Trump AI Order Threatening Non-Deployment BEAD Money Likely to Face Challenges

The order requires FCC Chairman Brendan Carr to begin a proceeding within 90 days “to determine whether to adopt a Federal reporting and disclosure standard for AI models that preempts conflicting State laws.” It would also order the FTC to “issue a policy statement on the application of the FTC Act's prohibition on unfair and deceptive practices … to AI models.” The FTC didn't comment.

Carr on Friday hailed the order and later indicated the FCC will “be initiating a proceeding to determine whether to adopt a Federal reporting and disclosure standard for AI models that preempts conflicting State laws.” Trump’s order “promotes America’s leadership in AI and advances our nation’s economic and national security interests,” Carr said. “It does so by targeting excessive state regulations that would not only hold America back but insert ideological bias into AI models.” Trump’s “decisive action also ensures a policy framework that protects children, prevents online censorship, respects copyrights, and safeguards communities,” Carr said.

Trump directed NTIA to issue a policy notice within 90 days “specifying the conditions under which States may be eligible for remaining [BEAD funding] that was saved through my Administration’s ‘Benefit of the Bargain’ reforms,” more commonly known as non-deployment funds, based on evaluations of states’ AI laws. Some estimates have found that $20 billion in BEAD funding qualifies as non-deployment money.

The evaluations NTIA will base its non-deployment funding decisions on include a Commerce Department review of whether states’ AI statutes conflict with the administration’s goals. The order also directs NTIA to factor in decisions by a new DOJ task force that could challenge state AI laws in consultation with the White House Office of Science and Technology Policy and other agencies. Trump said NTIA’s policy notice must render a state ineligible for non-deployment BEAD funding if its AI laws conflict with the administration’s desire for “a minimally burdensome, uniform national framework.” The order said NTIA’s notice “must also describe how a fragmented State regulatory landscape for AI threatens to undermine BEAD-funded deployments.”

Bipartisan Concerns

Senate Commerce Committee Chairman Ted Cruz of Texas, who was among the top Republicans to attend the order’s signing, said Thursday that Trump took an “important step … to promote American leadership in AI” and governance of the technology that preserves U.S. “values of free speech, individual liberty, and respect for the individual.” Cruz led an unsuccessful bid earlier this year for the reconciliation law to require governments receiving part of a proposed new $500 million AI-focused BEAD allocation to pause enforcing state-level AI rules (see 2507010070). Critics claimed the proposal endangered states’ entire BEAD funding eligibility.

Senate Commerce ranking member Maria Cantwell of Washington and other Democrats slammed Trump’s order, in some cases echoing their earlier misgivings about the initial draft (see 2511200057). The order’s “overly broad preemption threatens states with lawsuits and funding cuts for protecting their residents from AI-powered frauds, scams, and deepfakes -- leaving American consumers without any protection,” Cantwell said. Former Senate Communications Subcommittee ranking member Brian Schatz of Hawaii said he would “be working with my colleagues to introduce a full repeal of this order in the coming days.”

“After Congress repeatedly rejected this idea on a bipartisan basis, [Trump] has now chosen to try and force it through unilaterally,” said House Communications Subcommittee ranking member Doris Matsui, D-Calif. “Trump’s order threatens states enacting responsible safeguards with costly, wasteful federal lawsuits and attempts to hold hostage the broadband funding Congress specifically authorized for our communities," she said. "This is illegal federal coercion, plain and simple.”

There was bipartisan backlash from state-level officials, with some threatening legal challenges to Trump’s order. Utah state Rep. Doug Fiefia, the Republican co-chair of the Future Caucus’ AI task force of bipartisan state legislators, emailed us that the Trump order is “an overreaching act that fundamentally disregards the Tenth Amendment and the necessary role of the States in technology governance. While I support a singular national framework, it must be developed through the proper legislative process in Congress to ensure full debate and transparency, not through unilateral action that threatens state funding with no federal standard to replace it with.”

A spokesperson for Colorado Attorney General Phil Weiser (D) cited his Nov. 25 letter to Congress on the draft Trump order, which said that if the administration proceeds, “we will again turn to the courts to defend [the state’s comprehensive AI law] and protect the people of Colorado.” California Gov. Gavin Newsom was among other Democratic officials who strongly criticized the order.

'Separation of Powers Problem'

American Association for Public Broadband Executive Director Gigi Sohn joined several stakeholders forecasting a raft of legal challenges to Trump’s order. The White House “doesn't have the [legal authority] to preempt states, particularly where the federal government has not spoken,” she told us. “This is something that has been litigated in the net neutrality space” when the FCC during the first Trump administration unsuccessfully tried to preempt California’s 2018 net neutrality law. ISPs dropped their legal challenge to that law in 2022 after the full 9th U.S. Circuit Court of Appeals refused to rehear their case (see 2205050041). The 9th Circuit found that “when the federal government hasn't regulated, it can't” preempt states’ regulations, Sohn said.

Trump’s decision to target non-deployment BEAD funding poses “a separation of powers problem” because Congress in the 2021 Infrastructure Investment and Jobs Act specifically allowed some BEAD funding for non-deployment purposes like promoting “the deployment of networks and the use of networks,” Sohn said. She noted the White House can’t say they're “not giving the money that Congress has duly authorized and appropriated.” The order also represents “the third or fourth time that this administration has moved the goalposts on BEAD,” including NTIA’s June 6 policy restructuring notice for the program that required all states to resubmit their spending plans (see 2506060052), Sohn said: The Biden administration also “micromanaged this program a little more than I would have preferred, but this is beyond the pale.”

Charlie Bullock, Institute for Law & AI senior research fellow, also expects some states will fight Trump's order. “I don't think California is just going to roll over and repeal [its SB-53 AI law] in response to this EO,” he told us. That statute requires transparency about AI platforms’ safety and security protocols (see 2509290064). It’s unclear whether the executive branch can legally withhold congressionally appropriated BEAD funds from states to advance unrelated policy goals like preempting state AI regulation, Bullock said. But the threat of withholding BEAD funding could have a chilling effect on at least some states’ willingness to regulate AI.

The Trump administration may have targeted non-deployment funding because it’s a big pot of money that hasn’t been completely distributed to states “and it's vaguely tech-related, so the nexus between it and AI regulation is arguably stronger than the nexus you'd get with some other pools of funding they could have used,” Bullock said. The Trump administration’s argument that a fragmented state AI regulatory landscape could harm BEAD-funded deployments and the growth of AI applications that need high-speed networks is “not completely ridiculous.”

Adam Thierer, R Street Institute resident senior fellow for technology and innovation, emailed us that the White House AI executive order "comes down to the devilish details of how the 'power of the purse' is used in this context by the federal agencies and then which states it is used against.” Some states are more dependent on BEAD money and other federal grants than others, he said. It’s not clear if executive branch agencies would be clawing back just some or all the BEAD funds under the EO. "That is a fight that will likely play out between the Trump administration and some key Blue states in coming months,” Thierer said.

Tara Thwing, Accountability Lab senior nonresident fellow, said Trump’s threat to BEAD funding runs contrary to the order’s “AI dominance” and “economic competitiveness” goals. “AI leadership requires universal connectivity,” she said. “Using funds meant to close the digital divide as political leverage will deepen that divide, particularly in underserved communities” and will undermine U.S. competitiveness, she said. Oliver Stephenson, Federation of American Scientists associate director for AI and emerging technology policy, said the EO’s case for preempting state laws “would be a lot stronger if there was actually a patchwork of bad state AI laws that were harming US competitiveness and a national framework to replace them with.”