Arkansas lawmakers address crypto mining nuisances in fiscal session

By Lindsey French
AAC Legal Counsel

When the Arkansas General Assembly met for the 2024 Fiscal Session, which is typically reserved for matters solely related to the state’s fiscal budgeting, lawmakers had another hot topic on their minds – crypto mining facilities in Arkansas. Act 851 of 2023, known as the Data Centers Act of 2023, effective Aug. 1, 2023, effectively tied the hands of local governments to restrict the activities of data mining centers, commonly known as “crypto mining” facilities. The four-page bill passed late in the 2023 General Session, and some lawmakers now say they were not fully aware of some potential consequences of the Act.

Specifically, Act 851 created Arkansas Code § 14-1-505 entitled “Discrimination against digital asset mining business prohibited.” The section prohibited a local government from adopting an ordinance or policy that limits the sound decibels of these facilities, imposing different requirements on these facilities than are applied to other data centers, or rezoning an area to discriminate against a crypto mining facility. Shortly after the act’s passage, crypto mining facilities began to pop up around Arkansas and became noise nuisances to residential neighbors. Citizens also were concerned about the effect of the facilities’ water waste on local bodies of water as well as their disproportionate usage of power from the electric grid.

County judges and quorum court members quickly became overwhelmed with constituent complaints about the crypto mining facilities, and elected officials began to investigate how they could address their concerns. With a looming effective date of Aug. 1, 2023, 51 counties quickly passed ordinances to reasonably regulate the excessive noise produced by these facilities. However, it quickly became apparent that the restrictions placed on local government to regulate the facilities coupled with the lack of state regulation over them was quickly resulting in several of these facilities being built and operated by bad actors with no thought or care as to how residents were being affected. Likewise, state legislators saw the need to address these issues sooner rather than later, and the April 2024 Fiscal Session gave them a unique opportunity to do so. Resolutions were passed in the Arkansas Senate to take up a series of non-fiscal-related bills by a two-thirds vote, and as a result, two acts were passed to address crypto mining facilities in Arkansas.

Act 173 of 2024, passed nearly unanimously by the Arkansas General Assembly with an emergency clause, repealed the prohibition on local governments from restricting the noise output and other zoning matters related to crypto mining facilities. Additionally, it implemented requirements into state law that crypto mining facilities must follow, including noise-abatement by liquid or submerged cooling, fully enclosed facilities, or upon local government approval, a location of at least 2,000 feet from the nearest residential or commercial structure or that is in an area zoned for industrial use. The act forbids local governments from prohibiting or requiring permission for a resident to engage in personal home digital asset mining. Finally, it forbids prohibited foreign parties as defined in the act from owning any interest in a digital asset mining facility in the state and provides that the Arkansas Attorney General may investigate and commence action upon any prohibited foreign party who does not divest by May 3, 2025.

Act 174 of 2024 passed by a nearly identical margin to Act 173 with overwhelming legislative support. Act 174 reiterates portions of Act 173, including repealing the ban on local governments from otherwise lawfully regulating crypto mining facilities, banning prohibited foreign party ownership of crypto facilities, giving those foreign parties one year to divest their interest, and giving the Attorney General the authority to investigate and commence action against prohibited foreign party noncompliance. It also creates a mandatory permitting process for crypto mining businesses wishing to operate in Arkansas by applying with the Arkansas Oil and Gas Commission. The Commission shall promulgate rules and have jurisdiction to enforce the rules and laws as well. Citizens may file complaints with the Commission and initiate an investigation into any businesses accused of noncompliance. Existing crypto mining facilities have 90 days from the effective date of the initial rules promulgated by the Commission to apply for a permit to operate each of their businesses.

As a result of the passage of these two acts, local governments now have the flexibility and home rule contemplated by the Arkansas constitution when dealing with crypto mining facilities. While the vast majority of counties do not enact zoning regulations, they are free to do so in accordance with the laws as it applies to crypto mining facilities. Additionally, municipalities are free to enact and enforce zoning regulations, which is much more common across the state. For local governments that do not exercise zoning regulations, these laws are a solid framework for the state to regulate the nuisances that crypto mining facilities can be if not operated responsibly. This legislation was the result of the best form of intergovernmental cooperation — state lawmakers listening not only to their constituents, but also working with the community-minded crypto mining business owners, county and municipal elected officials, and the executive branch to reach a solution that is best for Arkansas.