By Brendan Spiegel

Artificial intelligence isn't just helping fuel growth in the Manhattan office leasing market —it's also driving one of the biggest infrastructure booms in the world. As demand for AI explodes, tech companies are racing to build massive data centers across the United States and around the globe. These facilities—known as hyperscale data centers because of their enormous computing capacity and power needs—often require hundreds of millions, or even billions, of dollars in construction spending, creating months or even years of work for contractors, tradespeople and suppliers.

On July 14, however, New York became the first state in the nation to temporarily hit the brakes. Gov. Kathy Hochul signed an executive order pausing certain state environmental permits for new or expanded hyperscale data centers capable of consuming 50 megawatts of electricity or more while the state develops a new regulatory framework. 

The order comes as developers are proposing dozens of large data center projects across New York.

For New York's construction industry, the announcement immediately raised an important question: Could some of those projects—and the construction jobs they create—end up in neighboring states instead?

The executive order comes amid growing concern that AI infrastructure is expanding faster than New York's regulations.

Hyperscale data centers can consume extraordinary amounts of electricity while requiring major investments in substations, transmission lines and other grid infrastructure. They also use significant amounts of water for cooling and have prompted concerns from environmental organizations, consumer advocates and some local communities about land use, environmental impacts and whether utility customers could ultimately bear the cost of supporting private AI development.

In East Fishkill, for example, local officials recently approved a three-year moratorium on large-scale data centers following public opposition to a potential 1-gigawatt project. The town is creating a task force to study the zoning, infrastructure and environmental issues associated with future proposals. Similar debates have played out elsewhere as companies search for sites capable of supporting enormous electricity demands.

The Hochul administration says the one-year pause will give state agencies time to develop a comprehensive framework governing future projects, including recommendations on energy capacity, environmental review, community benefits and labor standards. The executive order also directs Empire State Development to create a Community Investment Framework that prioritizes prevailing-wage standards, project labor agreements, local hiring, apprenticeships and workforce development. Supporters argue those safeguards are necessary to ensure AI development doesn't outpace New York's electrical grid or shift infrastructure costs onto ratepayers.

Those in the construction industry who are concerned about the moratorium don't necessarily disagree that data centers need thoughtful oversight. Their concern is that New York may lose valuable time in one of the fastest-moving industries in the world.

Major AI companies are making investment decisions now, and developers often compare multiple states before selecting a site. Critics argue that even a one-year pause could encourage companies to build elsewhere rather than wait for New York's regulatory process to play out.

Carlo A. Scissura, president and CEO of the New York Building Congress, told 6sqft that he believes the issue requires targeted regulation rather than a statewide pause, arguing that New York can address concerns without putting itself at a competitive disadvantage. He warned of the potential consequences for the construction industry: "And then there are the jobs—tens of thousands of them. When projects go to other states, the work goes with them, and so, often, do the workers."

New York isn't the only Northeastern state grappling with the rapid growth of AI infrastructure. But while many states are weighing energy demand, environmental impacts and community concerns, they're each taking different approaches.

Those differing approaches reflect each state's priorities. Announcing New Jersey's data center framework in May, Gov. Mikie Sherrill said the state was seeking to "hold data centers accountable" while also "positioning New Jersey to lead in AI innovation."

In Pennsylvania, Gov. Josh Shapiro has similarly argued that the Commonwealth should compete aggressively for AI investment while requiring developers seeking state support to meet standards related to energy affordability, workforce development, community benefits and environmental protection. "If companies want the Commonwealth's full support," Shapiro said when announcing the state's GRID standards, "they must meet strong standards."

By contrast, the Hochul administration has paused certain state environmental permits for qualifying hyperscale projects while New York develops its own statewide regulatory framework.

AI is expected to drive billions of dollars in construction spending over the coming decade, and neighboring states are actively competing to capture that investment. If New York's pause stretches beyond its intended timeline—or developers conclude the regulatory path is too uncertain—some projects could migrate elsewhere.

At the same time, few observers argue that hyperscale data centers should be built without oversight. Instead, the debate has centered on how New York should regulate them—and how quickly the state can establish a framework that addresses concerns about energy demand, grid capacity and community impacts while providing developers with a predictable path forward.

Whether New York can strike that balance may determine whether it remains competitive in one of the fastest-growing sectors of the construction economy—or whether more of that investment, and the construction jobs that come with it, flows elsewhere.