What’s the Deal with Data Centers?

The debate over where to put data centers and how to regulate them has arrived in Maryland, emerging as an issue for this year’s session of the General Assembly on par with taxes, crime, and housing. Data centers come with challenges, but they also present crucial opportunities to generate revenue and jobs – and to lay the groundwork to compete in an economy increasingly shaped by access to data.

A future post will explore why data centers are controversial and what can be done to address concerns about their impact, but first here’s a look at why they are vital to Maryland’s future.

Computers Keep Shrinking, Demand for Data Keeps Growing

An $800 iPhone has more data processing and storage capacity than the mainframe computers used to guide the Apollo mission that put Neil Armstrong on the moon, but an iPhone can’t handle the computational and storage requirements of tasks that are now considered routine. How can this be?

Even low-tech businesses like retailers and restaurants now need access to sophisticated data storage and processing capabilities to order equipment, manage inventory, and collect payments. High-tech industries such as finance and health care depend on the ability to process and exchange information at volumes and speeds that would have been unthinkable just a few years ago.

Electronic data usage has grown by a factor of 59 since 2010. In that year – just over a decade ago – only 2 Zettabytes of digital data were created. Today that figure has grown to 0.33 Zettabytes of data every day. This chart tells the story:

Source: IDC DataAge 2025 white paper

Demand for data processing and storage is unlikely to plateau in the foreseeable future, and in fact the rise of artificial intelligence, machine learning, the internet of things, computational biology, and other data-intensive applications and technologies promises to spur even faster growth.

Demand for Data Drives Demand for Storage – and Storage Generates Revenue

Increased data usage has already generated voracious demand for a place to store the seemingly endless supply of ones and zeroes that support almost every aspect of the economy – and of our lives – and data storage companies continue investing in new capacity.

Data centers provide access to information and computing power that cutting-edge industries need to innovate and compete – and to generate jobs and economic activity. A U.S. Chamber of Commerce study found that Amazon Web Services data centers contributed nearly $38 billion to GDP and $1.5 billion in state and local taxes from 2011 to 2022. In Virginia alone, AWS data centers generated $21.3 billion in economic activity and $507 million in tax payments.

The Aligned Energy Ashburn Data Center. Photo: BusinessWire

The Role of Data Centers in the IT Ecosystem and Maryland’s Economic Strategy

Maryland is home to a wide variety of businesses, institutions, and agencies that rely on data centers. A study by Sage Policy Group found that the state’s data centers generated $2.2 billion in economic activity, supported 11,240 jobs, and contributed $117.9 million in state and local taxes in 2020. The study projected that data centers could generate $4.6 billion in economic activity, support 23,440 jobs, and contribute $245.8 million in state and local taxes by 2025. A study commissioned by the Maryland Tech Council estimates that a proposed data center campus in Frederick is projected to bring in $41 million in county tax revenue and 1,700 new jobs.

The NSA analyzes enormous amounts of data at its headquarters at Fort Meade, Maryland. Photo: NSA

Pharmaceutical companies in Montgomery County and Baltimore, computer scientists at the University of Maryland and the National Security Agency (NSA), and cybersecurity contractors at Fort Meade all depend on access to data. In the life sciences, data-intensive subfields such as computational biology are playing an increasingly important role in the development of vaccines and therapies. In the national security arena, the ability to process information quickly can make the difference between success and failure in intelligence collection and analysis and helping to protect American lives on the battlefield. These kinds of companies and organizations cannot grow – and some may not even stay in Maryland – if they do not have access to data centers.

Maryland simply cannot afford to miss out on data centers, both for the revenue they generate directly and perhaps even more importantly they jobs and opportunities they attract indirectly.

The Value of Proximity and Ultra-Low Latency Access to Data

Fortunately, Maryland is an ideal position – literally and figuratively – to attract the next generation of data centers and the high-tech businesses that depend on them.

While the Internet allows computers located anywhere in the world to communicate with each other, delays inherent in the long-distance transmission of data over global telecommunications networks can noticeably degrade the quality of services such as e-commerce and video streaming.

As businesses place increasing reliance on cloud computing to support artificial intelligence and other data-intensive applications, the value of data centers located near end users of these services is increasing. Large customers in and around Maryland will drive demand for data centers, and in turn the availability of data centers can help attract and retain these customers.

In this regard, Frederick County is particularly well suited to take advantage of the opportunities presented by data centers because of its proximity to Ashburn, Virginia.

As the dominant hub for data traffic, an estimated 70 percent of Internet traffic in North America passes through Ashburn. A data center in Frederick County can exchange information with computer infrastructure just on the other side of the Potomac River in Loudon County in one millisecond or less.

Much of southern Frederick and western Montgomery Counties are within a 30-mile radius of Ashburn. Montgomery County has so far not attempted to compete for data centers, and a large part of the area closest to Virginia is in the Agricultural Reserve. Map: CalcMaps

For the most demanding applications used by financial institutions and the military and intelligence community, data centers located outside the “latency zone” – anywhere more than 30 miles from Ashburn – simply cannot compete because they cannot deliver real-time access. Some experts predict that the importance of proximity to other data hubs may erode over time, but for now being Ashburn’s next door neighbor gives Frederick a competitive edge.

Together with lower land costs and a “fast track” approval process to streamline the permitting process for economic development projects, southwestern Frederick County’s proximity to Loudon gives it a crucial advantage in offering this kind of “ultra-low latency” data access.

The Competitive Landscape and Investment in the Future

In making location decisions where data access is crucial, data center customers prefer to minimize costs but they care even more about predictability and time to market.

Maryland has taken important steps to attract data centers – in 2020 the General Assembly exempted certain data center personal property from sales and use taxes for up to 20 years – but it also has thrown up roadblocks, as with the recent Maryland Public Service Commission (PSC) decision limiting the use of diesel generators for emergency backup power at data centers. Maryland’s slight cost advantage over northern Virginia will count for little if regulatory barriers make siting data centers lengthy, unpredictable and burdensome.

Meanwhile, Loudon County and other northern Virginia jurisdictions are working to bolster their competitive positions, working with data center providers and their tech industry customers to develop a skilled workforce for data and IT-related jobs.

Northern Virginia Community College’s Loudon campus. Photo: NVCC

For example, George Mason University and Northern Virginia Community College recently launched a four-year degree in cloud computing with assistance from Amazon Web Services Educate, creating a pathway for students to save money and train for a high demand career.

Loudon and Fairfax Counties also have added funding for their established CodeVA program to support computer science classes in Virginia public schools, building a pipeline for the future tech workforce. The opportunity to attract these kinds of programs and investment aligns with Maryland’s vision of educating for the future and supporting a STEM-oriented workforce while making our communities more economically competitive now and in the future.

In short, demand for access to data will continue to grow. The question is not if but where more data centers will get built. The answer will play a role in determining which places have the kind of data access that attracts employers and supports the full range of opportunities unlocked by innovation – such as high-quality education, health care, and jobs.

Next: Data center challenges and solutions

Steve Allison leads the environmental team at Rodgers Consulting