New York state’s rosy mid-2026 economic picture could come crashing down if a potential AI-fueled market bubble bursts, Gov. Kathy Hochul’s Budget Director Blake Washington warned recently.

Washington, in a letter to state agency heads last week, sounded the alarm that New York’s tax receipts could take a hit if this year’s bull markets give way following rapid investment into artificial intelligence.

“Current economic data paints a positive picture, with New York’s economy growing faster than any other state in the nation,” Washington wrote in the letter, sent annually to direct department bosses to craft balanced budget presentations for the upcoming fiscal year.

“Tax receipts have been buoyed by stock market updrafts, fueled in large part by the artificial intelligence (AI) investment cycle. But the extent to which this continues is uncertain,” he wrote.

“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,” Washington said.

The remarks appear to run counter to Hochul’s one-year moratorium on new data centers in New York as she and Democrats paint AI firms as bogeymen ahead of next month’s midterm elections.

“You want to see data centers everywhere. You want smoke stacks everywhere. I’ve seen that world. We don’t want to go back,” Hochul swiped at her GOP opponent, Bruce Blakeman, during a fierce debate last week.

While the rapid takeoff of artificial intelligence has fueled investment in the new tech, leading to robust growth, concern that investment may slow, or even lead to a more dramatic bursting bubble, could have serious consequences on next year’s state budget, which is increasingly dependent on Wall Street’s success.

New York’s sprawling $277 billion state budget has continued to balloon under Hochul in recent years as Wall Street has mostly performed well post-pandemic.

Bonuses for Wall Street and insurance sector big wigs alone accounted for over $26 billion of tax revenue for the state in 2026, according to the state comptroller’s office.