The AI moratorium—more deobligation issues
Earlier this week, LawAI published a brief commentary discussing how to interpret the provisions in the proposed federal moratorium on state laws regulating AI relating to deobligation of Broadband Equity, Access, and Deployment (BEAD) funds. Since that publication, the text of the proposed moratorium has been updated, apparently in order to comply with a request from the Senate parliamentarian. Given the importance of this issue, and the existence of some amount of confusion around what exactly the changes to the moratorium’s text do, we’ve decided to publish a sequel to that earlier commentary briefly explaining how this new version of the bill will impact existing BEAD funding.
Does the latest version of the moratorium affect existing BEAD funding or only the new $500 million?
The moratorium would still, potentially, affect both existing and newly appropriated BEAD funding.
Essentially, there are two tranches of money at issue here: $500 million in new BEAD funding that the reconciliation bill would appropriate, and the $42.45 billion in existing BEAD funding that has already been obligated to states (but none of which has actually been spent as of the writing of this commentary). The previous version of the moratorium, as we noted in our earlier commentary, contained a deobligation provision that would have allowed deobligation (i.e., clawing-back) of a state’s entire portion of the $42.45 billion tranch as well as the same state’s portion of the new $500 million tranch.
The new version of the moratorium would update that deobligation provision by adding the words “if obligated any funds made available under subsection (b)(5)(A)” to the beginning of 47 U.S.C. § 1702(g)(3)(B)(iii). The provision now reads, in relevant part, “The Assistant Secretary… may, in addition to other authority under applicable law, deobligate grant funds awarded to an eligible entity that… if obligated any funds made available under subsection (b)(5)(A), is not in compliance with [the AI moratorium].”
In other words, the update clarifies that only states that accept a portion of the new $500 million in BEAD funding can have their BEAD funding clawed back if they attempt to enforce state laws regulating AI. But it does not change the fact that any state that does accept a portion of the $500 million, and then violates the moratorium (intentionally or otherwise), is subject to having all of its BEAD funding clawed back—including its portion of the $42.45 billion tranch of existing BEAD funding. Paragraph (3) covers “deobligation of awards” generally, and the phrase “grant funds awarded to an eligible entity” clearly means all grant funds awarded to that entity, rather than just funds made available under subsection (b)(5)(A) (i.e., the new $500 million). This is clear because subsections (g)(3)(B)(i) and (g)(3)(B)(ii), which allow deobligation if a state e.g. “demonstrates an insufficient level of performance, or wasteful or fraudulent spending,” clearly allow for deobligation of all of a state’s BEAD funding rather than just the new $500 million tranch.
So what has changed?
The most significant consequence of the update to the deobligation provision is that any state that does not accept any of the new $500 million appropriation is now clearly not subject to having existing BEAD funds clawed back for noncompliance with the moratorium. As we noted in our previous commentary, the previous text would have required compliance with the moratorium if Commerce deobligated existing BEAD funds for e.g. “wasteful or fraudulent spending” and then re-obligated them. That would not be possible under the new text.
In other words, states would clearly be able to opt out of compliance with the moratorium by choosing not to accept their share of the newly appropriated BEAD money. As other authors have noted, this would mean that wealthy states with a strong appetite for AI regulation, like New York and California, could pass on the new funding and continue to enact and enforce AI laws while less wealthy and more rural states might accept the additional BEAD funding in exchange for ceasing to regulate. And if technological progress and the emergence of new risks from AI caused any states that originally accepted their share of the $500 million to later change course and begin to regulate, they could potentially have all of their previously obligated BEAD funding clawed back.