Lockhart’s Data Center Dilemma: Balancing Growth and Community Concerns in Texas

Key Points:

• Lockhart, Texas, has directed city staff to develop strict standards for data center development instead of an outright ban due to legal concerns .
• Councilmember Juan Mendoza expressed preference for a ban but cited litigation risks and costs as a deterrent .
• At least five data centers are planned or under construction in Caldwell County, though none within Lockhart city limits .
• Texas has become the fastest-growing data center market in the US, driven by AI demand, available power capacity, and incentives .
• ERCOT projects data centers will cause Texas energy demand to surge 71% by 2031 .
• Governor Greg Abbott has called for a pause on rural data center development and supports eliminating tax breaks .
• San Marcos became the first Texas city to ban data centers, while Hays County approved a six-month pause on approvals .
• Moody’s Ratings warns data center growth introduces credit risk for states and local governments .
• Lockhart Planning and Zoning Commission approved an ordinance recommendation to regulate future data centers and crypto mining facilities .
• The proposed ordinance would distinguish data centers from crypto mining and restrict both to industrially zoned areas .

Texas (Britain Today News) July 17, 2026 – The small Texas town of Lockhart, known as the “Barbecue Capital of Texas” and located 30 miles south of Austin, has become the latest community to grapple with the rapid expansion of data centers across the state. In a specially called meeting on Thursday, city leaders directed staff to develop stringent regulations for data center development after council members voiced concerns that an outright ban could expose the municipality to costly and protracted legal battles.

The decision comes as Caldwell County, with an estimated population of 55,150, finds itself at the epicentre of a data centre boom that is reshaping communities across Central Texas. Lockhart, home to approximately 18,100 residents, has not yet approved any data centres within its city limits, but at least five facilities are planned or under construction elsewhere in the county . As demand for artificial intelligence surges, Texas has emerged as the nation’s fastest-growing data centre market, attracting developers with promises of available power capacity, generous incentives, and open land .

Why Is Lockhart Considering Strict Data Center Regulations Instead of an Outright Ban?

The city council’s decision to pursue strict guardrails rather than a prohibition reflects a careful balancing act between community sentiment and legal pragmatism.

“I would prefer an outright ban, but I don’t know that it’s the best choice for us because of the possibility of years and years of litigation and excessive expense for the city,”

stated District 1 Councilmember Juan Mendoza during the Thursday meeting.

“What I would like to see what the city can come up with as far as guardrails — very strong guardrails that make it almost impossible for any of these centers to want to come into Lockhart” .

This approach has resonated with residents who feel the town has a responsibility to lead by example.

“We are the county seat for Caldwell County, so it’s up to us to lead by example,”

Lockhart resident Jesús Pantel told the council on Thursday . The sentiment reflects growing unease across the region about the pace and scale of data centre development.

The regulatory path forward is already taking shape. The Lockhart Planning and Zoning Commission has approved an ordinance recommendation that would create rules for where future data centres and cryptocurrency mining facilities could be built . City leaders stressed that there are currently no active applications for data centres inside Lockhart city limits, but they want regulations in place before any proposals emerge.

“We’ve seen the public reaction elsewhere,”

Planning Director David Fowler told commissioners.

“We think it would be good to have regulations on the books before we start dealing with anybody who would apply for one of those here” .

What Is the Scale of Data Center Development in Texas and Caldwell County?

The scope of data centre expansion in Texas is staggering. According to ongoing data maintained by the Austin American-Statesman, there are at least 76 projects operating or in the works between Temple and San Antonio, with approximately 5,600 megawatts currently under construction in the Austin and San Antonio metro areas . Texas currently ranks second only to Virginia in the data centre stampede, with 229 operational facilities, 152 under construction, and 757 announced, according to data company Aterio .

In Caldwell County specifically, at least five data centres are planned or under construction, though all are currently outside Lockhart’s jurisdiction. County Judge Hoppy Haden has indicated there are at least nine data centres planned in the county that he is aware of . One major project involves Tract developing a master-planned 3,000-acre data centre campus — the Caldwell Valley Technology Park — north of Lockhart, designed for AI and cloud computing with over 4GW capacity. Additionally, Prime Data Centers is planning a separate 206-acre facility west of the city along Farm to Market Road 2720 that is still in economic development negotiations .

Construction activity and infrastructure work are already visible at the Prime Data Centers site . A central theme of discussions has been the limited ability of counties to regulate such developments. As County Judge Hoppy Haden explained,

“We don’t have any power to stop them, we have the power to do drainage and engineering on their site, we have the power to grant driveway permits, and we have the power to give them a septic tank if they want one. That is pretty much all the power the state legislature has granted us” .

The Texas Commission on Environmental Quality — not the county — issues air quality and other environmental permits for data centres, focusing on emergency generator engines, onsite power generation, and water usage .

How Are Data Centers Straining Texas’s Infrastructure and Resources?

Texas stands to gain billions in investment from data centre development, along with thousands of temporary construction jobs. However, local and state officials have raised significant concerns about the potential strains these facilities could place on infrastructure in a state already facing water shortages and a power grid that has struggled to keep up with growth . The Electric Reliability Council of Texas (ERCOT), the state’s main grid operator, projects that data centres will cause Texas energy demand to surge by 71% by 2031 .

State Representative Vikki Goodwin, the Democratic nominee for lieutenant governor, has called for a special legislative session to address what she terms the “growing data center crisis facing Texas.”

“Across our state, large-scale data centers are developing at a pace that threatens to outstrip our existing water and energy infrastructure. These facilities can require extraordinary amounts of electricity and water, placing pressure on communities that are already confronting rising utility costs, drought conditions, groundwater concerns, and long-term water supply challenges,”

Goodwin wrote in a letter to Governor Greg Abbott .

The water consumption issue is particularly acute in Caldwell County, which according to the U.S. Drought Monitor, is mostly in extreme drought status .

“I have all the same concerns everybody else does; I worry about power [and] I worry about water consumption,”

said County Judge Haden . The concern is not limited to water quantity but also quality, with Texas Agriculture Commissioner Sid Miller noting residents are

“concerned about PFAS, these forever chemicals. They’re concerned about what happens to this water and what’s in the water once they discharge it. Where does it go? And who’s responsible for that? You know, air quality” .

What Actions Are Being Taken by State and Local Governments?

The response to data centre proliferation has been multi-layered, spanning from local moratoriums to proposed state-level reforms. Governor Greg Abbott, who had previously celebrated Texas as “the epicenter of AI development,” has performed a notable reversal.

“The governor’s recommendations have kind of done a 180 in the last few months,”

Lockhart Mayor Lew White observed .

Abbott has called for a pause on data centre development in rural neighbourhoods and has directed the Public Utility Commission and ERCOT to ensure data centre companies do not pass infrastructure costs on to ratepayers .

“The rapid scale of data center development requires oversight to ensure everyday Texans are not burdened with the costs of infrastructure driven by data center expansion,”

Abbott wrote in a June 10 letter to the PUC and ERCOT . At a campaign event in Bullard, Texas, Abbott delivered a blunt message:

“Any AI data center even thinking about coming here, they got to bring their own money, bring their own power, reuse their own water, and do it in a way that reduces the cost of electricity for residents across our state” .

Several legislative committees are holding hearings on the issue this summer ahead of the January 2027 session, with support from lawmakers in both parties . Abbott has laid out six data centre-related policies he wants lawmakers to consider, including creating a state law requiring data centres to cover their own grid infrastructure costs, mandating water-efficient cooling technology, and repealing large sales tax exemptions and other incentives designed to attract data centres to Texas .

Local governments have taken varied approaches. San Marcos, located between Austin and San Antonio, became the first Texas city to ban data centres outright . Hays County approved a roughly six-month pause on approvals for data centre developments after its county seat, San Marcos, decided to outright ban data centers from its zoning code . Henderson, Hill, Hood, Somervell and Van Zandt counties have all weighed data centre moratoriums and made calls for either a special session or for the issue to become a top legislative priority when lawmakers convene in January . Taylor, about 30 miles northeast of Austin, is reevaluating its zoning code after deciding to take no action on a resident-led petition to ban the developments .
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Why Are Local Governments Facing Legal Challenges Over Data Center Bans?

The attempt to ban or pause data centre development is proving legally treacherous for many local governments. Several municipalities lack zoning authorities or have been threatened with lawsuits, including San Marcos .

“We should never let billion-dollar corporations supersede the voices of those who live in the community,”

said U.S. Representative Rob Bresnahan, who introduced the Local Control Protection Act in Congress to curb large corporations’ ability to litigate and attempt to overturn local decisions regarding data centres .

Bresnahan’s legislation would protect municipalities and counties from being sued in Federal court by developers for denying data centre applications when the denial is based on documented findings about public health, infrastructure, community character, or water concerns.

“When a local planning commission or borough council votes to deny a data center, a well-resourced developer can, and often will, sue the local municipality to override their decision. This leaves community leaders with an impossible choice: approve projects their constituents don’t want or drain their budgets fighting a lawsuit they may not be able to sustain,”

Bresnahan said .

In Lockhart, this legal vulnerability has shaped the approach. Councilmember Mendoza’s preference for an outright ban was tempered by the “possibility of years and years of litigation and excessive expense for the city” . County Judge Haden has been similarly candid about the limited tools available to counties, explaining that the state legislature has significantly constrained county authority to regulate development . Haden urged residents who wanted to limit data centre operations to share their thoughts with their state representatives, noting the power of collective action:

“There are five of us up here, and I see more than 10 times that in the audience today. With your numbers, you have a far greater ability to make an impact” .

What Is the Economic Impact and Are Tax Incentives Justified?

The economic calculus of data centre development has become increasingly contentious. Texas is projected to lose more than $1 billion annually in sales tax revenue from exemptions afforded to data centres, according to a 2025 report from the Texas Comptroller’s Office . Goodwin’s campaign noted that the data centre sales tax exemptions program, signed into law by then-Governor Rick Perry in 2013, has grown from $148.8 million in lost revenue in 2024 to $1.02 billion in 2025. This tax exemption is expected to increase by 33 percent in the next five years, according to the Texas Comptroller’s Office .

Goodwin has made the case for review of state tax incentives and exemptions

“to ensure Texans are not subsidizing projects that place new burdens on the grid, water systems or local taxpayers” .

Abbott has likewise called for repealing large sales tax exemptions and other incentives designed to attract data centres to Texas .

“Texas can remain a leader in innovation while also protecting the families, farmers, ranchers and communities that make our state strong,”

Goodwin said .

The debate extends beyond Texas, with Moody’s Ratings issuing a report on data centre growth introducing credit risk for states and local governments.

“Rapid growth in hyperscale and AI-driven facilities may require major expansion of power, transmission and water infrastructure, creating costs that may fall on governments or ratepayers if not fully recovered from the new data centers,”

the report stated.

“Further, new data center development may fail to deliver material revenue benefits if tax incentives are not well calibrated” .

How Are Residents and Community Groups Responding to Data Center Proposals?

Community response has been robust and organised. Caldwell Data Center Action, a local advocacy group, has urged officials to adopt stronger protections before additional projects move forward. Claudia Hollern, representing the group, expressed concern that proposed regulations might unintentionally encourage more development instead of discouraging it.

“Our fear is this will actually open it up for certain areas. We feel as citizens we have to be more careful about how we write things and really thoroughly think things through in order to protect ourselves,”

Hollern said .

Residents have raised a range of concerns at town hall meetings and public hearings.

“You hear about all the negative stories coming about the high consumption of water, the high utility rates, the possible health effects,”

said John Castillo, who lives in Lockhart . Others have called for a slowdown in development to allow for better understanding of the impacts.

“I think we need to slow down the development of these data centers until we have a full picture of their impacts,”

one woman said at a Caldwell County town hall .

A University of Texas/Texas Politics Project poll released last month revealed strong opposition in the state to data centre construction . This sentiment is not limited to Central Texas, with communities across the state, including in the Panhandle, voicing concerns about data centre development. Agriculture Commissioner Miller noted,

“I’m not the only one statewide official that’s actually speaking out against them, saying we need a pause” .

What Is the Industry Perspective on Data Center Regulations?

Industry representatives have pushed back against some of the criticism, arguing that misconceptions abound regarding data centre operations. Haynes Strader, Chief Development Officer with Skybox Datacenters, which is building a facility in Round Rock, emphasised transparency and education.

“Data centers are the key infrastructure that empower our digital economies, every time you use your phone, every time you access a bank account,”

Strader said .

Strader noted that many data centres now use closed-loop cooling systems that recycle water rather than consuming it in large quantities.

“We used what is called a closed loop air closed system that allows for water to be recycled,”

Strader explained.

“They use what is called evaporative cooling, but that is less and less common especially in water constrained communities” .

He acknowledged that pushback has changed some plans for data centre sites and expressed hope that more people would learn about the industry.

“We as an industry need to do better at educating communities we are going into, being super transparent,”

Strader said .

Dan Diorio, vice president of state policy for an industry advocacy group, argued against a one-size-fits-all approach to regulation.

“It’s important to recognize that data centers are a diverse industry serving a wide range of needs, and there is no one-size-fits-all solution when it comes to facility design, cooling technology, or regulation. The right approach in one community may not be the right approach in another, which is why siting and operational decisions are made in close coordination with local utilities, water providers, and management districts” .

What Legislative and Regulatory Changes Are on the Horizon?

The path forward for data centre regulation in Texas is likely to be shaped significantly by the 2027 legislative session, which begins in January. Several issues are already on the agenda, including proposals for data centres to pay for their own electric infrastructure costs, requirements for new facilities to boost Texas’ power generation capacity, and mandates for water-efficient technology .

Texas Agriculture Commissioner Sid Miller has proposed creating agriculture freedom zones aimed at redirecting development away from prime farmland.

“To entice data centers, not to build on our most productive land, but to build on marginal land, brown zones, the shallow zone, less productive soil, and so, it got a lot of bipartisan support, really hadn’t run into much opposition, and it wouldn’t regulate them as much as it would give them tax incentives,”

Miller said .

At the federal level, Representative Bresnahan’s Local Control Protection Act would provide another layer of protection for communities seeking to deny data centre applications. The legislation would bar Federal agencies from approving permits related to data centre construction if the developer has initiated legal action challenging a local zoning denial .

The regulatory landscape is evolving rapidly, with Texas joining other states in reassessing the data centre boom. Indiana has recently passed legislation requiring data centres to report electricity usage and requiring local authorities to assess projected power and water usage before issuing construction permits . The Moody’s report noted that some governments are

“reexamining these developments by considering moratoriums on developments, revising tax incentives, and increasing cost-sharing requirements,”

describing these policy revisions as

“positive to the extent they help governments and their utilities more accurately assess data centers’ impact on local infrastructure and resources and minimize the risk of data center infrastructure and utility costs being transferred to existing taxpayers” .

As Lockhart moves forward with developing its regulatory framework, the city’s approach will likely be watched closely by other communities grappling with similar challenges. The ordinance recommendation approved by the Planning and Zoning Commission will now head to the Lockhart City Council for discussion and a vote during its June 16 meeting . The outcome will provide an important signal about how the “Barbecue Capital of Texas” plans to balance the economic opportunities and infrastructure challenges presented by the data centre boom that is reshaping the Lone Star State.