Memphis Behind Other Cities in Data Center Legislation

Dyana Bagby, writing in 2024 for Georgia Public Broadcasting, the PBS/NPR affiliate in Atlanta:

The Atlanta City Council voted Tuesday, Sept. 3, to ban data centers along and near the Atlanta BeltLine and within a half-mile of MARTA stations.

The new legislation aims to preserve new residential and mixed-use developments, trails and green space along the 22-mile BeltLine trail loop encircling the city’s urban core. The council also wants to make sure the BeltLine remains focused on building more affordable housing and providing a safe space for pedestrians, cyclists and others in non-vehicular modes of transportation.

“This legislation has set Atlanta apart from other cities across the country in that we’re looking to make some changes in how we treat data centers in our urban core,” said Councilmember Jason Dozier at Tuesday’s meeting. He and Councilmember Matt Westmoreland introduced the legislation earlier this year.

In Memphis, no such legislation exists. The state of Tennessee offers a sales and use tax exemption with the following requirements:

• Minimum capital investment of $100M
• The creation 15 new full-time positions paying at least 150% of the state’s average occupational wage¹
• Investment must be made during a 3 year period.

Earlier this year, it was reported by The Commercial Appeal that xAI had requested no additional tax incentives, and the land deal was disclosed:

The xAI facility has been privately funded. The planned expansions of the xAI supercomputer are also expected to be privately funded.

In October 2024, the Economic Development Growth Engine for Memphis and Shelby County (EDGE) approved a 21-year lease for 522 acres in Frank C. Pidgeon Industrial Park for Nashville-based CTC Property LLC, an affiliate company of xAI. The 522 acres are owned by EDGE and located southeast of the xAI facility on Paul R. Lowry Road.

After the 21-year lease expires, CTC Property can opt to purchase the 522 acres for $23,642,293. The company will pay $1,654,961 annually in rent for the property with 2.5% yearly increases in that base rent, according to the EDGE lease terms.

After October’s approval of the land lease, it became clear that xAI’s project was going to be much larger than initially described, as reported by Stephen Smith:

On December 4, at the Greater Memphis Chamber Annual Chairman’s Luncheon, a representative for xAI revealed plans for an expansion of its aptly named “Colossus” supercomputer facility. According to the Chamber’s press release, the expansion is already underway, and will incorporate a minimum of one million GPUs, marking the largest capital investment in the region’s history. Additionally, Fortune 500 tech giants Nvidia, Dell, and Supermicro Computer (SMC) will be establishing operations in Memphis.

What wasn’t mentioned at that meeting was the new level of power that will be required for this size of facility: presumably, this jump in capacity would increase power demand by roughly 10x as well (from 150 MW to over 1,000 MWs). This previously unannounced capacity makes this a “hyperscale” project.

Even more concerning is the fact that we are far from convinced that xAI didn’t know when they first came to Memphis that they would expand the plans 10x. This is a classic bait and switch: xAI proposed one thing, and grew support from stakeholders like the Greater Memphis Chamber, the Memphis Shelby County Economic Development Growth Engine (EDGE), TVA, and governing authorities. Musk and crew moved forward on the path to operating the facility, and only then announced a change in magnitude that creates a fundamentally different situation for public health in Memphis, economic stability for ratepayers, and environmental security.

Best I can tell, that expansion triggered no revisiting of the agreements between the city and xAI, and Memphis mayor Paul Young (whom I voted for!) seems to have been caught flat-footed as recently during a March community event:

Mayor Young received some pushback from the crowd on his position that xAI would help the city grow, arguing the tax revenue generated would be used to address the needs of Memphis, specifically in 38109 [the ZIP code where xAI’s first Memphis location is located].

“I wanna figure out how we can exploit this project for us,” Mayor Young told the audience. “I know you feel like it’s us getting exploited, but we need to speak from a place of strength.”