The Washington brief

Executive summary

• Data centers have quickly gone from a coveted asset to a political landmine. State and local jurisdictions are increasingly throwing up roadblocks for new projects amid concerns including elevated resource usage, infrastructure strain, and rising utility costs. Meanwhile, the Trump Administration is accelerating government adoption of Artificial Intelligence (AI), including new measures to evaluate advanced models, highlighting growing tension between rapid AI expansion and resistance to its resource demands. For now, we don’t expect new federal regulations for AI or data centers, but shifts are likely following the midterm elections.
• Congress has entered a busy stretch, with lawmakers facing a broad range of priorities ahead of the month-long August recess. While the reconciliation bill was passed this week, and members recently advanced a major housing package in the House, competing demands continue to crowd the agenda.
• Cryptocurrency and digital asset legislation – known as the CLARITY Act – is moving through Congress. While the bill could boost institutional adoption of crypto, ongoing disputes over stablecoin regulations, ethics, and law enforcement may delay progress and create uncertainty for financial and digital asset markets.

Developments and our take

Data Centers/AI

Entering this year, there was still an aggressive arms race to attract new data centers as 38 states had dedicated tax incentives for the construction of new data centers. Now, many states and communities are increasingly rethinking data centers, citing concerns over the significant ongoing resources required, including water, and the impact on utility rates for existing consumers as well as noise and other considerations. For instance, Illinois effectively paused new data center tax incentive agreements effective July 1st until a "comprehensive framework" could be developed with lawmakers and key stakeholders. Similar pushbacks have emerged elsewhere in recent months, including at least 11 states proposed or recently enacted moratoriums on new data center construction.

This growing tension has begun to gain traction in Congress, with members in the U.S. House of Representatives raising the issue during recent committee hearings. At this point, we don’t see enough momentum for comprehensive AI/data center regulation in the current session, especially amidst a packed legislative calendar. That said, a larger shift in the balance of power after the midterm elections could bring federal AI legislation back into focus by 2027, along with the groundswell on the state and local levels.

Separately, the Trump Administration is advancing AI adoption and integration across government systems. President Trump recently signed an executive order aimed at expanding agency cybersecurity capabilities and establishing an AI clearinghouse, which would grant the government access to frontier AI models prior to public release. The order directs companies to participate in a benchmarking process designed to evaluate a model’s “advanced cyber capabilities” and determine whether it qualifies as a “covered frontier model.” It then requests access to those models up to 30 days prior to public release and authorizes federal agencies to help designate the “trusted partners” that will receive early access.

CLARITY Act

The CLARITY Act would establish a regulatory framework for the cryptocurrency and digital asset industry. The bill advanced out of the Senate Banking Committee in mid-May, and lawmakers are now working to reconcile differences between the Banking and Agriculture Committees’ respective versions. If those committees can resolve key differences, including Bank Secrecy Act/ Anti-Money Laundering (BSA/AML) parity for decentralized finance, floor consideration is expected by mid-July. In the meantime, the banking industry continues to lobby to close a stablecoin loophole that allows for bank-like interest payments, which could undermine deposit gathering and local lending. Additional concerns, including ethics standards for public officials and law enforcement concerns, also threaten the bill’s progression.

Market participants are closely monitoring these developments, as the outcome could significantly reshape the competitive landscape between traditional financial institutions and digital asset firms. Regulatory clarity is also seen as a potential catalyst for increased institutional adoption of cryptocurrencies and related technologies. However, prolonged uncertainty or contentious revisions could delay investment decisions and innovation within the broader digital asset ecosystem.

Housing

The House recently passed a bipartisan affordable housing package aimed at lowering costs by increasing supply and encouraging development. Lawmakers must now reconcile it with a companion bill in the Senate. A key point of contention is the scope of a proposed ban on institutional investors purchasing single-family homes. The House removed a provision that would have required investors to sell build-to-rent homes to individual buyers after seven years, thereby avoiding forced sales of Low-Income Housing Tax Credit (LIHTC) properties, which carry 15- to 30-year rental commitments. The bill also would allow regulators to raise the aggregate investment limit for national banks and state member banks from 15% to 20% for public-welfare investments.

Supporters argue that the legislation strikes a balance between boosting housing supply and preserving long-term affordability commitments. Critics, however, contend that limiting institutional participation could reduce capital available for large-scale development projects. The outcome of bicameral negotiations could shape the trajectory of federal housing policy and private-sector investment in the years ahead.

Funding finally passed ending Homeland Security standoff

This week, the House narrowly voted – by a margin of 214 to 212 – to direct roughly $70 billion to the Department of Homeland Security for Immigration and Customs Enforcement and Border Patrol. President Trump signed the bill, which marked the end of a 115-day standoff over immigration policy.

Midterms/Redistricting

On April 29th, the U.S. Supreme Court’s ruling in Louisiana v. Callais significantly reshaped the legal framework governing redistricting. The Court concluded that states cannot rely on race as the predominant factor in drawing congressional districts unless there is clear evidence of intentional discrimination, thereby narrowing the scope of Section 2 of the Voting Rights Act and making race-based remedies far more difficult to defend in court.

This decision has prompted states to pursue mid-decade redistricting. At least ten states have enacted or are actively implementing new congressional maps since 2025, with several accelerating their efforts after Callais. Additionally, the May-June 2026 primaries suggest a comparatively more competitive electoral environment. Voters in both parties are increasingly rewarding ideological alignment over seniority, and turnout has been higher than typical levels in key states.

Bottom line

Data centers have shifted from prized assets to political flashpoints as state and local opposition grows over resource use, infrastructure strain, and rising costs. At the same time, the Trump Administration is accelerating AI adoption, underscoring tension between rapid expansion and resistance to its resource demands, though new federal regulations remain unlikely until after midterm elections. Meanwhile, Congress faces a crowded agenda ahead of the August recess, with progress on housing and crypto legislation—including the CLARITY Act—tempered by competing priorities and ongoing regulatory disputes.