Executive Order Issued to Restrict State Regulation of Artificial Intelligence

Order Seeks to Withhold BEAD Funds from States With Onerous AI Laws

On December 11, 2025, the Trump Administration issued Executive Order 14365, titled, Removing Barriers to American Leadership in Artificial Intelligence. Executive Order 14365 was the administration’s seventh executive order supporting artificial intelligence (AI).¹ This most recent executive order stipulates that a national AI policy is needed to enable the AI industry to innovate without being required to follow the AI laws of 50 different states. The administration is using the executive order as a method of creating a national AI framework by threatening to withhold $21 billion of Broadband Equity and Access Deployment (BEAD) funding, not yet deployed but allocated to the states by the Infrastructure Investment and Jobs Act (IIJA).² States maintaining AI statutes characterized as burdensome or ‘onerous’ by the Department of Justice (DOJ) will be disqualified from obtaining undisbursed BEAD funds.

Executive Order 14365 seeks to force states, by withholding the remaining BEAD funds, to repeal or assert that the states will not enforce AI laws that “embed ideological bias within model” that would result in preventing the discrimination of minorities. The executive order will likely face legal challenges on the grounds of federal preemption and the unconstitutional coercion of states through the withholding of authorized funds.

BEAD Funds Undeployed

In June 2025, the National Telecommunications & Information Administration (NTIA), an agency of the Commerce Department, revised the prior NTIA bidding of BEAD grants through a new program named the Benefit of the Bargain. The rebidding of the BEAD grants resulted in allowing satellite providers to deliver broadband to areas that were previously approved for fiber. The NTIA thereafter threatened to refuse to deploy the $21 billion of remaining funds. Throughout the fall of 2025, however, the states advocated for the administration to allow states to deploy these remaining funds for various broadband purposes as authorized by Congress. Instead, the administration used the non-deployed BEAD funds as leverage for establishing a national AI framework. The administration issued Executive Order 14365, the Administration’s seventh AI-focused executive order,³ requiring Department of Justice (DOJ) to determine which state AI laws were “onerous”. If a state’s AI law was deemed onerous, the NTIA was required to declare the state ineligible to receive the additional BEAD funds.

The administration asserted in the executive order that a national AI policy was needed to allow the AI industry to innovate without being required to follow a “patchwork of 50 different regulatory regimes.”⁴ However, the most recent Executive Order did not prohibit state AI laws; on the other hand, it allowed states to maintain their AI laws but if the AI laws were deemed onerous, the Administration would hold back congressionally authorized funding.

State vs. Federal AI Regulation

In the absence of a national AI law, the states pass their own AI laws to protect their citizens. These state AI laws include, for example, protecting children, limiting facial recognition and prohibiting discrimination against protected groups. The Executive Order seeks to categorize the state AI laws as either onerous or not onerous. For example, state AI laws that prohibit discrimination against protected groups are to be deemed onerous. States with onerous AI laws are prohibited by the Executive Order from continuing to receive federal grants, such as the remaining BEAD funds, and other federal agency funding. The executive order seeks to address the absence of federal AI legislation by leveraging control over infrastructure grants. By conditioning the release of undisbursed federal resources on the rescission of certain local mandates, the administration is attempting to establish a uniform national standard that Congress has yet to codify. The Executive Order explained:

[The]… Administration must act with the Congress to ensure that there is a minimally burdensome national standard — not 50 discordant State ones. The resulting framework must forbid State laws that conflict with the policy set forth in this order. First, State-by-State regulation by definition creates a patchwork of 50 different regulatory regimes that makes compliance more challenging, particularly for start-ups. Second, State laws are increasingly responsible for requiring entities to embed ideological bias within models. For example, a new Colorado law banning “algorithmic discrimination” may even force AI models to produce false results in order to avoid a “differential treatment or impact” on protected groups. Third, State laws sometimes impermissibly regulate beyond State borders, impinging on interstate commerce.

The Executive Order also provides that any state AI laws that the DOJ determines regulate AI beyond the state’s borders may be declared onerous. If true, these laws would violate the Dormant Commerce Clause.⁵ The DOJ must declare a state AI law as onerous by March 11, 2026.

Key Provisions of the AI Executive Order

Under the latest executive order, states must rescind AI statutes classified as burdensome by the DOJ or risk losing undisbursed BEAD grants. The mandate establishes the following primary components:

1. DOJ Required to “Challenge” AI Laws. Section 3 of the Executive Order requires that, by January 10, 2026, the DOJ establish an “AI Litigation Task Force” to challenge state AI laws deemed inconsistent with Section 2 of the Executive Order. The task force includes the Secretary of Commerce, Special Advisor for AI and Crypto, Assistant to the President for Economic Policy, Assistant to the President for Science and Technology, and Assistant to the President and Counsel to the President.⁶ Section 2 outlines the primary objective of securing international AI leadership by implementing a streamlined federal regulatory approach. This policy seeks to bolster domestic competitiveness by ensuring national standards remain flexible and do not impose excessive compliance weights on developers. The executive order charges the DOJ with the task of determining which state laws would impede U.S. AI leadership, unconstitutionally regulate interstate commerce, are preempted by existing federal regulations, or are otherwise unlawful, as determined by the DOJ.
2. Task Force to Evaluate State AI Laws. Section 4 of the Executive Order requires that by March 11, 2026, a group of individuals in the Administration publish a report listing “onerous” state AI laws. The state laws to be deemed onerous include those that are a burden to the country’s dominance in the AI race, laws that alter “truthful outputs,” or violate the First Amendment or the Constitution.
3. A National AI Framework Created by Withholding Broadband Funding. Section 5 of the Executive Order requires the NTIA to issue a “Policy Notice” deeming states ineligible for the BEAD funds left over after the second re-bidding of the $42.4 billion of BEAD funds (known as non-deployed funds) if the state AI laws are deemed onerous. The Policy Notice must explain how a “fragmented State regulatory landscape for AI threatens to undermine BEAD-funded deployments … and BEAD’s mission of delivering universal, high-speed connectivity”; however, the Executive Order does not provide an explanation.
4. Withholding All Grant Funds to Enforce the Executive Order. Section 5. (b) of the Executive Order requires federal agencies, in consultation with the Special Advisor for AI and Crypto, to withhold discretionary grant program funding if such AI laws are deemed onerous. As a condition of receiving the grants, states with existing AI laws deemed onerous are required to enter a binding agreement with the agency, agreeing that the state would not enforce the AI law during the grant’s performance period.
5. FCC to Open a Proceeding on an AI Standard. Section 6 of the Executive Order expands the FCC’s regulation of interstate and international communications coverage area (defined under 47 U.S.C. § 151 as radio, television, wire, satellite and cable) to AI by requiring the FCC to open a new proceeding to explore the possibility of adopting a “Federal reporting and disclosure standard for AI models that preempts conflicting State laws.”
6. FTC to Determine if State AI Laws are Deceptive. Section 7 of the Executive Order requires the Federal Trade Commission (FTC) to issue a policy statement on how the prohibition of “unfair and deceptive acts or practices” under the FTC Act (15 U.S.C. § 45) would be applied to AI state laws that “require alterations to the truthful outputs of AI models.” Notably, the FTC Act applies to businesses and not to state laws.
7. AI and Crypto Advisor to Recommend Legislation. Section 8 of the Executive Order requires the Special Advisor for AI and Crypto, and the Assistant to the President for Science and Technology, to prepare a legislative recommendation establishing a uniform AI federal policy framework. The framework would preempt only the state laws that are deemed onerous, but not other state AI laws. AI laws that could not be preempted by the group’s recommended legislation These include those related to child safety protections, AI compute and data center infrastructure, state government AI use and procurement, and other topics to be determined. The agency or advisor that would make future “determinations” was not provided.

Looking Ahead

The Supremacy Clause requires that only a law passed by Congress can preempt a contrary state law. While an executive order is not a law, the December 11, 2025 AI Executive Order does not seem, by its terms, to directly preempt the state AI laws.⁷ Rather, it uses a method of withholding congressionally allocated funding as a mechanism to force, or coerce, states to repeal the AI laws the administration disagrees with.

Many groups, such as consumer rights advocates, express concern about the lack of accountability for AI systems that may be created from the process outlined in the Executive Order.⁸ The groups cited possible harms from the law changing AI software, such as discriminatory AI price-fixing that could inflate prices for protected groups. When an early draft of the Executive Order was released in November 2025, Colorado Attorney General Phil Weiser and California State Senator Scott Weiner had threatened to sue the Administration if the Executive Order was issued.

In case of litigation, states could argue that only Congress, not the President, may preempt state law under Article I. Following the Supreme Court decision National Federation of Independent Business (NFIB) v. Sebelius 567 U.S. 519 (2012), states might also assert that tying compliance of the Executive Order to BEAD funding is coercive. In NFIB v. Sebelius, the conservatives on the Court (Justices Scalia, Kennedy, Thomas and Alito) held that tying federal funding for state Medicaid programs to require states to expand their Medicaid programs was unconstitutionally coercive. Here, the Executive Order requires tying federal funding to the states by either repealing AI laws or agreeing not to enforce the laws, which sets up a nearly identical factual scenario that would deem such a requirement unconstitutionally coercive.⁹

Additional Assistance

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