By Daniel Okafor
ALBANY — Gov. Kathy Hochul’s budget office has told state agencies to hold next year’s spending requests flat. In the same letter, it named a risk that leads back to the governor’s own desk: the growing pushback against artificial intelligence data centers, including the statewide pause she ordered in July.
Budget Director Blake G. Washington’s call letter for the 2028 fiscal year, which opens the annual budget process, credits the stock market, and the AI spending behind it, for New York’s run of strong tax collections. It then warns that the run may not last.
“Tax receipts have been buoyed by stock market updrafts, fueled in large part by the artificial intelligence (AI) investment cycle,” Washington wrote to agency commissioners. “But the extent to which this continues is uncertain: as states and local governments continue to examine the environmental, social and economic concerns around the buildout of AI infrastructure, a slowdown of the investment may lead to a cooling of the equities market with an outsized impact on New York State’s receipts.”
The letter, first reported by Spectrum News and republished in full by the New York County Dental Society, tells agencies that their requests “should not exceed the total SFY 2027 Enacted Budget agency funding levels, excluding one-time investments.” The requests are due Wednesday, Oct. 28.
The money is real, for now
The warning comes as the state is collecting far more than it planned. State tax receipts reached $68.5 billion through September, $7.3 billion above the Division of the Budget’s projections, according to the comptroller’s monthly cash report. Business taxes ran $4.1 billion ahead of plan, and personal income tax ran $2.5 billion ahead.
“Higher state tax collections, particularly personal income and business tax receipts, are partially a result of financial market growth,” Comptroller Thomas P. DiNapoli said. “As noted in my recent report, Wall Street profits have increased significantly in the first half of the year. However, consumer costs keep rising and many families are still struggling. While strong financial market growth bodes well for some, we must ensure the economy works for all New Yorkers.”
Spending is climbing too. All Funds spending through September was $130.1 billion, up 8.5 percent from a year earlier, mostly because of higher Medicaid costs, the comptroller reported.
Albany is one of the governments taking a second look
The letter does not say which governments it has in mind. New York’s own executive branch is near the top of the list.
On July 14, Hochul signed Executive Order 62, which pauses state environmental permits for large new data centers while the Department of Public Service prepares a statewide environmental impact statement. Her office said the review would take up to a year. She also said she would seek legislation to repeal sales tax exemptions for large data centers.
“As data center development threatens to hike up utility bills, deplete our natural resources, and create uncertainty for New Yorkers, it’s my responsibility to take action and lead,” Hochul said when she signed the order.
Western New York has one of the state’s biggest tests. At the STAMP industrial park in the Genesee County town of Alabama, Stream U.S. Data Centers wants to build a 2.2 million-square-foot data center beside the Tonawanda Seneca Nation’s territory. The Genesee County Economic Development Center has weighed $1.46 billion in tax breaks for the project, mostly state and local sales tax abatements on equipment, Investigative Post reported. The Nation, the Sierra Club and a town resident are suing in state Supreme Court to undo the zoning deal behind the site, as The Buffalo Chronicle reported Thursday.
No single project in Genesee County is going to move the Nasdaq. Washington’s letter, though, describes a feedback loop. Local and state skepticism slows the AI buildout, investors pull back, and the capital gains and Wall Street bonuses that drive New York’s income tax cool off. In this case, part of that skepticism is state policy.
What a flat budget means
Flat agency requests are a familiar opening move in Albany, and they cover only agency operations. They don’t cover school aid, Medicaid or the local aid that Buffalo and Erie County depend on, all of which are settled later in the governor’s January proposal and in negotiations with the Legislature.
The call letter points to both pressures at once. It says federal actions “have placed additional financial pressures on New York State and local governments, especially in the areas of health and human services.” It also says that because this year’s budget “delivered for the state workforce,” “agency hiring and contractual spending processes must be monitored to address resulting spending growth.”
State Sen. George Borrello, a Chautauqua County Republican on the Senate Finance Committee, told Spectrum News the warning shows Albany leans too hard on Wall Street. “We rely too heavily on the market. And when that happens, people here in Western New York may see a cut in their services. They may see an increase in taxes,” Borrello said.
The governor will present her 2028 executive budget in January, after November’s election.
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