Legal roadblocks reshape data center development in New Jersey
By Robert S. Baranowski, Jr., Hyland Levin Shapiro LLP
Data centers are the latest type of development to achieve pariah status in New Jersey. However, as the use of Artificial Intelligence (AI) services continues to rise, it is inevitable that data centers will occupy more real estate across the state. Hyperscale facilities are drawing attention over concerns about noise levels, energy consumption, and water usage for cooling servers, but data centers run the gamut from small facilities that hold up to fifty “racks” and consume a few megawatts (MW) of power to on-premises facilities for single users or multiple users sharing space for their servers and using four or more MW of power to enormous facilities that house thousands of servers within millions of square feet and consume gigawatts of power.
New Jersey has taken a mixed approach in reacting to the wave of data center development. At the local level, nearly 100 municipalities have adopted ordinances banning the development of data centers. Some of those regulations have been challenged in court. Since New Jersey is a “home rule” state that allows each municipality to adopt its own zoning regulations, local ordinances are generally given judicial deference subject to consistency with the requirements of the Municipal Land Use Law. It remains to be seen whether these outright prohibitions will be sustained.
At the State level, Governor Mikie Sherrill has announced that data center development will require those facilities to fund and develop reliable energy sources for their projects; to report on energy and water consumption; to provide communities with local investments to offset impacts of data center development; and to utilize prevailing wage labor and opportunities for union labor and project labor agreements. The Governor’s “four-pillar” plan has been implemented through legislation adopted in July as the Data Center Fair Share Act (S731/A796) relating to power supply rates and energy supply requirements to be satisfied by developers; by amendments to Title 48 governing public utilities that mandate reporting on data center energy and water use (S3379/A4096); and guidelines issued by the Department of Community Affairs (DCA), Division of Local Government Services, in Local Finance Notice LFN 2026-13, encouraging use of community benefits agreements (CBAs) between municipalities and data center developers to mitigate impacts of large projects.1
The Data Center Fair Share Act applies to “large load data centers,” defined as a facility
that primarily serves to process data, houses computer and network systems, and has a projected monthly energy demand of at least 100 MW. The Title 48 amendments establishing water and energy usage reporting requirements apply to facilities that primarily serve to process data and house computer and network systems, excluding certain facilities used by licensed health care facilities. The DCA guidance enumerates considerations for use of CBAs, which are generally required for projects with a total cost of over $10 million that receive financial incentives through the Aspire and Emerge Programs. While there is otherwise no blanket requirement for data center projects to enter into a CBA with a host municipality, the State supports the use of the agreements to mitigate project impacts.
For developers considering large-scale data center projects in New Jersey, these recent legislative actions and policies will have significant impacts on project siting, financing, and timing.
1 https://www.nj.gov/dca/dlgs/lfns/2026/2026-13.pdf.
Robert S. Baranowski Jr. is a partner at Hyland Levin Shapiro, where he represents clients in environmental and land use matters and commercial litigation.
