North Carolina’s FY2027 budget makes several consequential changes affecting energy infrastructure, water planning, environmental permitting, and data center development. Considered separately, the provisions appear to address different policy issues. Considered together, they show how the state is adjusting its approach to large-scale industrial and electricity demand.
The budget preserves incentives for qualifying capital investment, removes a tax benefit tied to recurring data center electricity consumption, accelerates reviews for certain energy infrastructure, and places greater emphasis on water availability and utility capacity.
The result is not a retreat from economic development. It is a shift toward requiring large projects to carry more of their operating costs while the state attempts to improve the infrastructure and permitting systems needed to support continued growth.
North Carolina Narrowed Its Data Center Incentive
The most direct change for the data center sector is the removal of the sales tax exemption for electricity used at eligible internet data centers and qualifying data centers.
The budget does not repeal North Carolina’s broader data center incentive framework. Qualifying projects may continue to receive favorable tax treatment for eligible business property and data center support equipment, including servers, storage systems, networking equipment, generators, transformers, batteries, uninterruptible power systems, cooling equipment, and related electrical and mechanical infrastructure.
Investment thresholds and forfeiture requirements also remain in place. The state has therefore preserved the incentive associated with constructing and equipping a qualifying facility while ending the exemption associated with the electricity it consumes.
That distinction matters because electricity represents a major recurring operating expense for data centers. Adding sales tax to electricity purchases will affect project economics over the full operating life of a facility, particularly as utilities also reconsider rates and contract terms for very large customers.
Site-selection analysis will consequently depend more heavily on electricity pricing, tariff design, load commitments, on-site generation, power-procurement strategy, and the cost of any infrastructure required to serve the project. The capital incentive remains valuable, but it will no longer offset electricity costs in the same way.
The Budget Treats Water as a Development Constraint
Several provisions indicate that water availability and utility capacity are becoming more significant components of state infrastructure policy.
The budget continues restrictions affecting major interbasin water transfers while allowing additional time for the state’s review of long-term supply and demand. It also extends the examination of the Cape Fear River Basin, where population growth, industrial development, agriculture, and major economic development projects are competing for water and wastewater capacity.
These actions do not establish that North Carolina lacks sufficient water for new development. They do show that the state is no longer treating water access as an automatic assumption for large projects.
The budget also establishes an emergency financing mechanism for operators brought in to manage distressed private water or wastewater systems. The reserve would provide loans on favorable terms to support continued operation and necessary system improvements.
For developers, the practical implication is that a project’s water strategy will require greater scrutiny. Available allocation, withdrawal authority, treatment capacity, wastewater disposal, drought exposure, infrastructure condition, and competition from other planned development may all affect site viability.
Large projects that depend on substantial water use will need to demonstrate more than the existence of a nearby utility. They will need to establish that the system can reliably support the project over time.
Critical Energy Infrastructure Receives a Faster Review Process
While the budget applies greater scrutiny to demand and resource use, it also attempts to accelerate the infrastructure required to serve economic growth.
The Department of Environmental Quality must participate fully in the federal FAST-41 process when requested for covered critical energy infrastructure. Eligible projects include certain nuclear and natural gas generation facilities, gas pipelines, transmission infrastructure, and associated water and wastewater facilities.
The process requires DEQ to identify a principal point of contact, determine the state authorizations a project will need, coordinate reviews concurrently where possible, and provide greater visibility when final decisions fall behind schedule.
The budget also extends North Carolina’s natural gas economic development infrastructure mechanism. That program allows regulated utilities, with approval from the North Carolina Utilities Commission, to recover certain costs associated with expanding natural gas service to qualifying economic development projects.
These provisions do not guarantee project approval or eliminate environmental requirements. Their purpose is to improve coordination and reduce delays caused by sequential or fragmented agency reviews.
For projects involving large electricity loads, the change is important because generation, transmission, pipelines, substations, and water infrastructure frequently have different permitting requirements and timelines. A faster review of one component provides limited value when another remains unresolved.
The State Is Testing AI in Environmental Permitting
The budget directs DEQ and the Department of Information Technology to establish an artificial intelligence-assisted environmental permit review pilot.
The system is expected to support applicants before they submit permit materials and help agency personnel conduct initial reviews. Vendor requirements include United States incorporation, domestic data storage, and previous experience deploying similar technology at the state level. The procurement is also exempted from portions of the standard state contracting process.
The placement of the pilot within environmental permitting is notable. It suggests that the General Assembly views permit preparation, completeness review, and agency processing capacity as identifiable barriers to infrastructure delivery.
The immediate opportunity is for technology vendors that can satisfy the security, data-location, and government-experience requirements. The longer-term significance will depend on whether the pilot reduces incomplete applications and review times without weakening technical or legal scrutiny.
Water Funding Deadlines Could Accelerate Local Contracting
The budget also creates near-term implications for engineering, construction, utility consulting, and program management firms.
Higher planning-grant limits will allow local governments and utilities to finance more substantial feasibility analysis, asset inventories, system assessments, and preliminary engineering work. These activities frequently precede larger water and wastewater capital programs.
The state has also imposed deadlines on certain water and wastewater appropriations made in 2023. Recipients must complete required funding documentation, place projects under construction contract, and expend the funds according to the statutory schedule or risk losing unspent allocations.
Those deadlines may compress procurement activity as local governments move projects from planning into design and construction. The budget also maintains disaster-related funding channels for damaged water infrastructure, dam safety, and recovery projects in affected counties.
What the Changes Mean for Project Development
North Carolina’s FY2027 budget changes several assumptions for companies whose projects depend on large amounts of power, water, or public infrastructure.
Data centers retain substantial capital-investment incentives, but their recurring electricity costs will increase. Energy infrastructure may receive a more coordinated review, but projects will still need credible financing, environmental documentation, and utility commitments. Water planning is becoming more prominent, particularly in regions where growth is already placing pressure on existing systems.
Companies evaluating North Carolina should therefore integrate tax policy, utility rates, water capacity, permitting timelines, and local infrastructure conditions into the site-selection process earlier than they may have in previous development cycles.
The budget does not make North Carolina less interested in growth. It establishes different expectations for how growth will be financed, reviewed, and supported. Developers that recognize those changes before selecting sites or announcing projects will be better positioned than those continuing to rely on the state’s previous incentive and infrastructure assumptions.