San Marcos becomes the first Texas city to ban data centers, testing its local control

This story was originally published by the Texas Tribune.

San Marcos has become the first Texas city to ban data centers within city limits, banking on its local authority to stop the data center boom and setting a precedent for other municipalities to follow.

San Marcos City Council voted 4-3 on June 16 to define data centers and make them ineligible for any part of the city in its zoning laws, citing concerns that these developments would funnel water and energy resources from the local community. The city has no data center projects proposed within its limits, although the threat has reached its borders where at least two data centers have been proposed in surrounding unincorporated parts of Hays County, according to Data Center Map, an industry research tool. Powerless to leverage any of their laws to outright ban data centers, Hays County commissioners recently passed a mostly symbolic resolution to pause data center development over severe water scarcity but the resolution isn’t legally binding.

San Marcos is testing a novel approach to outright ban data centers by exerting its home rule powers, which gives certain bigger cities — 352 of them across the state — the right to create their own zoning codes and control development, land law experts say. Compared to counties and cities without home rule authority such as smaller cities and bigger cities without zoning laws like Houston and Alvin, municipalities like San Marcos have a better chance at surviving legal challenges to their data center bans because of their expanded powers, experts say.

Some counties have tried testing their authority to restrict data centers but have failed. Early June, Hill County rescinded its data center moratorium after a developer sued the county for $100 million. Hood County commissioners also tried to pass a moratorium, but pulled it after state Sen. Paul Bettencourt, a Houston Republican who leads the Senate Committee on Local Government, asked for an attorney general opinion on whether counties have the right to enact such restrictions.

Similar to what he did with Hood County, Bettencourt told The Texas Tribune he plans to challenge San Marcos’ ban, arguing that it violates 2025’s House Bill 2559, which restricts the ability of municipalities to issue indefinite moratoriums on certain types of property developments and the state’s 2023 Death Star Law, which restricts municipalities from enacting local law that contradicts state law.

“They should not use zoning to ban anything everywhere in the city, because that's not lawful under the state of Texas guidelines,” Bettencourt said. “[A ban] doesn't work here, and this will get challenged.”

Texas is on track to become the top data center market in the U.S but a majority of Texans oppose the construction of data centers in their community, citing concerns over water usage, energy demand, and noise pollution. The issue has become bipartisan, drawing calls for regulation from Gov. Greg Abbott who recently wrote a letter to state regulators outlining proposals for data centers such as eliminating state sales tax exemptions for data centers.

While San Marcos is the first to ban data centers, local officials elsewhere are using whatever authority they have to restrict the rapidly growing industry without drawing the ire of the state government. Other home-rule cities are amending their land development code to restrict data centers. Cities and counties are also including restrictions in incentive agreements they enter into with developers.

“You're seeing a lot of cities in the age of preemption being creative about things,” said Amanda Rodriguez, a San Marcos city council member.

Multiple cities interested in passing their own bans have reached out to San Marcos to see how the city will survive legal challenges from state lawmakers and private citizens who can also sue the city over its ban.

“All cities are watching what happens to San Marcos,” said Taylor Burdge, council member for Lockhart.

Threats to Local Control

In February, residents packed San Marcos’ City Hall and aired concerns about how a proposed 200-acre development by Highlander SM One LLC, a Fort Worth-based developer, could consume more than 25 million gallons of water annually from local aquifers. The council ultimately rejected the developer’s request to annex into the city.

Rodrigez first proposed the ban at the end of March, but fellow council members rejected it because of how restrictive it was. It received a new life when council member Lorenzo Gonzalez — who originally rejected the change — moved to reconsider it, seconded by council member Alyssa Garza.

“I think we debated this to death,” Gonzalez said in the council hearing. “The promised benefits remained speculative while many of the concerns raised by residents remained unresolved.”

The city’s ban works by defining data centers in the city’s land development code and setting restrictions on this type of future development, effectively making data centers impossible to build in the city.

“I don't see how any business minded developer would want to reapproach, hoping they’ll read the room,” Garza said.

In response to San Marcos’ ban, Dan Diorio, vice president of state policy for the industry association, the Data Center Coalition, said the ban signals that San Marcos is “closed for business.”

"A local moratorium on data centers discourages further investment, both from the data center industry and other advanced industries,” Diorio said.

Land use experts and city council members believe San Marcos has a better shot at passing a ban because cities have more power in regulating land use than counties. Nearly half of the 248 data centers that are planned for development in Texas will be built in unincorporated areas.

Although land use bans are uncommon, “theoretically, I think the courts could uphold it,” said Robert Paterson, a University of Texas at Austin professor who specializes in land use and environmental planning. As long as the ban aligns with a city’s comprehensive plan — a long-range policy document which governs the protection of public health, safety, and general welfare — it falls within the city’s power.

But, the 2023 Death Star law complicates city authority. The Death Star law “theoretically pulled back home rule authority,” said Paterson, adding that it bars cities from exercising powers more stringent than those the state itself uses. Republicans and business groups argued that the Death Star was needed to undo a “patchwork” of progressive local policies that made it difficult to do business in cities and it remains unclear what local regulations are out-of-bounds under the law.

Paterson said the law has “a chilling effect on our ability to do our police power, protect the public health and safety,” which is one reason cities are being cautious now.

Bettencourt believes San Marcos’ ban violates state law and plans to challenge the decision. He said a ban on any development has never been upheld in court and he is confident that the state will make San Marcos reverse its ban if a developer doesn't file a private lawsuit first.

“If you overuse existing legal principles, eventually they get challenged, and/or … laws are changed to make it clear that this can't happen,” Bettencourt said.

He also says San Marcos is violating House Bill 2559 passed in 2025 that states that property development moratoriums can last no longer than 180 days, and according to Bettencourt, this would apply to San Marcos’ “de facto ban.” However, land experts said that this law would not apply to San Marcos because the city changed its zoning laws to ban data centers, and did not issue a moratorium.

While Bettencourt is among the Republican camp that support data centers, San Marcos’ state senator Judith Zaffirini, a Democrat, says the city’s decision reflects concerns that many communities across Texas share and that the City Council acted “decisively and appropriately” to ensure the safety of the community.

In response to Bettencourt’s plans, Rodriguez said San Marcos’ ban is different from Hood County’s proposed moratorium so House bill 2559 should not apply. council members have considered the Death Star law, but that it has not been tested, “if they want to make this the precedent case for the bill they’re gonna have to explain why this is the priority and not addressing the problem at hand [data centers].”

“Anytime you're operating in the state of Texas and you're wanting to do something that goes against the grain, there's always that thought in the back of your head,” Rodriguez said.

What Other Municipalities Are Doing

Bans aren’t the only way to stop data centers. Smaller cities like Lockhart and Kerrville have adopted strict zoning rules that make it difficult for data centers to build, hoping the effect will feel like a ban without immediately triggering legal challenges. Places without authority to approve development counties and cities that don’t have home-rule authority are exploring other tools to signal or impose restrictions, including through resolutions and tax abatement agreements.

“Cities and counties are using the tools that they do have to try to regulate this type of development the best that they can,” said Kayla Landeros, a land law professor at Baylor University and a former Temple city attorney.

Local legislators like Burdge are gathering with other city and county officials to figure out what they are permitted to do to stop development in their communities. “This is a big game of telephone,” Burdge said.

To pre-empt legal action, Lockhart and Kerrville have instituted regulations in hopes of banning data centers without having to technically ban them. They worry that outright bans would leave them open to lawsuits they do not have the resources to fight, said Burdge.

“I think the smartest cities in Texas are already doing this, but they're doing it in such a way that is not going to raise the hackles of the state Legislature,” Paterson said.

In May, Lockhart City Council moved to define data centers in its zoning codes. The council limited data centers to one land-use category — heavy industry — confining such development to two areas in the city.

Still, without a ban, developers can always look for loopholes around stringent restrictions. In addition to zoning restrictions, Burdge also said they want to implement restrictions through special use permits, which add another layer of requirements for developers to meet before they are allowed to build. She hopes the “intense filtration” provided by a permit will have the same effect as a ban.

Like Lockhart, Kerrville City Council updated its zoning code to restrict — but not outright ban — where developers can build data centers. The council also added water capacity approvals, requiring developers to disclose cooling systems and water usage amounts.

“My experience is that an outright ban usually ends up more contested,” said Drew Paxton, Kerville’s director of planning and development.

For municipalities without zoning, like Alvin, they have passed resolutions declaring they don’t want data centers within their city limits. While these resolutions cannot produce anything actionable and are more symbolic, local officials hope state legislators will empower localities like them with more protections, said Dixie Roberts, Alvin’s assistant city manager.

“Resolutions do not have a lot of meat to it,” said Roberts, but the hope is “to get the word out that the council is not interested in this kind of development.”

Still, cities that are using other ways to restrict data centers instead of ban are not completely ruling out that a developer or the state will thwart their decisions.

“We know the state's going to keep working on this [data center policies]. We don't know which direction the state's going to go, but let's go ahead and get something in place in case we get a request,” said Kerrville’s Paxton.

Another way for cities and even counties to exert some control over data centers are in their incentive programs, such as Chapter 380, and Chapter 381 and Chapter 312 agreements. For example, a city could offer a reduction in their property tax bill and in return to require additional development standards.

“This is a tool that counties could maybe use in this period of time when they don't necessarily have a good amount of development authority,” Landeros said.

In Hays County, where San Marcos is located, commissioners recently passed a resolution to pause all data center considerations until the end of the year. The non-binding move signals opposition without triggering legal challenges – though Bettencourt previously warned counties that they lack the authority to impose moratoriums.

“I hope it encourages counties across Texas to examine their own vulnerabilities and begin planning now rather than waiting for a crisis,” said Becerra, encouraging other counties with concerns to take action.

State lawmakers will likely decide whether to give counties more authority or strip cities of the power to make these kinds of bans, in the next legislative session, depending on what the general reaction is from constituents, said Landeros. San Marcos’ ban will be the first test of which direction state legislators will take.

“Local officials are in the best position to understand the unique needs, infrastructure constraints and priorities of their communities,” Zaffirini said.

This article first appeared on The Texas Tribune.