Congress has passed the budget reconciliation package known as the “One Big Beautiful Bill” (H.R.1) without the controversial moratorium on state and local artificial intelligence (AI) laws originally included in the House version. The provision was stripped by a near unanimous 99-1 Senate vote and H.R.1 was then returned to the House and subsequently signed into law by President Trump on July 4, 2025.
Congress’ Stance So Far
The House-passed AI moratorium would have barred states and localities from enforcing any law or regulation targeting “artificial intelligence models,” “AI systems” or “automated decision systems” for 10 years. While pitched as a way to prevent a regulatory patchwork and promote innovation, the broad definitions raised serious concerns about scope and impact.
To comply with Senate reconciliation rules, the Senate Commerce Committee attempted to revise the language by tying Broadband Equity, Access, and Deployment (“BEAD”) program eligibility to compliance with the moratorium. However, the proposal created more confusion than clarity, especially around whether it applied to just the new $500 million in BEAD program funding or the entire $42 billion program.
The provision drew strong opposition from a bipartisan coalition of 40 state attorneys general and 17 Republican governors. Sen, Ted Cruz (R-TX) and Marsha Blackburn (R-TN) worked on crafting a compromise to shorten the moratorium to five years and exempt laws related to child safety, deepfakes, publicity rights and consumer protection. Ultimately, due to continued ambiguity, Sen. Blackburn withdrew her support for that effort and offered an amendment to remove the language entirely, which passed by a 99-1 vote.
Current Standing for States
With the moratorium removed, states retain full authority to regulate artificial intelligence. This is especially significant for California, Colorado, New York, Connecticut, Texas and other states already advancing or enacting AI laws. In 2025, every single state along with the District of Columbia,, Puerto Rico and the Virgin Islands introduced AI-related legislation, and over half of the states have enacted some kind of AI-related laws.
In California, several major pieces of legislation are currently advancing, including SB 420, which seeks to establish an AI “bill of rights” and require impact assessments and transparency measures; SB 243, which aims to protect minors from manipulative chatbot systems; and AB 1018, which proposes to require strict disclosure and fairness requirements for AI used in high-stakes decisions like hiring and housing. Each of these bills had been at risk of delayed enforcement had the federal moratorium passed, but they are now free to move forward.
The removal of the federal moratorium language has also eliminated an immediate threat to similar legislation in other states. New York’s SB 6453, which recently passed both chambers and will be the first state law to restrict so-called “frontier” AI models, and Connecticut’s SB 2, which is the state legislature’s second attempt at a comprehensive AI bill and awaits final votes, remain active. Colorado (SB 205), Utah (SB 149), Texas (HB 149) and Montana (HB 178), which have already enacted AI-related laws, also now no longer face questions about enforceability.
What It Means for Businesses
For businesses, this development means that state-level AI regulation remains valid and enforceable, that compliance strategies must continue to account for varying and evolving state laws and that companies must monitor legislative developments and engage early in the policy process. While some businesses may have hoped for a federal moratorium to simplify compliance, the defeat of the provision may actually eliminate some legal uncertainty. The original language’s vague “undue burden” clause could have sparked litigation over enforceability and scope.
This likely won’t be Congress’ last attempt to assert federal control over AI policy. An industry push is likely for a standalone federal bill enacting a moratorium or passing a set of national standards, among other possibilities. But for now, the regulatory playing field remains squarely in the hands of states and local governments that are moving quickly in the absence of federal action, while the lobbying efforts by tech, business, AI advocates, consumer advocates, and labor organizations remains fragmented.
