Data Centers: What Cities Need to Know

Minnesota Statute § 216B.03 defines what a data center is and Minnesota Statute § 297A.68 discusses what qualified data centers and qualified large-scale data centers are for the purpose of business tax exemptions. In 2025, Minnesota passed a law regarding data centers related to their interactions with the state including Minnesota Business First Stop Program at Department of Employment and Economic Development (DEED). Read more about the 2025 law pertaining to data centers and the Minnesota Business First Stop Program.

Otherwise, no specific chapter of Minnesota statutes regulates data centers. Rather, data centers must comply with existing statutes governing land use, water use, electricity, and environmental impact.

What kind of data center is proposed?

There are many different types of data centers with varying needs and requirements. Smaller facilities — sometimes called enterprise, edge, or small scale — are designed to provide service to end users or a company’s own storage and computing needs and may have a much smaller footprint or community impact. Larger facilities — sometimes referred to as hyperscale or large scale — are built to support AI and other cloud-based, high-volume services. Generally, application complexity rises with facility size. Cities should familiarize themselves with the types of centers being proposed.

How much water will the data center use?

Compare projected usage with the city’s Minnesota Department of Natural Resources (DNR) water allocation. Does the city have access to enough water to support the data center’s needs? Cities may wish to consult their local DNR office for more information.

Who provides the data center’s electricity, and will the project require a grid build-out?

Examine the utility service provider responsible for the data center’s power. Determine whether the project will require a significant electrical grid expansion. Be sure to check the length of their utility contract, what collateral they must provide, and what penalties are levied if the data center terminates service early.

How will noise be mitigated?

Data centers run heavy cooling equipment, fans, and emergency systems continuously. Assess what barriers, setbacks, or architectural design measures are being implemented to protect nearby residents from chronic noise pollution.

What backup power sources will the data center use?

Data centers generally need generators. A power interruption would disrupt their service and potentially cause significant problems for the clients of that facility. On-site electric generation, construction of electric-generating facilities, and on-site energy storage may require permits from the Public Utilities Commission (PUC) and Minnesota Pollution Control Agency (MPCA). Residents often cite noise and environmental concerns regarding generator use.

For a deeper dive into these technical issues, review the University of Minnesota’s toolkit: Data Centers, Water and Energy: Considerations for Local Government Decision-making in Southeast Minnesota.

Cities must approve or deny any zoning requests within 60 days of receiving an application. This requirement is known as the “60-Day Rule” and applies to requests related to zoning. If a city fails to act on request within that timeframe, the request is deemed approved. The 60-day time period does not begin if the city notifies the landowner in writing and within 15 business days of receiving the application, that the application is incomplete and details what is missing.

Read the League’s Zoning Guide for Cities to learn about the 60-Day Rule in more detail and includes model forms for the application log, time extensions, and waivers.

Yes, cities can adopt an interim ordinance, commonly called a moratorium, to consider zoning ordinance amendments. A moratorium cannot be used merely to delay a project, nor can it extend the time for action deadline under the 60-Day Rule for applications filed before the interim ordinance took effect. Cities must follow state statutory procedures to initiate a moratorium and consult their city attorney.

For more information on the procedure for adopting a moratorium, see the League’s Zoning Guide for Cities.

Yes, a city’s land use ordinances can require a conditional use permit when applicants meet general and specific ordinance standards. A CUP allows the use only if applicants address the standards and conditions set in the zoning ordinance. For example, an ordinance might require all conditional uses to conform to the comprehensive land use plan of the community, be compatible with adjoining properties, mitigate noise, and be served by adequate roads and public utilities. Learn more about CUPs in the League’s information memo, Land Use Conditional Use Permits.

Yes. Decommissioning plans protect the community from bearing cleanup costs once a data center is no longer operational. It usually entails removing hazardous materials, equipment, and unneeded buildings, as well as grading, and reseeding the site. Some cities require engineering cost estimates after the data center is operational and often require a bond to cover these expenses.

Zoning time limits can generally be imposed through an interim use permit or a planned unit development agreement.

For more on planned unit developments in Minnesota, see pages 83-84 of the University of Minnesota’s toolkit on Data Centers, Water and Energy: Considerations for Local Government Decision-making in Southeast Minnesota.

Working with municipal land use regulations can be difficult for both city officials and residents. When facing controversial decisions where someone wis bound to be unhappy, building a defensible record is necessary.

An important part of the process is developing and adopting written “findings of fact” that explain the decision. Doing this carefully and thoughtfully can help resolve a contentious issue by forcing officials to focus their inquiry on the relevant considerations. It also produces a record that makes it easier for a court to uphold the decision if challenged. Learn more in the League’s information memo, Taking the Mystery out of Findings of Fact.

Contact the League’s Loss Control/Land Use Attorney Jed Burkett at (651) 281-1247 or [email protected] for sample zoning ordinances related to data centers.

Data centers have been a contentious issue in many communities. Having a communication plan in place can help guide the city in any development project. While there is no one-size-fits-all approach, these resources may help:

• Watch the League’s September 2026 recorded webinar, Building Welcoming and Engaged Cities through Land Use Regulation.
• Read about public participation in land use regulation in the League’s September-October 2026 issue of Minnesota Cities magazine.
• Complete the League’s MemberLearn online course: Skills for Communicating Effectively.

Land use training is important for staff, the council, and the planning commission. Consider completing these League MemberLearn online courses for a refresher or more background on land use regulation.

• Land Use (Mini-Course).
• Land Use Regulation: Your Role in Land-Use Decision Making.

Data center development can have a major impact on a community, making it important to assemble a knowledgeable team to guide the city through the process. This team may include:

• City council: Elected officials are responsible for adopting and amending plans and ordinances and applying ordinance standards to specific proposals.
• Legal counsel: This may be your city attorney or another attorney specializing in data centers who is hired to represent the city’s interests.
• City planner: This professional is most familiar with the city’s zoning code and can help answer technical questions. If your city does not have a planner on staff or under contract, these responsibilities often fall to the city clerk and city attorney.
• City utilities: Cities that provide utilities to proposed data centers should include their utility staff in leadership roles on the planning team.
• Spokesperson: If the city is contacted by a developer or receives a land use application, staff members or elected officials who handle communications should meet to discuss messaging and prepare for common questions about the development, timeline, and costs to the taxpayers. Appointing a single spokesperson is common to ensure the city has a clear, unified message.
• Other consultants: Cities may find it necessary to consult with other professionals during their decision-making process. Developers often share information and reports ahead of anticipated questions, but cities should verify information independently to ensure decisions are not based solely on information provided by the applicant.

Nondisclosure agreements (NDAs) are often used to protect project details during planning phases, but no specific statute explicitly permits or prohibits their use in cities.

The tricky part about using a nondisclosure agreement in local government operations is that the Minnesota Government Data Practices Act (MGDPA) still applies, and cities lack the authority to enter into contracts that override the MGDPA. Meaning, if the city signs an NDA and then receives a request for data classified as public, the city is legally obligated to release it, which would likely put them in direct conflict with a traditionally worded NDA. Cities are encouraged to work with their city attorney to review proposed language before signing an NDA. It is important to understand enforcement limits and ensure all participants are aware of legal obligations.

Yes, cities have faced lawsuits over their land use decisions related to data centers.

If your city receives notice of a lawsuit, notify your city attorney immediately. If the city is insured through the League of Minnesota Cities Insurance Trust (LMCIT), also notify Claims at [email protected].

During the 2026 legislative session, Minnesota legislators introduced more than 60 proposals related to data centers, though none passed. We anticipate it will continue to be a popular topic in 2027. To receive regular updates during the legislative session, subscribe to the Cities Bulletin e-newsletter.

Learn more about how the 2025 water law changes affect data centers from the March-April 2026 issue of Minnesota Cities magazine.

Similarly to Minnesota, federal law regulates several environmental aspects of data center development. The federal government is closely monitoring (and encouraging) the increased demand for data centers. In July 2025, President Trump signed Executive Order 14318, Accelerating Federal Permitting of Data Center Infrastructure, to fast-track the buildout of large-scale artificial intelligence data centers and supporting energy components.

Depending on their characteristics, proposed data centers may go through regulatory review with state agencies on the following topics:

• On-site electric generation, construction of electric-generating facilities, and on-site energy storage (Minnesota Public Utilities Commission and Minnesota Pollution Control Agency)
• Storage tanks. hazardous materials storage, hazardous waste (Minnesota Pollution Control Agency)
• Air pollution and data centers (Minnesota Pollution Control Agency)
• Wastewater permits (Minnesota Pollution Control Agency)
• Water appropriation permits (Minnesota Department of Natural Resources)
• Data center sales tax exemptions (Minnesota Department of Employment and Economic Development)
• Sales tax exemption for qualified data centers (Minnesota Department of Revenue)

Many states are facing a surge of data center development. The following resources offer a national perspective:

• Understanding Data Centers fact sheet (National League of Cities)
• Data Centers and Environmental Considerations (National League of Cities, pdf)
• Community Strategies to Address Data Center Development and Operations (National League of Cities, pdf)
• Iowa Data Center Decision Tool for city, county, and community leaders (University of Iowa)