New York Governor Kathy Hochul has withdrawn a proposal that would have allowed commercial robotaxi services to operate outside New York City, dealing a setback to Alphabet Inc.’s Waymo as it pushes to expand its driverless fleet across the U.S., Bloomberg reports.

The measure had been included in Hochul’s executive budget proposal and would have allowed autonomous vehicle companies to apply for permits to operate without a human driver behind the wheel.

Current state law requires a licensed driver to keep at least one hand on the steering wheel, effectively limiting fully driverless commercial service in New York City and elsewhere in the state.

However, under current NYC plans, autonomous vehicle testing is already underway.

City regulators have granted Waymo a permit to operate up to eight autonomous vehicles in Manhattan and Downtown Brooklyn with human safety drivers behind the wheel as part of a pilot program — the first time robotaxis have been permitted on city streets.

This testing allows Waymo to collect data and refine its systems but does not allow commercial, paid robotaxi service — and any broader commercial launch would require separate licenses from the New York City Taxi and Limousine Commission and changes to state law.

The governor’s office said the proposal was pulled after it became clear it lacked sufficient backing in Albany.

“Based on conversations with stakeholders, including in the legislature, it was clear that the support was not there to advance this proposal,” spokesperson Sean Butler said.

The retreat followed opposition from labor groups representing taxi and rideshare drivers, who argued that allowing robotaxis to operate commercially would threaten jobs and raise safety concerns.

Bhairavi Desai, executive director of the New York Taxi Workers Alliance, which represents more than 20,000 drivers, said job losses upstate would inevitably spill into the city’s market.

“If job loss matters in New York City, it also matters for other drivers in the state,” Desai said. “There may be regulatory boundaries, but there is no practical boundary in this industry.”

Waymo said it was disappointed by the decision but intends to continue pressing the issue.

“We’re committed to bringing our service to New York and will work with the state legislature to advance this issue,” a company spokesperson said.

Waymo Co-Chief Executive Officer Tekedra Mawakana said recently that even expansion outside New York City would have allowed the company to “grow more fans,” noting that thousands of New Yorkers who have used the service elsewhere have called for it at home.

Although the original proposal excluded New York City, expansion elsewhere in the state would have marked a significant step toward entering one of the world’s largest ride-hailing markets.

Waymo has said it plans to expand to more than 20 cities this year and aims to surpass one million paid weekly rides in the U.S.