The Senate Is One Step Closer To Passing a 10-Year Moratorium on State AI Regulation

For the past several years, states have been trying to regulate the burgeoning artificial intelligence (AI) industry. Out of the 635 AI-related bills considered in 2024, nearly 100 were signed into law, and 1,000 more bills have been proposed this year. A federal law that would prevent the proliferation of reactionary local AI regulation passed a key hurdle toward its potential implementation on Saturday.

The U.S. Senate Committee on Commerce, Science, and Transportation released its budget reconciliation text on June 5, which includes the language imposing a moratorium on state AI legislation. The Senate parliamentarian, the nonpartisan official in charge of interpreting Senate rules, decided on Saturday that the moratorium does not violate the Byrd rule, which blocks all non-budgetary matters from inclusion in reconciliation bills, and may be passed by a simple majority via the budget reconciliation process.

The section conditions the receipt of federal funding from the Broadband Equity, Access, and Deployment (BEAD) program on compliance with a 10-year pause on local AI regulation. Reason’s Joe Lancaster explains that BEAD “authorized more than $42 billion in grants, to ‘connect everyone in America to reliable, affordable high-speed internet by the end of the decade.’” BEAD was part of the Infrastructure Investment and Jobs Act, which was signed into law in November 2021. By June 2024, BEAD had “not connected even 1 person with those funds,” said Brendan Carr, chair (then-commissioner) of the Federal Communications Commission. In March, President Donald Trump paused the program.

On June 6, the National Telecommunications and Information Administration, the bureau inside the Commerce Department responsible for reviewing applications for and dispersing BEAD funding, issued a policy notice that voided all previously approved final proposals. No BEAD funding has yet been disbursed.

The moratorium does not directly preempt local AI regulation but forbids states from enforcing “any law or regulation…limiting, restricting, or otherwise regulating artificial intelligence… entered into interstate commerce” for 10 years following the enactment of the One Big Beautiful Bill Act. The committee described the provision as preventing states from “strangling AI deployment with EU-style regulation.”

Some states have already passed stringent AI legislation, including New York’s Responsible AI Safety and Education (RAISE) Act and Colorado’s Consumer Protections for Artificial Intelligence. These laws are “prime examples of costly mandates that could be covered by the moratorium,” says Adam Thierer, senior fellow for the Technology and Innovation team at the R Street Institute. Moreover, in the absence of the moratorium, Thierer says “a parochial patchwork of rules will burden innovation, investment, and competition in robust nationwide AI systems.” Thierer prefers outright federal preemption over the current proposal, but is hopeful that state lawmakers will think twice about imposing costly AI mandates when they stand to lose federal grants for doing so.

Neil Chilson, head of AI for the Abundance Institute, says withholding billions of dollars of BEAD funding encourages non-enforcement of poorly designed and heavy-handed state laws, especially those that “self-identify as AI ‘anti-bias’ regulations.” California’s Privacy Protection Agency’s (CPPA) proposed AI regulation, which requires businesses to allow users to opt out of automated decision-making technology, is one such law. Chilson and Taylor Barkley, the Abundance Institute’s director of public policy, report that, by the CPPA’s own estimates, the regulation “will impose $3.5 billion of compliance costs in the first year, with average annual costs around $1 billion [and] will trigger job losses peaking at roughly 126,000 positions by 2030.”

Some groups, including the Center for Democracy and Technology, have raised concerns that the moratorium “could prevent states from enforcing even basic consumer protection and anti-fraud laws if they involve an AI system.” Will Rinehart, senior fellow at the American Enterprise Institute, explains that “privacy laws, consumer protection rules, and fraud statutes still apply to AI companies” and that the moratorium will not prevent states from using these laws to address AI issues.

Even though the Senate parliamentarian has ruled that the AI moratorium section may be included in the reconciliation bill, the provision is controversial enough that the Senate may remove it altogether. If it does, a patchwork of state and local regulations will slow the development of American AI by imposing billions of dollars of regulatory costs on the industry.

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