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Empowering Communities through Community Benefit Agreements in AI-Fueled Data Center Development

06.10.26 | 16 min read | Text by Liza Paudel

The United States is experiencing an unprecedented surge in data center construction driven by AI infrastructure demand. Over 5,000 facilities are operating today, with investments of $400 billion in 2025 and an estimated $1.8 trillion in between 2024 and 2030. This capital is arriving faster than environmental review processes, utility planning cycles, and community engagement frameworks were designed to accommodate. The consequences for communities are serious and well-documented: rising electricity bills, massive water consumption, e-waste, noise and light pollution, and billions in tax subsidies to some of the world’s most profitable corporations — often without meaningful public disclosure. These harms do not fall evenly, with communities of color and low-income neighborhoods already carrying disproportionate burdens.

Community Benefit Agreements (CBAs) are a legally binding, enforceable tool that allows communities to secure real commitments from data center developers before development proceeds. When properly structured — with specific numeric targets, secured financial obligations, independent monitoring, and meaningful enforcement — CBAs transform data center deals into durable community partnerships. Drawing on practitioner expertise from dozens of negotiations across sectors, emerging AI data center agreements, and new research on community harm and regulatory gaps, this memo makes the case for CBAs and provides a practical policy playbook for using them effectively, including potential provisions and considerations like enforceable harm mitigations, meaningful community investment, and lasting accountability mechanisms, to surface broad community needs while remaining adaptable to local contexts. 

Challenge and Opportunity

Harms to Communities from Rapid Expansion of AI Infrastructure 

U.S. data centers consumed 183 TWh of electricity in 2024 – more than 4% of total national consumption and roughly equivalent to the annual electricity demand of Pakistan, with it only projected to grow larger – roughly 17% more by 2030. A typical AI-focused hyperscaler consumes as much electricity as 100,000 households; the largest under construction are expected to use 20 times as much. The scale is such that AI data center demand in Virginia alone contributed to an 833% increase in regional capacity market auction prices – what electricity utilities and grid operators pay to ensure there will be enough power generation available during peak demand periods – for 2025–2026. These pressures do not just translate directly into costs for ordinary ratepayers but because these are structural costs baked into the grid, they also make it harder for communities to see, contest, or hold anyone accountable for the surge. Electricity prices in some data center-heavy regions have surged over 250% in five years, with estimates predicting data center electricity demand could double–or even triple–by 2028. 

The scale of harm to nearby communities extends beyond electricity prices: increased water usage, e-waste, air and noise pollution, and adverse health effects. A single large data center can use up to 5 million gallons of water a day (with about a quarter of the usage from direct cooling), equivalent to a city of 50,000 people. Additionally, hardware disposal is projected to generate 1.2–5 million metric tons of e-waste from generative AI alone between 2020 and 2030. Diesel backup generators – required at every facility – emit particulate matter classified by the EPA as a likely human carcinogen. Diesel generators emit harmful nitrogen oxides 200–600 times more than natural gas plants per unit of electricity produced. Researchers estimate that data center backup generators in Virginia, operating at just 10% of permitted levels, could already cause 14,000 asthma symptom cases and 13-19 deaths annually, with public health costs of $220–$300 million per year spreading across multiple states – and communities of color, low income communities and rural communities paying the bulk of that price. 

But perhaps the most underappreciated community harm from the data center boom is fiscal: the extraordinary scale of tax subsidies that state and local governments have extended to some of the world’s most profitable companies, frequently without meaningful public disclosure or community input. Good Jobs First, which tracks corporate subsidies nationally, found that in 10 of the 20 states disclosing data center subsidy costs, programs cost over $100 million per year. Further, the opacity of these arrangements is striking: of 36 states with data center subsidy programs, only 11 publicly disclose which companies receive benefits. Virginia, the world’s largest data center market, for example, forgoes nearly $1 billion annually in state and local revenue without telling the public which companies receive the money or how much each receives. Not to mention, data centers, once fully built and operational, employ on average only 157 permanent workers – an extraordinarily low jobs return on billions in public subsidy – averaged $1.4 million to $2.1 million in subsidies per permanent job. Additionally, companies frequently hide behind non-disclosure agreements (NDAs) avoiding public input and scrutiny, especially on critical details about energy use, water consumption, and sometimes even the identity of the data center operator.

Centering Community Needs in AI Infrastructure Development 

As data centers have proliferated and these harms are starting to be documented, so has grown the backlash against new developments. Data Center Watch, which tracks grassroots opposition to large-scale projects across 28 U.S. states, found that between May 2024 and March 2025, $64 billion worth of data center projects were blocked or delayed by local opposition. In Q2 2025 alone, more project disruptions occurred than in the previous two years combined. Opposition is bipartisan and geographically broad. Nationwide polling found that only 44% of Americans would welcome a data center nearby – a lower acceptance rate than for gas plants, wind farms, or nuclear facilities.

This issue is an urgent priority now because while public concern over rising energy rates, water usage, and unchecked development is growing, no comprehensive mechanism currently exists to align the interests of communities, developers, and local governments. 

As AI companies promise us the large-scale and incredible societal benefits to come from AI, they can show they are serious by starting with making sure the data centers they are building to power the AI future benefits the communities they’re in.

Why Community Benefit Agreements?

CBAs are legally binding agreements, negotiated between developers and community stakeholders, that secure enforceable commitments before development proceeds. Adapted from their successful use in bank merger oversight (under the Community Reinvestment Act) and clean energy project approvals, CBAs can:

• Establish environmental monitoring and reporting requirements more stringent than applicable permits.
• Secure financial contributions to community investment funds, backed by letters of credit that allow enforcement without costly litigation.
• Lock in local hiring commitments with specific numeric targets and apprenticeship pipelines.
• Create Community Advisory Boards with real authority and ongoing oversight throughout the life of the project.
• Make transparent what would otherwise remain hidden: water consumption, energy use, tax benefits, and environmental commitments.

In the absence of broader legislative and regulatory protections, CBAs offer a promising, underutilized and legally binding tool to ensure adequate harm mitigation and potential for communities to share in the opportunities, and not just the costs, of AI infrastructure; with the additional benefit of being able to be tailored specifically to a community’s needs. 

For instance, in late 2025, the city of Lancaster negotiated a legally binding CBA with the developers of the Lancaster AI Hub before construction was finalized, securing $20 million in community contributions. Key wins include a hard cap of 20,000 gallons per day of municipal water use per campus, a 100% clean energy requirement backed by tiered financial penalties of up to $10 million per building, strict noise limits tied to pre-construction ambient levels, and full public records transparency. 

The agreement also commits developers to a local hiring plan, free first-responder training, and ongoing community engagement — demonstrating that municipalities can extract meaningful, enforceable protections from data center developers when they engage before key approvals are locked in. Of note, the city is the negotiator of the CBA in this case, but the same negotiations and provisions can be won in a legally binding CBA through communities themselves as well – working with community leaders, community-based organizations, and local policymakers with enforcement mechanisms woven in for effectiveness. 

Importantly, CBAs do not require communities to support a project. They are negotiated exchanges. If a developer will not make commitments adequate to the community’s concerns, opposition — including calls for moratoriums — remains a legitimate and sometimes appropriate response. The credibility of that alternative is precisely what gives CBA negotiations their teeth.

Especially while policymaking, legislation and other broader reforms can take time; in their absence, CBAs can be a particularly useful interim governance mechanism to meet the urgency of this moment.

Why now?

Hyperscalers are urgently racing to secure sites, power contracts, and permits to meet AI demand. Given that the time to power is crucial for the data center companies, it gives communities and municipalities genuine leverage right now, alongside the need, urgency, and tools/resources to be able to engage. Data center developments face political opposition that is delaying billions of dollars in projects. They need community support, or at minimum community acquiescence, to move through permitting processes that increasingly require public hearings, board votes, and in some jurisdictions, community benefit plans. 

With the scale of projected and current investments in the billions of dollars, and their effects in communities already being felt with more to come, and especially as broader reforms that are slower to move are not yet in place, CBAs are not just a useful interim governance policy tool that can fill this currently urgent need, but now is also the time of maximum policy leverage.

Plan of Action

States should not rely on voluntary developer promises. They should create a statutory and regulatory framework that makes robust CBAs a condition for approval or subsidy in high-impact data center projects.

We recommend CBAs be utilized as a potential policy tool for facilitation and solutions-building to meet community, developers’, and local governments’ tripartite objectives, under defined conditions. Local policymakers should treat CBAs as a lever that enables communities to provide direct input, occupy an established space to negotiate impacts and mitigations, and secure reinvestment in ways that benefit the community. 

Local governments can require CBAs (working alongside community-based organizations and other community leaders) if developers apply for permits, zoning, or other approvals to build out data centers – such that planning departments, zoning boards, or city councils can condition approval on compliance and can then impose penalties, delay permits, or revoke approvals if terms aren’t met.

The following recommendations highlight specific ways and provisions that policymakers at the local governmental level (like the City of Lancaster for the Lancaster data center CBA) and community-based organizations advocating and negotiating on behalf of communities can utilize in their efforts to protect communities from harm and establish some fairness, transparency and accountability in the data center development process. Key provisions alongside their criticality are also summarized in Summary Table 1 at the end of this proposal. 

Recommendation 1. Policymakers (and CBOs and community leaders negotiating on behalf of communities) should utilize specific provisions to address harms and provide mitigations, to increase transparency, and to steward ongoing governance and accountability.

Harm Remediation

• Prohibit cost-shifting of energy rates to ratepayers. The impacts on electricity affordability, grid infrastructure, and ratepayers resulting from the proposal’s energy demand are some of the harms that are closest to communities. Measures intended to prevent or offset disproportionate burdens on residential customers and frontline communities, including developers fronting the costs of any infrastructure upgrades and interconnection, or creation of a new rate class (like in Oregon or Virginia) for data centers.

• Require developers to go beyond regulatory compliance on environmental protections. The Lancaster CBA specifically with data center developers requires selective catalytic reduction on generators. In California, the California Environmental Quality Act (CEQA) required and negotiated mitigations have included fence-line monitoring, health risk assessments, and restrictions more stringent than state permits. Every CBA should include independent real-time air monitoring with publicly available data, a community health fund financed by the developer, and diesel emission standards that go beyond what permits require. 

• Require prioritization and usage of clean energy. Lancaster CBA, for instance, requires 100% clean sourcing required, with tiered penalties of $2.5M–$10M per building backed by a $10M Letter of Credit, and penalty proceeds directed to a Sustainable Development and Clean Energy Fund. Add third-party Renewable Energy Certificates (RECs) verification and prohibit characterizing REC purchases as equivalent to direct clean energy generation without explicit disclosure. In the absence of full clean energy sourcing, energy ratcheting over time should be utilized. 

• Set a hard numeric cap on water usage with public reporting. Given the documented conflicts over water in drought-prone regions, water provisions are increasingly among the most contentious and most important elements of data center CBAs. Lancaster CBA’s 20,000-gallon-per-day municipal water cap per campus, combined with closed-loop cooling requirements, is a strong model. Add quarterly public consumption reporting and a renegotiation trigger if operations expand beyond the scope contemplated at execution. 

Transparency, Governance & Accountability

• Mandate public dashboards with ongoing reporting. These should include water usage, energy usage, as well as pollution metrics like the amount of time spent on backup diesel generators or noise decibels. 
• Require full public disclosure of all tax incentives, Payments in Lieu of Taxes (PILOTs), and government subsidies received by the developer. Given that 25 of 36 states with data center subsidy programs do not disclose recipients, communities must insist on transparency in the CBA itself.
• Conduct impact assessments, including equity impact assessments.
• Create a Board with real enforcement authority. Every CBA needs a Community Advisory Board (CAB) with seats for environmental justice representatives and community residents (not just officials), with the authority to commission independent audits, defined financial penalties for violations, and a right to seek injunctive relief directly, as well as the responsible entity for the community fund. 
• Make enforcement penalties for violations clear and escalating. Community negotiators should insist on specific, escalating financial penalties for violations — not vague remediation language — with enforcement authority vested in the CAB.
• Include sunset and renegotiation triggers. Include mandatory renegotiation at five-year intervals or upon material changes in facility scope, ownership, or energy consumption. There should also be clear processes outlining any potential decommissioning and long-term liability to avoid stranded assets with locals being left footing the bill. These could look like, including decommissioning bonds (tied to facility footprint or power draw) posted at execution, a funded remediation escrow, and a specific site restoration timeline. 

Recommendation 2. Policymakers and CBOs negotiating on behalf of communities should require that investment in communities as a baseline condition for any equitable agreement.

The data center boom is generating extraordinary wealth. The hyperscalers building these facilities are among the most valuable companies in human history. The AI services that will run on this infrastructure will generate tens of billions of dollars in revenue. None of this wealth is being created in a vacuum: it is being created in specific communities, using specific community resources – land, water, electricity, roads, emergency services, and environmental carrying capacity. The communities that provide these resources deserve a meaningful share of the value they help create.

Aside from harm remediation, CBA, in its associated prep and processes, can serve as a platform to uncover, understand, and platform broad community needs. There should be specific provisions that specifically seek to address these needs, to ultimately move towards a more balanced and equitable distribution of the costs and benefits associated with AI development in the community, given the wide ramifications of data center developments in host communities. 

• Establish a Community Fund: CBA community funds can support locally-determined priorities such as broadband access, AI and digital literacy programs, just transition pathways with apprenticeships and training, healthcare, quality of life upgrades like parks and art ensuring that the wealth generated by AI infrastructure is reinvested in the communities hosting it. They can also be utilized to offset any ratepayer costs of infrastructure upgrades that are spread outside of the data center developers. Critically, Nondisclosure agreements (NDAs) on government incentive terms must be prohibited, ensuring that subsidy arrangements are publicly accessible and communities can assess whether tax concessions are being offset by CBA commitments.
• Set Numeric Workforce Targets and Prohibit Misclassification: Workforce provisions should include specific local hiring targets – typically 30–50% of construction labor hours from defined geographies – written into the CBA itself rather than deferred to post-execution plans. Because operational data centers average only 157 permanent employees, workforce provisions should focus primarily on the construction phase, while leveraging the developer’s long-term presence to fund broader workforce training initiatives, including AI just transition opportunities, in the community.

• Secure Financial Commitments with Letters of Credit: Payments should be secured by a Letter of Credit or corporate guarantee from a sufficiently capitalized entity, with payment triggers tied to specific construction and operational milestones. For example, Lancaster commits $20M total, secured by a $20M Letter of Credit or corporate guarantee from a $100M+ net-worth entity, with payments triggered at construction financing and operations commencement per building. 
• Explore Diverse Community Wealth-Sharing Mechanisms: Beyond direct cash funds, CBAs can incorporate a range of wealth-sharing tools such as community land trusts, local equity stakes in the facility, revenue-sharing agreements tied to facility profits, or dedicated funds for affordable housing and small business development – ensuring communities build lasting economic power rather than receiving one-time payments.
• Address AI-Specific Infrastructure Concerns: Although not as common yet, CBAs can also consider specific provisions addressing AI operations, data sourcing practices, and the risks of long-term infrastructure lock-in associated with AI systems.

Recommendation 3. Policymakers (and/or community negotiators) should proactively identify and put the supporting mechanisms in place for meaningful representation, negotiation, enforcement, and accountability.

The most common CBA failures are not in the provisions communities demand – they are in process and enforcement structure. When poorly structured, or negotiated after key approvals are in hand, they can give the appearance of community benefit while delivering very little.

There are certain necessary conditions, dependencies, and actionable sub-recommendations for CBAs to be effective such as investing in and strengthening community-level organizing and coalition-building, providing training and workshops on provisions and negotiations, and critically, providing thoughtful representation to prevent takeover, and building robust enforcement mechanisms for delivery of benefits in practice. Looking back at the legal history and utilization of CBAs in the bank merger approval process and CEQA “Opt-In” process in CA that requires a CBA, we have gleaned some important lessons about levers, enforceability, and accountability, as well as recommendations on the negotiation and power-building process, listed below. 

• Negotiate Early. Treat CBA execution as a precondition of permitting support as negotiating leverage is greatest before approvals are granted. Work with local government officials to make clear to developers that permitting support is conditioned on a satisfactory CBA. The Lancaster CBA was negotiated after zoning opinions had been issued and demolition had begun, and its gaps (no specific hire targets, no independent community board, no air monitoring) directly reflect that reduced leverage.

• Build a United Coalition. Organize internally before engaging the developer, presenting a united front through a Community Advisory Board and a mediator if necessary – the coalition should exclude both intractable opponents and members prepared to support the project without a CBA.
• Establish Ground Rules First. Before negotiating specifics, use a memorandum of understanding (MOU) to set the terms for timeline, information-sharing, representation, and dispute resolution. This also prevents developers from selectively engaging sympathetic stakeholders while sidelining community members most directly affected.
• Secure Legal and Technical Representation, ideally with cost-recovery agreement with the developers. Hire legal counsel with energy and environmental expertise and a technical expert to interpret site assessments, emissions modeling, and energy projections – unrepresented communities are structurally disadvantaged at the negotiating table. Negotiate a cost-recovery agreement requiring the developer to pay for community-selected legal counsel and technical experts, a practice well-established in permitting and utility interconnections that should become standard in CBA negotiations.

• Require Developer-Funded Community Review. Ask the developer to fund community technical review – a precedent well-established in CEQA practice. It can be coupled with the negotiation including a due diligence phase, where documentation is provided to the community coalition to review and provide recommendations. 
• Demand Numeric Targets, Not Aspirational Language. Replace “good faith efforts” and vague commitments with specific, measurable targets subject to annual reporting and financial penalties for non-compliance, as bank merger advocates successfully did with dollar-denominated, geo-specific lending commitments.
• Prohibit NDAs on Environmental and Financial Data. Do not allow nondisclosure agreements on monitoring data, permits, consumption reports, or government incentive terms – the notorious Memphis xAI case, in which 35 unpermitted turbines operated in secret with health and environmental consequences for the community, illustrates the consequences of unchecked secrecy. Lancaster’s CBA also correctly designates the CBA as a public record under Pennsylvania’s Right-to-Know Law. 
• Negotiate CBAs and PILOT Agreements Together. CBA and payment-in-lieu-of-tax agreements (PILOT) must be negotiated in tandem with a cap on total payments, ensuring community investment funds supplement, and do not substitute for, any expected tax revenue.
• Specify Any Fund Governance in the Agreement. Ambiguous collective fund governance renders financial commitments meaningless – specify committee composition, voting rules, permitted uses, and annual reporting directly in the CBA.
• Frame Agreements Around Impact Mitigation, Not Approval. Require developers to first identify community concerns and propose mitigation before discussing payments. Framing money as the price of approval produces smaller commitments and less community ownership of outcomes.
• Know When CBAs Are Not the Right Tool. CBAs cannot substitute for strong environmental permitting, transparent subsidy disclosure, or robust utility regulation, and should not be pursued when permits are already in place, transparency has been denied, or a developer-backed document is being falsely presented as a community agreement. There are plenty of situations where opposition or moratorium might be more appropriate. Know the limitations of CBAs – their scope is limited to what the contracting parties agree to, and their enforceability depends on clear terms, specific metrics, secured financial obligations, and parties with the legal standing and resources to enforce them. 

Conclusion

The extraordinary wealth generated by the AI data center boom is being built on community land, water, electricity, and environmental capacity. Yet, the communities bearing these burdens are seeing little of the benefit. The hyperscalers behind this buildout are among the most valuable companies in human history, and the AI services running on this infrastructure will generate billions in revenue. None of this wealth is created in a vacuum: it is created in specific places, using specific community resources, and the communities providing those resources deserve a meaningful share of the value they help create.
The current pattern in which vulnerable communities absorb the largest burdens, profitable companies receive the largest subsidies, and benefits flow primarily to shareholders, is neither inevitable nor acceptable. It reflects choices being made right now, as the buildout accelerates and the patterns of harm and benefit are being set. CBAs are a tool to make different choices: to insist that the communities hosting AI infrastructure share genuinely in its benefits, and that the costs of that infrastructure – to air quality, water systems, grid reliability, and community character – are borne by those who profit from it, not by those who simply happen to live nearby. The time to act is now.