Governor's Gambit

Good morning from Buffalo, New York.

Last week, Governor Kathy Hochul took a decisive turn, signing an Executive Order to enact the nation’s first state-level moratorium on hyperscale data centers, citing concerns about the environmental and fiscal impacts on local communities. Hochul explained, “New York has always been at the forefront of innovation and change, but we’ve also always guaranteed that New Yorkers benefit. 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. New York will lead the way in creating the strongest standards in the nation for data center development, ensuring that when companies succeed because of New York, New Yorkers succeed too.”

The moratorium took immediate effect, stopping the NYS Department of Environmental Conservation (DEC) from issuing new permits for data centers with a peak load of 50 MW or more. The moratorium will remain in place until the NYS Department of Public Service (DPS) completes a Generic Environmental Impact Statement (GEIS) to establish a set of consistent standards for future data center construction.

The EO further directs Empire State Development (ESD) to develop a Community Investment Framework to guide municipalities on potential public benefits to be negotiated with data center developers and operators. DPS is also directed to evaluate a Grid Acceleration Fund—paid into by data centers—to ensure the costs associated with grid improvements are not being passed on to other ratepayers. 

Hochul’s Executive Order is intended to represent a middle ground in comparison to the Responsible Data Center Development Act, passed by the Legislature earlier this year, which would require data centers to establish their own power generation and create a new service classification for data centers. Still, many industry stakeholders fear this is the opening salvo in a growing national movement to placate voters skeptical of the benefits of data centers, or simply to fuel the inflamed debate courtesy of Russia and China.

Caleb Max, CEO of the National Artificial Intelligence Association, offered, “I think we’re just kind of at the cusp of probably dozens [of states], if I have to be honest. If the industry doesn’t wake up quick and start solving this, it’s going to get a lot worse.” Hochul’s EO has further united business groups—many of whom are invested in ongoing data center construction and others who see the decision as further eroding New York’s business climate—and labor groups, who recognize the construction of data centers as one of the biggest drivers of construction jobs in New York State.

Other warning signs for New York’s business and economic climate were raised in a report from New York State Comptroller Tom DiNapoli that offered further proof of what many residents are feeling anecdotally: the accelerating flight of taxpayers from New York. The OSC report demonstrates that the pandemic-era lockdowns had a drastic effect on New York’s outmigration, with 112,458 tax filers—roughly one in every 100 resident taxpayers—leaving the state in 2020 alone. Between 2021 and 2024, another 95,679 net taxpayers left New York. According to the report, “The greatest net loss of taxpayers was among married filers with incomes between $100,000 and $500,000—a net loss of 8,200, or more than half of the total net out-migration, in 2024.”

DiNapoli pointed to “one positive post-pandemic trend:” an influx of single tax filers, including many of the young progressives who helped propel Zohran Mamdani to victory and who supported many of his socialist allies in competitive congressional primaries last month. Hochul conceded that there is work to do to reverse the trend, but pointed to extraneous factors and federal actions that exacerbated the problem. On Fox 5's "Good Day New York,” Hochul offered, “Back then, a big driver of people leaving, and you could draw a through line from when the Donald Trump administration and Congress got rid of the State and Local Tax Deduction. All of a sudden, everybody in New York paid higher taxes because, since Abraham Lincoln was president and they started the tax code, you never were double taxed.” 

In similar news, the Citizens Budget Commission (CBC) unveiled an insightful dashboard with data on New York’s population loss and the subsequent impact on economic activity. The dashboard shows that New York lost more millionaires than any other state from 2010 to 2022, and every other state has gained more residents from New York than it lost to New York. It also found that despite mediocre test scores, New York spends more per-student on public education than any other state. Andrew Rein, the president of the CBC, said, “When you see the population shrink, we lose power in Washington. But what you also need to see—and this is where the Value Proposition Tracker shines that light—is how many people left, where they went, and how much money they're earning somewhere else instead of here.” There are a few silver linings in the data, including that New York attracts more college freshman every year than it loses, and identifies a “growth corridor” with positive economic trends that extends from New York City and Long Island up to the Capital Region. These are both important trends to watch.

In case you missed it, the New York City Council officially voted to give themselves an 18% raise. We covered the practical and political considerations in-depth in last week’s Monday Morning Memo.  

In political news, campaign finance reports filed last week with the state Board of Elections provided new insight into the finances of the Hochul and Blakeman campaigns as November’s election draws closer. Hochul remains on strong footing with $21 million on hand, and another $22 million in the coffers of the New York Democratic Party. Those accounts were bolstered by a $1.5 million donation from the Greater New York Hospital Association, as well as six-figure donations from Airbnb, Doordash, Coinbase, and the New York Apartment Association. Blakeman’s report was quite underwhelming; one campaign official told reporters that the Nassau County Executive had raised $11 million… however, the actual report shows only $4.1 million on hand. Certainly not enough to run a competitive statewide campaign. The campaign indicated that they intend to file an amended report to reflect public matching funds, but no amendment has been filed yet... stay tuned.

For everyone who thinks their vote does not matter, this week offered further evidence that every vote counts: two state Assembly races were decided in very close recounts. David Siffert, a lawyer and progressive activist, declared victory over Jeannine Kiely in the race to replace retiring Assembly Member Deborah Glick in lower Manhattan’s Assembly District 66. The recount found Siffert won by a mere 15 votes out of the 17,000 votes cast in the June Primary. Patrick Martinez, the pick of the Queens Democratic establishment, declared victory over Mamdani ally and former New York City Police Detective Shamsul Haque after the recount found him victorious by an even closer margin of 7 votes out of the 6,000 ballots cast in June. 

More contentiously, the Department of Homeland Security and ICE are turning their attention to the Empire State, prompting Hochul to send a letter to Homeland Security Secretary Markwayne Mullin seeking an explanation for the increased enforcement actions in New York. In the letter, Hochul wrote, “Over the past several weeks, New Yorkers have learned about three separate federal immigration detention projects planned for our state. But they didn’t hear about them from your administration. They learned from press reports and procurement records uncovered after the fact. You have repeatedly promised to coordinate with local communities. That’s not what’s happening.” The letter was in response to media reports that ICE has signed a lease for a warehouse in Newburgh, will be expanding its 650-bed Buffalo detention facility, and is adding immigration detention cells to a federal office building. Border Czar Tom Homan has made no secret of his desire to ramp up immigration enforcement in New York, though ICE declined to get into the specifics of their enforcement efforts, saying in a statement, “ICE will not confirm office locations as our officers are facing a coordinated campaign of violence against them, including an 8,000% increase in death threats against them and a 1,300% increase in assaults against them.” 

Another area where Washington and Albany are at odds is the future of an expanded Medicaid program, known as the New York Health Equity Reform initiative. New York is seeking a five-year extension of the $7.5 billion initiative that provides health-related wraparound services for Medicaid recipients and proposes rolling over unspent federal dollars rather than seeking additional funding. The current waiver is set to expire on March 31, 2027, but New York has to slog through an extended public comment period before submitting a final application to the federal government. The decision could have major implications for New York’s fiscal health given that Medicaid spending is a huge part of the state’s annual budget. A recent report from Comptroller Tom DiNapoli raised concerns about the long-term fiscal sustainability of New York’s budget, highlighting Medicaid spending, which now accounts for 26.5% of State Operating Funds (SOF), as a major driver of instability. We will be watching this closely through next year’s budget process. 

 -Jack O’Donnell

The only thing better than a summer BBQ? Pairing it with great conversations. OD&A was proud to join Assemblyman Bill Conrad at his End-of-Session Summer Picnic, a fundraiser for his reelection campaign. Thank you for bringing everyone together for an evening of great food, great company, and community!