The AI Moratorium—deobligation issues, BEAD funding, and independent enforcement

There’s been a great deal of discussion in recent weeks about the controversial proposed federal moratorium on state laws regulating AI. The most recent development is that the moratorium has been amended to form a part of the Broadband Equity, Access, and Deployment (BEAD) program. The latest draft of the moratorium, which recently received the go-ahead from the Senate Parliamentarian, appropriates an additional $500 million in BEAD funding, to be obligated to states that comply with the moratorium’s requirement not to enforce laws regulating AI models, systems, or “automated decision systems.” This commentary discusses two pressing legal questions that have been raised about the new moratorium language—whether it affects the previously obligated $42.45 billion in BEAD funding in addition to the $500 million in new funding, and whether private parties will be able to sue to enforce the moratorium.

Does the Moratorium affect existing BEAD funding, or only the new $500M?

One issue that has caused some confusion among commentators and policymakers is precisely how compliance or noncompliance with the moratorium will affect states’ ability to keep and spend the $42.45 billion in BEAD funding that has previously been obligated. 

It is true that subsection (p) specifies that only amounts made available “On and after the date of enactment of this subsection” (in other words, the new $500m appropriation and any future appropriations) depend on compliance with the moratorium. However, the moratorium would also add a new provision to subsection (g), which covers “deobligation of awards.” This new provision states that Commerce may deobligate (i.e. withdraw) “grant funds awarded to an eligible entity that… is not in compliance with subsection (q) or (r).” This deobligation provision clearly and unambiguously applies to all $42.45 billion in previously obligated BEAD funding, in addition to the new $500 million. Subsection (g) amends the existing BEAD deobligation rules, not just the moratorium. And while subsections (p) and (q) affect only states that accept new obligations “on or after the enactment” of the bill, subsection (g) applies to all “grant funds” with no limitation on the funds source or timing.

So, any state that is not in compliance with subsection (q)—which includes any state that accepts any portion of the newly appropriated $500m and is later determined to have violated the moratorium, even unintentionally—could face having all of its previously obligated BEAD funding clawed back by Commerce, rather than just its portion of the new $500 million appropriation.

Additionally, it is possible that even states that choose not to accept any of the new $500 million could be affected, if Commerce deobligates previously obligated funds for reasons such as “an insufficient level of performance, or wasteful or fraudulent spending.” If this occurred, then any re-obligation of the clawed-back funds would require compliance with the moratorium. In other words, Commerce could attempt to use a state’s entire portion of the $42.45 billion BEAD funding amount as a cudgel to coerce states into complying with the moratorium and agreeing not to regulate AI models, systems, or “automated decision systems.”

Can private parties enforce the moratorium?

Yes. Various commentators have argued that the moratorium cannot be enforced by private parties, or that the Secretary of Commerce will, in his discretion, determine how vigorously the moratorium will be enforced. But the plain text of the provision, and applicable legal precedents, indicate that private parties will likely be entitled to enforce the prohibition on state AI regulation as well.

The text of the moratorium is clear. Stripping the provision down to its essentials, subsection (q) states that “no eligible entity or political subdivision thereof . . . may enforce . . . any law or regulation . . . limiting, restricting or otherwise regulating artificial intelligence models, [etc.].” That is a clear prohibition. It doesn’t mention the Department of Commerce. Nor does it leave it to the Secretary’s discretion whether that prohibition applies. If states satisfy the criteria, they are prohibited from enforcing laws restricting AI.

Nothing in the proposed moratorium or in 47 U.S.C. § 1702 generally provides that the only remedy for a violation of the moratorium is deobligation of obligated funds by the Assistant Secretary of Commerce for Communications and Information. And when comparable laws—e.g. the Airline Deregulation Act, 49 U.S.C. § 41713—have used similar language to expressly preempt state AI laws, courts have interpreted this as authorizing private parties to sue for an injunction preventing enforcement of preempted state laws. See, for example, Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992).