The Big Story: State AI laws spark specter of burdensome patchwork
This week, Colorado became the first state to pass sweeping legislation regulating the use of artificial intelligence, raising fears for startups who may soon need to navigate an uneven AI legal landscape. If signed by the Governor, the law would impact AI systems in key sectors like finance, healthcare and employment, creating new obligations for both developers and deployers. The Colorado bill was developed as part of a multistate working group on AI, and substantively similar legislation in Connecticut failed to move forward after the Governor there said he would veto it over its likely negative impact on innovation. The Colorado bill could be a starting gun for a patchwork of AI laws, much like the problematic privacy patchwork that burdens startups with duplicate costs.
Startups are developing and deploying AI solutions across nearly every sector of the economy, including finance, healthcare, education, and employment—areas that are often considered “high-risk” by many legislative proposals including the passed Colorado bill. The Colorado bill contains a few exemptions from some requirements for certain types of small businesses, but startups will likely need to grapple with many of the same requirements as well-funded industry leaders and incumbents. Moreover, if startups need to create different but substantively similar documentation for various states it will generate marginal, but meaningful costs that additionally weigh on their competitiveness.
The Colorado bill now heads to Governor Jared Polis (D), who has not said whether he plans to sign it. Should he sign the bill, policymakers should use its included task force process to mitigate the negative impacts of the law on startups ahead of its 2026 implementation date. Meanwhile, Congress should act to create a national set of rules that bolster AI innovation, ensure the competitiveness of startups, and avoid a costly patchwork of state laws like this Colorado bill and those that continue to advance in other states.
Policy Roundup:
Senate clears must-pass aviation legislation without unrelated amendments. The Senate Thursday night passed legislation reauthorizing the Federal Aviation Administration ahead of the Friday deadline. Several Senators had looked to add non-germane amendments impacting the tech sector, like the Kids Online Safety Act and the Children and Teens’ Online Privacy Protection Act, to the “must-pass” legislation (making that legislation “must-pass” by association). Those well-intentioned bills remain problematic for startups because they would require age verification in practice and would undermine the competitiveness of startups. Senators will likely look to add the legislation to other upcoming “must-pass” legislation, like the National Defense Authorization Act, later this year.
Biden signs law to address child sex abuse online, extend law enforcement timeline. President Biden signed the Revising Existing Procedures On Reporting via Technology (REPORT) Act into law on Tuesday, updating how reports of child sex abuse material (CSAM) are made to the National Center for Missing and Exploited Children and extending the time that law enforcement has to investigate reports of child exploitation online from 90 days to one year. Those provisions aim to address the troubling statistic that fewer than one percent of reports of CSAM are currently investigated. The REPORT Act marks a step forward to ensure that criminals exploiting Internet services to harm children are held accountable.
Senate committee condemns discrimination against minority businesses programs. This week, the Senate Committee on Small Business and Entrepreneurship held a hearing focused on the need for critical federal equity programs, like the Small Business Administration’s 8(a) Business Development Program and the Minority Business Development Agency (MBDA). The committee illustrated the role these programs play in addressing racial discrimination in federal contracting and the challenges posed by “coordinated legal attack[s] against public and private programs [that] aim to uplift minority small business owners.” Underrepresented founders have historically faced barriers in accessing federal resources and opportunities, including government contracts, and programs that support underrepresented founders are critical so all founders can pursue entrepreneurship.
Data security hearing highlights role of uniform national data privacy law. This week, a Senate subcommittee hearing on data security explored the role of a federal privacy law in enhancing cybersecurity and consumer privacy. Multiple witnesses and a bipartisan collection of lawmakers underscored the importance of a uniform national privacy framework for both consumers and businesses alike—especially small businesses like startups. A recently released draft bipartisan bill, the American Privacy Rights Act, would create such a national standard smoothing the current patchwork of state laws, but State Attorneys General this week expressed their opposition to the bill preempting their laws, dimming its prospects. The bill is expected to be marked up in a House subcommittee later this month, and we encourage lawmakers to address several provisions in order to avoid crushing burdens for startups.
Senate Judiciary Committee calls for citizenship pathway for Dreamers. On Wednesday, the Senate Judiciary Committee held a hearing underscoring the need for a pathway to citizenship for Dreamers and emphasizing their contributions to the U.S. economy, including as small business owners. Dreamers are valuable participants in the startup ecosystem, driving innovation as both founders and startup employees. Engine has long championed the importance of high-skilled immigration reform, advocating for policies that welcome and retain talented founders and critical STEM employees. As the DACA program continues its likely path toward the Supreme Court, it is essential that policymakers act so Dreamers can remain in the U.S.—the only country many of them know—with certainty.
Startup Roundup:
#StartupsEverywhere: Las Vegas, Nevada. David Knight is a seasoned veteran of the startup world and has seen multiple companies through to success. He started Terbine to disrupt the electric vehicle charging space, and we spoke with him about the best startup ecosystems to live in, what it means to startups to have government support, and how policymakers can support STEM education.
