The data center building boom has a hangover, and state and local governments are the ones nursing it. Moody’s Ratings released a report in June 2026 warning that the rapid expansion of data centers across the US is driving up credit risks for public entities struggling to absorb the infrastructure demands that come with it.
The core problem is simple: data centers need enormous amounts of electricity and water, and the public systems built to provide those resources were not designed with hyperscale AI workloads in mind.
What Moody’s actually said
The June 2026 report draws a direct line between the surge in data center construction and elevated fiscal pressure on state and local governments. The growth is being fueled by advances in artificial intelligence, cloud computing, and data storage, with pre-leased capacity going predominantly to hyperscalers, the handful of giant tech companies building at a scale that would have seemed implausible a decade ago.
Moody’s had already flagged the water side of this equation back in April 2026, noting that data centers’ water demands were increasing management risks and capital needs for local governments, particularly in markets already dealing with resource constraints. The June report expanded that concern to electricity infrastructure and the broader credit picture.
