Wisconsin Village Rejects Microsoft Data Center, AI Boom Faces Hurdle

The rural landscape of Caledonia, Wisconsin, nestled between the bustling cities of Chicago and Milwaukee along the shores of Lake Michigan, presents a seemingly idyllic setting. Corn and soybean fields stretch across the horizon, punctuated by modest single-story homes and quaint traffic signs warning of horseback riders. However, this tranquility belies a growing tension, a microcosm of the challenges facing the tech industry as it seeks to expand its digital infrastructure into communities grappling with questions of economic impact, environmental sustainability, and quality of life.

In September, when Microsoft, a tech behemoth with a global footprint, proposed rezoning 244 acres of agricultural land for a data center, the proposal met with unexpected resistance. During a planning commission meeting, a resounding 40 out of 49 residents voiced their opposition. Concerns ranged from potential noise pollution and the exacerbation of existing air quality issues, already in violation of federal standards, to anxieties about escalating electricity bills and the limited number of long-term jobs the data center would generate. Residents questioned why their community should subsidize a company reaping massive profits from the artificial intelligence boom.

“Why do we have to subsidize a company making billions of dollars a year?” resident Mike Kirchner asked at the meeting.

Just nine days later, before Caledonia’s top officials could even cast their votes on the proposal, Microsoft abruptly withdrew its application. The company pledged to explore alternative locations within the region, while simultaneously focusing on expanding an existing AI data center in Mount Pleasant, a village located approximately 20 miles south. Unlike Caledonia, Mount Pleasant seemed to offer a more receptive environment, where public opposition was less pronounced.

Caledonia and Mount Pleasant, both situated within Racine County in the southeastern corner of Wisconsin, represent starkly contrasting realities. Mount Pleasant had previously been earmarked as the site for a sprawling manufacturing facility by Foxconn, the Taiwanese iPhone supplier. The project, once touted by President Donald Trump as “the eighth wonder of the world,” ultimately failed to materialize, leaving behind a legacy of broken promises and economic disappointment.

To accommodate Foxconn, Mount Pleasant aggressively acquired land, offering substantial premiums to residents for their properties, along with relocation assistance. Roads were constructed, and essential infrastructure, including water connections and electrical grids, was put in place. However, Foxconn’s ambitions gradually dwindled, abandoning the majority of its plans and leaving a void in the community. Microsoft’s arrival is now viewed by many locals as an opportunity to fill that economic void.

The divergent experiences of Caledonia and Mount Pleasant highlight the immense challenges confronting the tech industry as it races to construct massive data centers to support the burgeoning AI revolution. The rapid proliferation of AI applications, fueled by the launch of OpenAI’s ChatGPT in 2022, has triggered an unprecedented demand for computing power, driving companies to seek locations to house vast arrays of Nvidia chips and other specialized hardware.

The construction and operation of these data centers entail significant hurdles, including soaring power requirements, environmental concerns, and complex political and economic considerations. Each municipality presents a unique set of challenges, making it difficult to develop a standardized approach for navigating the regulatory and community landscapes. The major players driving this expansion include Microsoft, Amazon, Google, and Meta.

Furthermore, data centers are not typically major engines of long-term job creation. Brad Smith, Microsoft’s vice chair and president, acknowledged that the Mount Pleasant facility employed 3,000 construction workers at its peak, with a projected workforce of 500 to 800 full-time employees upon completion. While McKinsey estimates that a 250,000-square-foot data center could generate 1,500 construction jobs, the number of permanent positions for “steady-state operations” is often limited to just over 50. This disparity can fuel local opposition, particularly in communities concerned about the potential disruption and limited economic benefits of these projects.

Resistance from local communities has emerged as a significant obstacle for data center developers. In Tucson, Arizona, a data center proposal was shelved following intense opposition from residents. Similarly, Google abandoned plans for a data center in Indiana after protests over strains on the power grid and the loss of valuable farmland. These instances underscore the growing need for tech companies to engage proactively with local communities, address concerns, and demonstrate a commitment to sustainable development.

Despite these challenges, hyperscalers are aggressively pursuing expansion plans. Alphabet, Google’s parent company, recently increased its capital expenditures forecast, projecting substantial investments in 2025 and beyond. Microsoft also announced plans to accelerate capital expenditure growth, signaling its commitment to expanding its data center footprint. To attract these investments, states like Wisconsin are offering incentives, such as tax breaks on the sale of servers and networking equipment, in an effort to revitalize domestic industries.

Wisconsin, once a thriving hub for manufacturing auto parts and heavy equipment, has experienced a decline in manufacturing employment. While data centers may not create the same volume of jobs as a traditional vehicle production line, they represent a connection to a rapidly evolving sector of the economy and offer a glimmer of hope for communities seeking to reverse long-term economic decline.

“The jobs Microsoft is paying are notably higher than the average wage in the region,” said Dale Kooyenga, CEO of the Metropolitan Milwaukee Association of Commerce.

For some, the promise of economic revitalization is enough to outweigh the potential drawbacks. However, as the experience of Caledonia demonstrates, effective community engagement and a genuine commitment to addressing local concerns are paramount to securing the support needed for these ambitious projects.

The saga began in 2017, when Foxconn unveiled its ambitious plan to construct a $10 billion manufacturing facility in Mount Pleasant, with the promise of creating 13,000 jobs. The project was touted as a significant economic boost for the region, but quickly ran into trouble.

Mount Pleasant and Racine County committed significant resources to the Foxconn project, with borrowings approaching $1 billion. However, Foxconn’s plans were progressively scaled back, leading to disappointment and frustration within the community.

“For a town of 26,000 people, that’s crazy, right?” said Kelly Gallaher, Racine County’s Democratic party chair.

By mid-2018, Foxconn was already scaling back its plans, first by deciding not to proceed with a “Generation 10.5” factory that could churn out screens of up to 75 inches in size, and instead targeting smaller components.

The company quickly downsized its hiring projections. Development was so slow Bloomberg described the project as “disastrous” in 2019.

An amended contract signed in 2021 allowed for up to $80 million in state tax credits, down from the original $2.85 billion, in the event that Foxconn reached its new job creation goal of 1,454 by 2026. In 2023, the company said, it employed over 1,000 people in Wisconsin.

Mount Pleasant’s finances sagged under the pressure of the development. Between 2019 and 2022, the village lost $193 million to pay down debt for the project, as costs far outpaced tax revenue from Foxconn, according to financial reports. And the city of Racine, which supplies water to the village, wasn’t getting much economic activity in return, leading to a legal skirmish between the municipalities.

Then came the AI blitz.

OpenAI released ChatGPT in November 2022. The chatbot took off immediately and set in motion a torrent of investment in generative AI. Microsoft, OpenAI’s lead backer and dealer of computing power, needed more capacity.

In addition to enlisting third-party providers like CoreWeave, Microsoft sought out land. The company found Mount Pleasant, and in 2023 revealed plans for a 315-acre campus.

In May 2024, President Joe Biden visited Wisconsin to promote the home of the planned $3.3 billion data center. Microsoft’s Smith, who spent some of his childhood in Mount Pleasant, said the facility would create manufacturing jobs around the state.

And while it wouldn’t bring 13,000 jobs, as Foxconn had promised, Smith said, “We will train over 100,000 people in Wisconsin by the end of the decade so they have the AI skills to fill the jobs of tomorrow.”

Microsoft’s arrival was “kind of a bit of a silver lining in what was basically a shameful story,” Gallaher said.

In 2023, Gallaher had mounted a campaign to try and unseat Dave DeGroot as Mount Pleasant village board president, blaming incumbents for the Foxconn misadventure. But in the election that April, a week after Microsoft’s announcement, DeGroot was victorious. He didn’t respond to a request for comment.

While Microsoft’s plans received a hefty dose of local support from residents fed up with the Foxconn fallout, environmentalists have been vocal.

A nonprofit called Midwest Environmental Advocates sued the city of Racine in September for information on water use, a month after conservation group Alliance for the Great Lakes published a report showing that “a single hyperscale data center can use more than 365 million gallons of water a year, equivalent to what 12,000 Americans use in that time.”

The city responded that Microsoft’s facility would use up to 8.4 million gallons per year.

In February, residents of neighboring Kenosha County protested plans for a natural gas plant in the town of Paris, six miles from the Microsoft site, saying air quality would worsen and bring health problems.

“Hope this doesn’t become some sort of an AI hub,” Jonathan Barker, one of the protesters, said in an interview. Barker is a former pastor of Kenosha’s Grace Lutheran Church, a 20-minute drive from the Paris plant. He said rate increases from We Energies, which provides electricity to over 1 million Wisconsin customers, could be overwhelming to those on fixed incomes.

Smith has tried to reassure locals. At a September town hall meeting in Racine, he stressed that Microsoft wasn’t about to drain Lake Michigan. He promised citizens that their electric bills won’t spike because of the company’s presence.

If anything, residents should prepare to see the project expand, Smith said in an interview from a balcony at the data center, which will house two stories of AI chips.

“We bought a lot more land than one would need if the only thing we can build is two of these,” Smith said.

The company paid $1.9 million in property taxes to Mount Pleasant in 2025, with a larger sum to follow in 2026, as its first data center comes online. The second is set to open by 2028.

Next, Microsoft went north.

Caledonia is more rural than Mount Pleasant, with more expansive lots, fewer homes and businesses, and almost 30 miles of horseback riding trails that cross property lines.

Microsoft plotted out land just west of We Energies’ 610-megawatt Oak Creek coal plant, which opened beside Lake Michigan in the 1950s. We Energies buried coal ash around the plant, and in 2009 it reported elevated levels of the chemical element molybdenum in nearby private wells. The utility bought over 100 acres to form a buffer around the plant.

In July, Caledonia sent letters to those in close proximity to the property that Microsoft was pursuing, though without mentioning the company’s name, about a potential rezoning. Prescott Balch, a retired U.S. Bank technology executive living in Caledonia, estimated that roughly 100 homes sit within a mile of the site. The difference in Mount Pleasant is that the nearby homes had been cleared years earlier to make way for Foxconn.

Along with the letters, Caledonia scheduled a planning commission meeting to discuss rezoning that would allow for “future development of high-quality, low-traffic light industrial development, i.e., data center.”

Valerie Lancelle never received a letter. She learned about the issue from signs she noticed while driving to the gym one morning in July. The signs were from the village. “Zoning Change Requested,” they stated.

Lancelle, a 20-year veteran of U.S. Bank and a Caledonia resident, turned to community Facebook groups.

“I’m like, ‘Hey, does anybody know about this? What’s going on? This is a problem. I’m a little worried,'” she recalled. She reconnected with Balch, whom she’d worked with until his retirement in 2023.

Lancelle attended the planning commission meeting in late July. All 21 people who spoke up were opposed to the development or had questions, according to minutes from the session.

The next day, residents launched a Facebook group called “Caledonia Residents against rezoning on Botting Road.” It grew to encompass hundreds of members.

When CNBC visited Wisconsin in September to see the Mount Pleasant data center, tension was palpable in Caledonia. A lawn sign read “DATA CENTER” inside a red circle with a line through it. A man living on the property declined to give his name but said he wouldn’t want a data center using water designated for the village.

At the time, Microsoft’s involvement hadn’t been made public. The proposal was just called Project Nova.

“People had been asking me who it was, and I was saying, ‘I don’t think it’s Microsoft,’ because I believe that when they went to Mount Pleasant, it was openly Microsoft right from the outset,” said Fran Martin, a Caledonia trustee. “I thought it was unlikely that it was Microsoft, because why would they be so open in that situation, and not simply, you know, come to Caledonia with the same openness or transparency? I still don’t understand it.”

Microsoft went public with its plans on Sept. 23, at a village board meeting. The Racine County Economic Development Corporation and an engineering firm gave presentations on Project Nova. A director for the economic development group said Microsoft was looking at 50 to 200 permanent Caledonia jobs.

Diann Strom, a Microsoft regional manager based in the company’s home state of Washington, showed a slide titled “Microsoft data centers in your community,” followed by 11 slides detailing how the company professes to foster prosperity and act as a “good neighbor” when it arrives in a new location. Strom said Microsoft intended to pay its own way for electricity.

“Our water demands are modest compared to other large industrial water users,” she told attendees.

Despite the assurances, 32 out of 34 people spoke against Microsoft’s plans.

The next day, Microsoft held an information session at Caledonia Village Hall. Five days later, the planning commission convened at the same place to vote on whether to recommend the rezoning. The crowd spilled out into the lobby, Lancelle said.

Some speakers expressed concerns about the potential environmental impact. Others worried about finances, the risk of relying too heavily on one taxpayer and how the data center buildings could be used if Microsoft were to abandon them.

Balch, who said he spent much of his career building software for data centers, had prepared many of the attendees’ talking points.

“This is strange bedfellows for me, politically,” he said. “I’m the last person that you would expect to be opposed to a data center.”

Caledonia favored Trump in the 2024 presidential election. Balch, who calls himself fiercely independent, said he figured that his best shot at persuading the village board was to advance economic arguments, rather than concentrate on the environment.

He did have personal concerns.

“Horses are skittish animals,” he said. “They’re run-first, ask-questions-later animals. They would have had a miserable experience. I would have even contemplated moving because their lives would have been just unpleasant, given how fearful they are of strange noises and sounds and sights.”

At the hearing, Balch advised planning commissioners to pause.

“The property and AI demand will still be there when the plan is ready,” he told them. “And Microsoft isn’t anywhere near ready to build anyway.”

Martin took her turn at the mic and slammed officials for a lack of transparency.

“When you’re asking us to make a decision as momentous as this and you don’t choose to involve us in the process at all, I find that difficult,” she said. In fact, Microsoft said it reached out directly to Caledonia village staff members in August and subsequently met with them weekly.

Despite the pressure, Microsoft managed to win rezoning support from five of the village’s seven planning commissioners. The company’s employees then checked in with trustees of the village board. The sentiment wasn’t all favorable.

“They may have walked out of there going, ‘Do we want to take the chance of being voted down?'” said one trustee, Nancy Pierce.

Microsoft pulled out the next week, before the matter came before the village board.

In a statement to The Milwaukee Journal Sentinel, Microsoft said, “Based on the community feedback we heard, we have chosen not to move forward with this site.”

Balch said he, Martin and Pierce shared hugs and high fives at a park.

“We did seem to have awoken a sleeping giant, I guess,” Martin said.

Bowen Wallace, Microsoft’s corporate vice president of data centers in the Americas region, said in a statement that the company is “committed to being a good neighbor in the communities where we operate.”

Microsoft understands “the importance of hearing and responding to local concerns, and will use the learnings from our experience in Caledonia moving forward,” Wallace said.

Andrew Chien, a computer science professor at the University of Chicago and a former Intel research executive, said “structural” challenges are apparent in many places where tech companies try to build.

Most of the jobs are temporary, while resource needs and environmental impact will go on for many years, so companies must find ways to be part of the community, protecting residents from rising utility prices and offering job retraining programs, Chien said. That’s very different from how the tech industry is used to operating, he added.

“Traditional Silicon Valley culture is, go fast and scale without regard to human communities,” he said. “That has to change. Long-term win-wins need to be constructed.”

Dramas are unfolding across Wisconsin.

Last year in Beaver Dam, a small city northwest of Milwaukee, the Common Council signed an agreement backing the annexing and rezoning of an 830-acre site. The project was codenamed Degas LLC.

Only later did the council say it was the site of a possible data center. Anger spread on Facebook. Earlier this month, about 100 people showed up at a council meeting, where attendees each had two minutes to lodge complaints.

“You should all be ashamed of yourselves,” one person called out.

Crews have already broken ground, leaving rocks and rubble in the road for vehicles to dodge, said Joey Larson, a midwife in Beaver Dam who joined the meeting virtually.

“Honestly, if we knew that this was going here, we never would have bought here,” she said.

Earlier this month Meta published a blog post outing itself as the company behind Degas LLC, confirming locals’ suspicions. The company promised over 100 “operational jobs.”

Outside Madison, Blackstone-owned developer QTS Realty Trust is aiming to build a data center in the village of DeForest. QTS wants to buy land in the nearby town of Vienna. DeForest received a petition to annex 1,135 acres from Vienna, but Vienna’s town board voted 4-0 to reject a cooperation agreement with the developer, after 22 people spoke in opposition to the arrangement.

Shawn Haney, a former sheriff’s lieutenant in Vienna, said locals are worried about energy and water consumption, and whether it’s “going to be like the dot-com bubble of years ago.”

In October, the lakeside city of Port Washington, 26 miles north of Milwaukee, was identified as a site for OpenAI and Oracle as part of their Stargate effort. Over 1,000 opponents signed a petition to have the city obtain voter approval before entering into tax deals worth more than $10 million. A joint review board went ahead with a deal anyway.

“This just did not receive any sort of substantial input from the community,” said Christine Le Jeune, a PhD student at the University of Florida who lives in Port Washington.

In flyers distributed to city households, data center firm Vantage promised 330 full-time jobs after construction. The company said electric bills wouldn’t go up for the site, which would rely on renewable sources for 70% of its energy needs.

On Nov. 10, the city of Janesville, two counties west of Racine, said it would conduct due diligence on a proposal to redevelop the grounds of a former General Motors plant for an $8 billion data center that would consume up to 800 megawatts of power.

Unhappy locals are aiming to collect signatures from 4,000 homeowners and renters in the city of about 66,000 to require a referendum for any structure at the old plant that would cost over $450 million.

And what’s next for Microsoft? Even after the failure at Caledonia, the company said it wanted to keep working with the village and Racine County officials as it selects a new location.

At its information session, Microsoft had displayed posters for the public to examine. One listed the steps the company takes before turning on a data center, including construction. Cast in bold at the bottom were the words, “It’s a marathon, not a sprint.”

An election in April 2026 could change the composition of the village board, opening up the possibility of a new Microsoft proposal. Balch said he plans to run for a board seat.

“We never were hellbent on no data center anywhere, and we won’t be if they pick another location,” Balch said. “But the devil’s in the details.”

— CNBC’s Ari Levy contributed to this report.