing for large-scale digital infrastructure.
The report notes that Arizona offers strong tax incentives, affordable land, and a business-friendly climate that has encouraged investment. However, Beard warned that increased regulation at the local level could threaten that momentum.
To remain competitive, the report recommends that state and local governments maintain clear and consistent zoning and permitting rules so that companies can plan and invest with confidence.
In recent years, several Arizona cities have moved to impose new restrictions on data centers. Phoenix now requires special permits related to noise, fire safety, power demand, and grid impact. Mesa and Chandler have also enacted zoning rules focused on water use, location, electricity, and noise.
According to the report, much of this regulatory pushback is driven by misinformation, particularly about energy and water consumption.
“These debates are often based on fear rather than facts,” Beard said. “Free markets, private property rights, and innovation are largely missing from the conversation.”
The report warns that excessive regulation could also expose cities to legal risk under Arizona’s Proposition 207, which requires compensation when regulations reduce property values and limits government land seizures.
Two of the most common concerns surrounding data centers are electricity and water use. Beard said modern facilities are among the most efficient users of both resources.
“Every major technological shift has raised similar concerns,” he said. “But innovation always leads to more efficient use of resources.”
The report argues that rising electricity prices are primarily caused by state energy policies and regulatory mandates, not data centers. Nationwide electricity costs have increased nearly 30% since 2021.
Many data centers now generate power on-site, rely on renewable energy, and use battery storage to manage peak demand. Beard said large, consistent energy users can actually help stabilize power markets and reduce costs for smaller consumers.
On water usage, Beard noted that modern cooling systems allow extensive recycling and reuse. The report highlights closed-loop cooling, air-cooled designs, and reclaimed water systems that significantly reduce potable water consumption.
For example, Meta Platforms’s data center in Mesa is expected to be 60% more water efficient than average facilities and will operate on 100% renewable energy.
The report concludes that Arizona’s economic success has historically come from limited regulation and strong property rights.
“Arizona’s success has never come from fear-driven regulation,” the report states. “It comes from predictable rules, respect for private ownership, and allowing innovation to thrive in a free enterprise environment.”
