A Texas city just made history by banning data centers outright—and the decision could reshape how the hosting industry thinks about expansion and risk in the state. San Marcos approved the ban in a 4-3 vote on June 16, excluding data centers from its zoning codes entirely. This marks the first municipality in Texas to take such a step. The move pits local control against state law, and it has the entire data center industry watching closely.
The council cited resource concerns. Members argued that large server facilities would drain water and electricity from residents. No data center currently operates within San Marcos limits, but at least two projects have been filed for areas just beyond the city line in unincorporated parts of Hays County.
- The 4-3 council vote on June 16 classified data centers as prohibited in every zoning district
- The city has invoked home rule powers to make this classification
- At least two facilities are proposed in adjacent unincorporated Hays County areas, according to Data Center Map
- Senator Bettencourt is preparing a legal challenge
- Around 50% of US data centers planned for 2026 have been canceled or delayed
How We Got Here
Data centers have become a flashpoint across Texas as the industry expands rapidly. The state is moving toward becoming the leading US market for these facilities, driven by demand for cloud services, AI workloads, and hosting infrastructure. But residents and local officials have pushed back, citing severe water consumption for cooling systems, surging electricity demand, and noise pollution from massive server buildings.
Hays County attempted to address these concerns with a non-binding resolution pausing data center development over water scarcity issues. That resolution carries no legal weight. Other counties have fared worse. Hill County rescinded a moratorium in early June after a developer sued for $100 million. Hood County pulled its own moratorium after Senator Bettencourt requested an attorney general opinion questioning county authority.
Nationwide, roughly half of data centers scheduled for 2026 deployment have been scrapped or postponed. Local councilors have lost their jobs over approving data center projects. The issue is bleeding into midterm election politics.
Why San Marcos Is Different
San Marcos is testing a novel legal theory. The city falls under "home rule," giving it broader powers to create its own zoning codes compared to counties or smaller municipalities without that designation. There are 352 home-rule cities in Texas, and experts say they have a stronger legal footing to defend data center restrictions.
Paterson, a professor at UT Austin, offered a counterpoint. He told TechRadar that courts might uphold such a zoning approach in theory. The strategy hinges on whether simply defining and excluding a land use category constitutes a legitimate zoning exercise rather than a disguised prohibition.
Bettencourt has already signaled his response. He told ABC13 that using zoning powers to prohibit an entire category of development across a city likely violates state guidelines. The senator is preparing a challenge based on two statutes: the 2023 Death Star Law, which blocks municipalities from overriding state law, and House Bill 2559, which restricts indefinite development moratoriums.
Our Analysis
This is a test case with outsized implications. If San Marcos wins—or loses cleanly—expect a cascade effect. Other home-rule cities will either rush to adopt similar bans or hold back depending on the legal outcome. The 2023 Death Star Law is the central obstacle. It was designed precisely to prevent municipalities from blocking state-level priorities through local ordinances.
The practical question for hosting resellers is not whether Texas will remain a data center hub—it will, because demand is enormous and the state's power infrastructure has capacity advantages. The question is where new facilities get built and how state legislators respond to grassroots opposition.
Even Governor Abbott is feeling the pressure. He recently suggested removing state sales tax exemptions for data centers as part of a broader package of proposals. That could slow new construction statewide, affecting supply and pricing for wholesale bandwidth, rack space, and co-location services that resellers depend on.
For resellers building WordPress hosting packages or cPanel-based reseller plans, this story matters indirectly. Data center density affects latency, redundancy options, and ultimately the cost of bandwidth. A shrinking pool of Texas data center locations could concentrate capacity in fewer facilities, potentially affecting pricing use for smaller buyers.
What It Means for You
Consider this scenario: you are pricing a white-label cPanel hosting package for small business clients in the Austin-San Antonio corridor. If data center construction slows in Hays County and surrounding areas due to legal uncertainty, your options for low-latency infrastructure in that region may narrow. You might need to look further afield or accept slightly higher latency for clients near San Marcos.
This is also a reminder to monitor state legislative sessions closely. Tax policy, water rights, and zoning preemption laws directly affect the infrastructure underlying every hosting account you resell. When cities and states clash over data center authority, the ripples reach your pricing and reliability promises.
What to Watch Next
The legal challenge from Senator Bettencourt will move fast. Court rulings on the San Marcos ban will clarify what home-rule cities can and cannot do. Watch for legislative responses during the next Texas session—either reinforcing local control or tightening restrictions further. Either direction shapes the physical infrastructure behind every web hosting product you sell.
Bottom line: San Marcos opened a new front in the data center policy wars. The outcome determines where, and whether, new facilities get built in Texas. Resellers should track this closely as it affects the upstream supply chain for hosting infrastructure.
Key takeaways
- A 4-3 vote on June 16 gave San Marcos the distinction of being Texas's first city to ban data centers through zoning code changes
- Senator Bettencourt is preparing a challenge arguing the ban conflicts with the 2023 Death Star Law and House Bill 2559
- Despite strong opposition, Texas continues moving toward becoming the largest US data center market by infrastructure capacity
- Resellers in Central Texas may face fewer local data center options if construction shifts to less restricted areas
- Governor Abbott's proposed tax changes could further reshape the economics of new data center development statewide
Frequently asked questions
What did San Marcos actually do?
Council members approved the ban 4-3 on June 16 by adding a data center definition to the zoning code and listing them as prohibited in every district, effectively blocking construction within municipal boundaries.
Why does this matter for web hosting?
Data centers provide the physical infrastructure for web hosting. Restrictions on new construction affect supply, pricing, and location options for bandwidth, co-location, and server space that hosting resellers purchase.
Can other Texas cities do the same thing?
Possibly. Cities with home-rule status have broader zoning authority. There are 352 such cities in Texas, and they will be watching the San Marcos legal challenge closely.
Who is fighting the ban?
State Senator Paul Bettencourt has announced plans to challenge the ban, arguing it conflicts with state law including the 2023 Death Star Law and 2025's House Bill 2559.
Is Texas still a major data center market?
Yes. Texas is on track to become the leading US data center market by capacity. The San Marcos ban does not change existing facilities, only future construction within city limits.