REPORT TO COUNCIL
SUBJECT
Title
Joint Study Session with Planning Commission and City Council on Data Centers and related Development Regulations within the City of Santa Clara
Report
EXECUTIVE SUMMARY
The City of Santa Clara (City) is home to an extraordinary array of high-tech companies, including Applied Materials, Intel, Nvidia, Oracle, Ericsson, Hitachi, and more. The City is attractively located and poised for development, tourism, and continued growth in the high-tech and data center processing sectors. The City has a competitive advantage with respect to attracting and retaining high-tech companies due to its ownership of and the competitive rates offered by Silicon Valley Power (SVP). Since 1996, data centers have been approved in the City of Santa Clara to support the fast-paced growth of the high-tech industry and as necessary infrastructure to power cloud computing and now Artificial Intelligence (AI). Santa Clara is home to 56 active or under-construction stand-alone data centers. In addition, two data center applications have been approved but have not started construction, and one data center application is currently under review by staff.
Due to the growth and number of approved data center applications, the City is holding a joint study session with the Planning Commission and the City Council. The intent is to inform, provide background, and share information on the benefits of data centers, as well as discuss concerns surrounding the location and prevalence of data centers in the City. In order to frame the discussion, staff will provide the following:
1. a Staff Report (this document)
2. a White Paper on Data Centers (Att 4)
3. a PowerPoint Presentation (presented at the May 20 meeting)
Information will be provided by the multiple City departments that are responsible for reviewing and approving data center applications, including the Community Development Department (CDD), Silicon Valley Power (SVP), Water & Sewer Utilities (Water & Sewer), Economic Development, and the City Manager’s Office (CMO).
BACKGROUND
The City has been seeing an increase in data center applications in recent years. Changing economic conditions have resulted in lower demand for typical industrial, manufacturing, and office buildings. At the same time, the development of artificial intelligence (AI) is significantly increasing the demand for data centers, as AI requires substantial computational resources and storage. A few key reasons why data centers choose to locate in Santa Clara include:
• Access to Fiber/Interconnection
• Access to Water for Industrial Purposes
• Access to Clean, Reliable, Affordable Energy
• Climate and Risk of Natural Disaster
• Land Availability and Cost
• Tax and Regulatory Climate
• Ownership/Operating Costs (including low electric utility rates)
• Time to Market
• Access to Skilled Construction and Technology Workforce
As more data centers are being entitled, the City is seeing some push back from residents, and some Planning Commissioners and City Council members have raised concerns regarding the land use. At the January 30, 2024 Joint City Council and Planning Commission dinner meeting, the Planning Commission provided the City Council a recommended list of Land Use Topics for City Council to consider during their priority setting process. At the top of that list was the topic of data centers. The Planning Commission brought up several concerns, including the opportunity to discuss and understand the benefits and impacts of data centers on the City of Santa Clara and where the City’s standards and policies may be improved. Due to the number of priorities and goals, the Council focused on topics they could direct staff to implement.
Several recent applications illustrate some of the issues associated with data centers raised by residents. First, the community raised concerns regarding a data center located at 1200-1310 Memorex Drive that was approved on November 9, 2021 by the Planning Commission. The data center is in a light industrial zoned area and across from a zone for single-family residential homes. Once the project was constructed, the 3-story data center raised comments from members of the public regarding noise, height, mass, and aesthetics.
Subsequently, at public hearings conducted in January and March 2024, the Planning Commission considered a data center with a substation and back-up generators proposed for 2805 Bowers Avenue, which required a General Plan Amendment (GPA). The project was subject to Section 18.60.050 of the Classic Code, which required Planning Commission approval of a Conditional Use Permit to allow installation of electric power plants, including back-up generators. As a reference, under the Updated Zoning Code, data centers are permitted in the new light industrial (LI) zone, subject to a conditional use permit, while back-up generators require a minor use permit.
During deliberations at the March 6, 2024 public hearing, the Planning Commission inquired on various items including the long term benefits for the Santa Clara Unified School District, what funds generated by the data center would be provided to the City, noise impacts to nearby residential properties and how such impacts could be mitigated, the amount of power usage, and concerns regarding the large of amount of data centers throughout the City. The Planning Commission was unable to reach a decision on either the Conditional Use Permit (CUP) or the recommendation on the General Plan Amendment, which constituted, in effect, a denial of the CUP and a recommendation of denial on the GPA. The City Council considered the project on August 27, 2024. The Council acknowledged the PC’s concerns, but approved the project 7-0.
More recently, at a October 23, 2024 Planning Commission meeting, the Planning Commission denied a CUP and Variance for a new data center at 1231 Comstock Street, finding that the operation of the use at the location would be detrimental to the harmonious and orderly growth of the City, and endanger, jeopardize, or otherwise constitute a hazard to the public convenience, health, interest, safety, or general welfare.
During deliberations, the Commissioners discussed power needs for data centers, concerns of the long-term impact of data centers on the City (specifically land usage that data centers provided no activity or employment), and what revenue would be generated for the City by data centers.
On appeal, on December 4, 2024, some Councilmembers indicated they had similar concerns to the PC. Ultimately, the City Council approved the data center by a 5-1 vote.
Subsequently, the City Manager directed staff to hold a joint study session on data centers in spring 2025. On March 19, 2025, the Planning Commission agendized a public discussion on data centers at their meeting. At this meeting, the Commission raised several concerns in addition to the land use requirements. The general concerns related to impacts on SVP and the grid, economic value of data centers, energy usage, active land uses versus dead land uses for data centers, employment-generating uses, and a number of wider concerns. In order to discuss the concerns and prepare for the May 20th Study Session, the City held inter-departmental meetings that consisted of staff from the departments of CDD, SVP, Economic Development, CMO, and Water & Sewer. Staff also reached out to Bay Area developers, the Data Center Coalition, and researched industry articles for broader issues beyond Santa Clara. The broader issues on data centers are presented in a White Paper (Attachment 4).
DISCUSSION
As stated, the City is seeing more data center applications in the industrial zoned areas. Santa Clara has the greatest number of data centers in Silicon Valley due to desired co-location with tech companies, a development friendly review process, and SVP competitive rates for electricity. With more applications, data center projects are raising concerns around power capacity, land use and regulations. The upcoming May 20 joint study session PowerPoint will include:
1. Presentation by the Data Center Coalition on the industry as a whole
2. Community Development Department Entitlement Process
3. Silicon Valley Power (SVP) current capacity and challenges
4. Water and Sewer review
5. Economic Development perspective
6. Summary of White Paper
A data center is a building that houses and maintains the computing infrastructure, including servers, storage, and networking equipment, needed to run applications and services. It is where data is stored, processed, and managed, enabling businesses to deliver services, applications, and data. Data centers rose in prominence in the mid-1990s as the dot-com boom drove demand for fast internet connectivity and 24/7 operations. Since the COVID-19 pandemic in 2020, there has been a rise in remote work and advancements in AI, which have increased the demand for processing and data storage, thus requiring more data center capacity.
Data centers include co-location facilities where third-party operators lease data center space (e.g., a certain number of server cabinets to multiple companies, and hyperscale data centers, which have a single large user.) The data centers vary in size, with peak energy demand ranging from 1MW up to 99MW. These facilities are all located in the northern portion of the City in areas zoned for light industrial, heavy industrial, or office R&D uses. In addition to the 56 data centers built or under construction, the City has two approved data centers that have not yet started construction, and one active planning application. A map is provided in Attachment 2.
Entitlement Process
The City’s new Zoning Code went into effect in February 2024 and allows for a data center through the approval of a Conditional Use Permit (CUP) in the Office/R&D and Industrial zoning districts. An ancillary data center use is permitted by right in the Office/R&D and Light Industrial zoning districts. The Zoning Code defines the two types of data centers as follows:
Data Center. A facility that is very limited in the number of on-site staff and contains a large number of networked computer servers typically used by businesses and organizations for the remote storage and distribution of large amounts of data. Also includes Data Warehouses.
Data Center, ancillary. A facility of networked computer servers for private use by an industrial user, and subordinate and accessory to the primary use. Ancillary Data Centers are limited to 20% of the building square footage on a site and a maximum power draw of nine (9) Megawatts.
Section 18.60.090 - Data Centers of the Zoning Code provides for specific development standards for data centers in addition to the standards (building setbacks and heights) of the zoning district for which they are located, and includes standards for Primary Structure Facades, Exterior Lighting, and Structural Noise Reduction Measures. See Attachment 1, Code Section 18.60.090 Data Centers, to read the standards.
In addition, Planning staff researched jurisdictions regionally in the Bay Area, statewide, and nationally to understand how other jurisdictions review and process entitlements for data centers. Generally, most jurisdictions allow data centers in Office, Industrial, and Commercial zoning districts with a Conditional or Special Use Permit. There are some jurisdictions that allow the use by-right or allow the use by-right if located within an overlay district, created for data centers. A more detailed comparison is provided in Attachment 3.
SVP’s Power Supply and Power Planning for Data Centers
Large Industrial and Commercial customers have made up the majority (over 89%) of Silicon Valley Power’s retail sales for the past four-plus decades. To accommodate projected growth in the 2000s, SVP expanded the capacity of the system by adding the 147MW Donald Von Raesfeld (DVR) powerplant and built a 230kV line to bring more power to the City. Anticipated growth in the 2000s was to be around 900MW by 2010. The growth at that time was centered around research and development, data centers, dot-com growth, and internet industries, while the semi-conductor fabrication industry left the City. The large load and energy sales kept downward pressure on rates for all customers through economies of scale. Throughout the last couple of decades, SVP’s internal system has changed, as well as California’s energy grid operated by the California Independent System Operator (CAISO).
Because of SVP’s early actions, with the support of the City Council, SVP had room to grow and add load until 2019/2020. At that time, SVP had an unprecedented number of requests for data center development, with multiple customers requesting power capacity in the range of 9 MVA to 99 MVA. SVP’s engineering team developed a system expansion plan for internal infrastructure and replacement of aging infrastructure, as well as providing modeling and input into the CAISO transmission planning process to expand transmission capacity into Santa Clara. During this time, it was determined that SVP needed to stop “will serve” letters (2021) and limit capacity available for data center development as SVP builds out the internal system and the CAISO expands transmission capacity. Current capacity limitations are around 750 MW - 810 MW. Once all pending projects are completed, both by SVP and the CAISO, the capacity to serve will be around 1200 MW - 1300 MW. This capacity is enough to serve the customers that currently have substation agreements with the City or capacity commitments through previous “will serve” letters. SVP has approximately 10 developers /customers (not just data center) in some state of request for future capacity, as well as approximately 5-10 existing customers that want expanded power capacity if and when available. As capacity improvements both internally and externally come online, there may be an opportunity to expand SVP’s system by an additional 200-300 MW.
With all the expansion, SVP will be conducting a cost-of-service study to ensure rates continue to be in compliance with the legal requirements of Proposition 26. In general, Proposition 26 requires that rates not exceed the costs of providing the service.
Economic Value of Data Centers
Data centers are an important part of the innovation ecosystem of Silicon Valley. The region has a high density of technology, social media, and communications companies that are users of cloud services, and thus customers of data center services. As Artificial Intelligence has emerged as a transformative technology, data centers are evolving to become AI Factories, to provide AI-specialized processing. AI technology is being developed, tested, and manufactured in Santa Clara companies.
In addition to the critical role that data centers play in the Silicon Valley Innovation ecosystem, data centers provide significant contributions to the City of Santa Clara’s General Fund, primarily through:
• Silicon Valley Power (SVP) Transfer
• Property Tax
• Sales and Use Tax
• Business License Tax
SVP Transfer (5% of gross receipts)
SVP’s transfer has been in place since 1951 and includes a transfer of 5% of SVP utility revenues to the City’s General Fund. The revenues from this transfer are unrestricted and are used to support City services such as police, fire, street repairs, sidewalks, parks, libraries, and senior services. In November 2022, voters approved Measure G authorizing the continued transfer of 5% of utility revenues to the City’s General Fund. It is estimated that approximately $29.5 million in revenue will be provided to the General Fund in FY24/25 from data centers alone.
Property Tax
Property taxes are based on the assessments of the value of secured and unsecured assets. Secured assets are walls, ceilings, floors, etc. of a building, including installed equipment “fixtures” which could be propert. Unsecured assets are typically moveable equipment. Data centers as a property class are unique as they have high-value unsecured assets with the number of expensive servers and infrastructure installed.
While the total assessed value of data centers is significant, unlike the SVP transfer, which is provided solely to the City of Santa Clara, the City receives only a fraction of what is collected in property taxes. The City receives 10.17% of total property tax collected; however, other agencies, notably the County of Santa Clara and School Districts, receive a larger share of property tax. For FY24/25, data centers in the City are contributing $6.5 million, combined in property tax to the City’s General Fund, while contributing greater amounts to the County of Santa Clara and School Districts based on their higher proportionate share of property tax.
Sales and Use Tax
Sales tax is based on the value of purchases made at data centers and use tax is based on the value of purchases that are utilized at data centers. Similar to property tax, the City shares sales and use tax revenue. The majority of sales and use tax revenue goes to the State of California. Of the 9.125% sales tax collected, the City of Santa Clara receives 10.95% (City receives $1.00 out of the total $9.125 collected from a $100 sale transaction). For the past ten years, data centers in the City have contributed an average of approximately $348,000 annually combined in sales tax to the City’s General Fund. For the past five years, vendors who reported data center-type purchases contributed an average of approximately $4.6 million annually in combined use tax to the City’s General Fund. Note these vendor purchases could have been made to support stand-alone data centers or other businesses who utilize data center-type equipment. For FY 24/25, It is estimated that that average annual sales and use tax received from purchases associated with data centers is $4.96 million.
Business License Tax
Data centers, as all businesses in Santa Clara, are subject to the City’s Business License Tax, which is at a rate of $45 per employee. This total has not yet been compiled for all the data centers in the City, but will not be a significant amount given that data centers have a relatively lower employee count on site than office uses.
Total Contributions to the General Fund
In FY24/25, it is estimated that data centers in the City contributed a total of $40.96 million to the City of Santa Clara’s General Fund from the estimated SVP’s transfer, property tax, and sales and use tax. While the $4.6 million average annual use tax amount has been added to the total contribution by data centers, some of the use tax received may be a result of purchases made by vendors supporting other high tech companies with data center-type purchases, rather than solely for stand alone data centers. $40.96 million is approximately 13% of the City’s FY24/25 General Fund.
ENVIRONMENTAL REVIEW
A study session does not constitute a “project” within the meaning of the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines section 15378(b)(4) in that it is an informational report that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
FISCAL IMPACT
There is no impact to the City other than administrative staff time.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
Staff
Reviewed by: Afshan Hamid, AICP, Director of Community Development
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Code Section 18.60.090, Data Centers
2. Data Center Map
3. Comparison of other jurisdictions on development standards
4. Data Center White Paper
5. Public Correspondence