Labor & Employment Law Daily Wrap Up, FEDERAL LEGISLATION—Moratorium on state AI laws in ‘One Big Beautiful Bill’ clears Byrd Rule, (Jun 24, 2025)

By Thomas Long, J.D.

Changes made in the Senate Commerce Committee to tie eligibility for broadband Internet funding to compliance with the moratorium provided a “budgetary” function to the provision.

A controversial provision of the budget reconciliation package now being worked on in the Senate, the so-called the “One Big Beautiful Bill Act” has cleared a key procedural hurdle. Section 43201(e) of the bill (H.R. 1; version passed by the House on May 22) contains a provision that would restrict states or political subdivisions from enforcing any law or regulation limiting, restricting, or otherwise regulating AI models, AI systems, or automated decision systems entered into interstate commerce for a period of 10 years beginning on the date of the enactment of the Act. The version of the provision released by the Senate Commerce Committee on June 5 changed the moratorium by tying states’ compliance with it to their eligibility to receive funding under the Broadband Equity, Access, and Deployment (BEAD) program. According to a June 21 press release by the Senate Budget Committee’s ranking Democrat, Jeff Merkley (D-Or.), the Senate Parliamentarian determined that the moratorium is not subject to the Senate’s “Byrd Rule,” which means it can be passed by a bare majority.

Byrd Rule. The Byrd Rule (Congressional Budget Act of 1974, Section 313; 2 U.S.C. § 644) prohibits including non-budgetary provisions deemed “extraneous” in budget reconciliation legislation. If the rule is invoked by the parliamentarian, it can be waived, but doing so requires a difficult-to-obtain three-fifths vote of the Senate.

Views on House-passed version. The House version of the moratorium—which did not specifically connect the ban with budgetary action—was considered by some to run afoul of the rule. In a May 16 letter to Senate and House leadership, the North American Securities Administrators Association, Inc. (NASAA) took the position that the moratorium violates the Byrd Rule. Proponents, meanwhile, argued that the moratorium had a fiscal function that brought it into conformity with the Byrd Rule. They contended the “pause” on state regulation of AI was a necessary precondition for the effectiveness of Section 43201(a), which would provide for a $500 million appropriation to update federal AI infrastructure. In addition, the Computer & Communications Industry Association took the view that the moratorium “would benefit the federal balance sheet by up to $269 billion over the next decade” through procurement cost savings and increased tax receipts.

Senate opposition. On the merits, the House-passed version of the moratorium drew criticism from both sides of the aisle. Along with several Democratic senators, Senator Marsha Blackburn (R-Tenn.) expressed opposition to the moratorium at a May 21 hearing held by the Judiciary Committee Subcommittee on Privacy, Technology, and the Law, particularly given the fact that the federal government has not stepped in to regulate the field. Senator Josh Hawley (R-Mo.) reportedly told Punchbowl News that he thinks the moratorium is a “bad idea.” Vice President JD Vance told podcaster Theo Von on June 7 that he thought the moratorium would not make it into the final version of the bill, and that he agreed with Senator Blackburn that the provision could negatively affect musicians and other creators.

Senate Commerce Committee version. BEAD is a federal initiative that provides $42.45 billion to expand high-speed Internet access across the United States. It aims to fund planning, infrastructure deployment, and adoption programs to help close the digital divide. A “Talking Points & Messaging” page released along with the Senate Commerce Committee’s draft characterizes the committee version’s requirement—located at Section __0012(p)—as “forbid[ding] states collecting BEAD money from strangling AI deployment with EU-style regulation.” Advocates for the moratorium have asserted that a “patchwork” of varying state laws threaten to hinder innovation and to prevent the United States from maintaining primacy in this emerging tech field. At a May 21 hearing of the House Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade, Rep. John Joyce (R-Pa.), criticized the European Union’s regulatory approach to AI. “We must not make the same mistake that the EU has made with the EU AI Act, effectively choosing not to allow industry and AI to grow,” Joyce said. “A patchwork of conflicting and burdensome AI rules will have direct impacts on the federal government as well.”

According to the Merkley press release, Senate Parliamentarian Elizabeth MacDonough determined that the Senate Commerce Committee version, which provides federal aid to states under the condition that states agree not to regulate AI, is not subject to the Byrd Rule’s 60-vote requirement. The press release explains that the parliamentarian’s conclusion on the rule is not a statement about the merits of the legislation.

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