In May, the U.S. House of Representatives passed its version of the One Big Beautiful Bill Act, which contains a moratorium on most state artificial intelligence (AI) laws. Earlier this month, the Senate began circulating its own draft of the tax and budget bill with extreme proposed cuts to programs that help meet people’s basic needs. The Senate Committee on Commerce, Science, and Transportation’s initial draft also added the AI moratorium directly into the law that authorizes the Broadband Equity, Access, and Deployment (BEAD) program. As the Center for American Progress noted earlier this month, the Senate’s original AI moratorium was drafted similarly to the House version as a standalone federal preemption measure. This meant it was unlikely to survive inclusion in the reconciliation bill under the Senate’s Byrd rule, which, among other things, bars provisions that do not affect the budget or whose budgetary impact is merely incidental to their primary policy purpose.
On Wednesday, June 25, the Senate Commerce Committee released updated text that rebrands the AI moratorium as a “temporary pause,” more closely conditions state access to BEAD funding on compliance with that AI pause, and adds $500 million in additional BEAD and AI funding. These changes satisfied the Senate parliamentarian’s review, permitting the provision to be included in the reconciliation bill. It is now expected to be included in the proposal Senate Republicans are preparing to bring to the floor.
Despite these adjustments and the name change, the underlying policy goal of the AI pause remains the same: pressure states into giving up their ability to regulate AI in exchange for access to broadband and AI funding. The AI pause remains a deeply flawed and dangerous policy. It threatens to immediately nullify existing state laws regulating the use of AI in critical areas such as health care and labor and would block states from passing new laws to prevent some of the most severe AI-driven abuses such as the use of AI for automated firings and denials of health insurance claims. Furthermore, the bill’s overly broad definitions would create a legal and compliance nightmare for states by potentially invalidating a wide range of laws.
Sen. Ted Cruz (R-TX), the chair of the Senate Commerce Committee, has publicly described this as a voluntary requirement tied only to the new $500 million in BEAD funding included in the bill. However, close examination of the revised text finds that the language also implicates the entire $42.45 billion in BEAD funding and gives the Commerce Department’s National Telecommunications and Information Administration (NTIA)—which administers the BEAD program—numerous tools to pressure or force states to comply with the AI pause or risk losing their full BEAD funding allocation. A recent tweet from Commerce Secretary Howard Lutnick declared, “By creating a single national standard for AI, the bill ends the chaos of 50 different state laws,” giving the strong impression that the AI pause will affect every single state.
Given that every state is still in the process of seeking BEAD funding and all $42.45 billion remains obligated but unreleased, it is imperative that all senators and members of Congress have clarity on how this bill would affect their states before voting.
How the revised language could threaten all BEAD funds
Sen. Cruz has told reporters, “As a condition of receiving a portion of a new $500 million federal investment to deploy AI, states that voluntarily seek these funds must agree to temporarily pause AI regulations.” This statement and the Commerce Committee’s own materials frame the AI pause as a voluntary condition tied only to the new $500 million appropriation.
But the actual draft language raises questions about the AI pause’s scope and could easily be read to broaden the enforcement mechanism to encompass all BEAD funds, not just the newly allocated money. The primary revisions are found in subsections (p), now titled “Receipt of Funds Conditioned on Temporary Pause and Efficiencies,” and (q), now titled “Temporary Pause”:
Subsection (p) states:
On and after the date of enactment of this subsection, no amounts made available to carry out this section may be obligated for expenditures of an eligible entity or a political subdivision thereof, or any other subgrantee, that is not in compliance with subsections (q) and (r), as applicable.
Subsection (q) states:
Except as provided in paragraph (2), no eligible entity or political subdivision thereof to which amounts made available under this section are obligated on or after the date of enactment of this subsection may enforce, during the 10-year period beginning on the date of enactment of this subsection, any law or regulation of that eligible entity or a political subdivision thereof limiting, restricting, or otherwise regulating artificial intelligence models, artificial intelligence systems, or automated decision systems entered into interstate commerce.
The revised bill text now explicitly links the AI pause provision in subsection (q) to eligible states and localities “to which amounts made available under this section are obligated on or after the date of enactment.” The funding restriction housed under subsection (p) serves as the main enforcement mechanism for the AI pause. Under subsection (p), NTIA is empowered to withhold BEAD funding from states or localities that are not in compliance with both subsections (q)—the 10-year AI pause—and subsection (r) “master services agreements” (MSAs).
Given that the Senate’s bill adds a new $500 million appropriation for BEAD, subsection (p) clearly serves as an enforcement condition for this new funding. However, as written, it also appears to implicate the entirety of the BEAD funds authorized in “this section.” As outlined below, the language in the revised Senate draft is broad enough that it could easily be interpreted to extend enforcement of the AI pause to the original $42.45 billion already authorized for BEAD.
Deobligation powers and reporting requirements
Section (a)(4) of the bill grants the assistant secretary of commerce for communications and information, who is also the NTIA administrator, additional powers to “deobligate grant funds awarded to an eligible entity” if they are “not in compliance with subsection (q) or (r).” While the BEAD statute already included deobligation authority for the entirety of BEAD funds, this new provision explicitly ties that authority to state compliance with the AI pause and MSA requirements. This means a state’s entire BEAD allocation, including funds already obligated, could now be at risk of deobligation for noncompliance with these new conditions.
Section (a)(5) of the bill also adds a new reporting requirement for states to certify in their initial, semiannual, and final BEAD reports to NTIA “that the eligible entity is in compliance with subsections (q) and (r).” This requirement applies to all states, even those not seeking any portion of the new $500 million BEAD funds.
As noted below, the revised draft text contains multiple provisions, particularly the language in subsection (p) regarding “expenditures” and “subgrantees,” that could require states to comply with the AI pause even when spending already obligated BEAD funds, even if states that do not accept any portion of the new $500 million appropriation.
Even if a state believes that subsections (q) and (r) do not apply because it is not seeking any of the new $500 million in BEAD funding, that state would still face challenges certifying compliance in its required BEAD reports. That state could certify its compliance, but if NTIA rejects a state’s certification, then subsection (p) prohibits the state from using any BEAD funds until NTIA considers it in compliance with both (q) and (r). This leaves states at risk of being unable to spend already obligated funds, with few options for recourse beyond litigation. Additionally, as noted above, NTIA can deobligate funds if they are “not in compliance with subsection (q) or (r).”
While BEAD funds are currently obligated, if this bill passes, any funds deobligated by NTIA could only be reobligated if the recipient complies with both the AI pause and MSA requirements. NTIA may also choose to reallocate BEAD funding amounts to states, and the AI pause requirement would also apply to any additional BEAD funding that NTIA may choose to obligate to a state.
Additional language that implicates broader BEAD funding
Beyond the deobligation authority and reporting compliance requirements, the language added by the Commerce Committee to subsection (p) and subsection (q) strongly suggests that the AI pause could apply to a state’s entire BEAD allocation, not just the new $500 million.
Scope of “this section”
Both subsections (p) and (q) explicitly refer to “this section,” a phrase that clearly refers to Section 1702 of Title 47 of the U.S. Code, the statute that establishes the BEAD program. Section 0012 of the updated Commerce Committee bill text amends this statue by inserting the AI pause and other related provisions. Because Section 1702 is the legal foundation for the full $42.45 billion in BEAD funding, the plain-text reading is that “this section” clearly encompasses the entire BEAD statute, not just the new $500 million appropriation.
“Expenditures” and “subgrantee”
Subsection (p) of the reconciliation draft includes two new phrases that significantly broaden its enforcement scope for “this section” of the BEAD law as a whole:
- “For expenditures of an eligible entity” extends the compliance test past the obligation stage to the expenditures, the point when BEAD money is actually spent. It is reasonable to interpret that as requiring NTIA to verify compliance with the AI pause when it obligates funds and again when the state later draws those obligated funds down.
- “Or any other subgrantee” brings in the subgrantees, entities with whom states partner with and expend the BEAD funds to build broadband, into the requirement of the provision. Distributing BEAD funds to subgrantees is a key action for a state upon the receipt of the full BEAD funds. By adding subgrantees into the enforcement language, the bill creates a new compliance checkpoint that states must meet before transferring any BEAD funds to these entities. This requirement applies even if a state had already received obligated funds after final proposal approval (no states have received these funds); it still cannot spend BEAD funds on subgrantees unless it is in full compliance with the AI pause.
Combining these two phrases creates a significant potential compliance requirement on the original BEAD allocation of $42.45 billion located in “this section.” Additionally, because both subsections (p) and (q) use the term “obligated,” there is a reasonable argument that “obligated” could be construed to cover not just when the federal government obligates BEAD funds to states, but also when states obligate or expend funds to subgrantees, potentially triggering a compliance requirement under both subsections.
If this bill passes, NTIA could argue that a state cannot use the existing obligated BEAD funding to obligate or make an expenditure of funds to a subgrantee unless the state has certified compliance with the ban. Alternatively, NTIA could argue that certain expenditures made after the bill’s enactment are in violation of subsection (p), giving the agency grounds to deobligate a state’s existing obligated funds as a penalty. Therefore, even though the original funds are already obligated, the new compliance language could still bite when states attempt to get access to or spend those dollars.
How the NTIA and AI pause could affect all BEAD funds in practice
It is essential to understand that although NTIA has already obligated these original funds to states, no state has received its full BEAD funding award. In practical terms, this means that although the BEAD funds are obligated, most of the money will not be released until NTIA approves each state’s final proposal. That approval will require states to comply with both the Trump administration’s updated BEAD restructuring policy notice and any new requirements established by the reconciliation bill if it becomes law, putting the majority of the 42.45 billion pot—not just the new $500 million—at risk.
If the reconciliation bill becomes law, the NTIA administrator could use these new requirements and authorities to find states out of compliance with the AI pause, deobligate funding, and then reobligate it with the AI pause requirements.
But from a practical point of view, since NTIA still holds the vast majority of BEAD funding for states, it is more realistic that the NTIA administrator will use the various ambiguities in the language highlighted above to insist the AI pause is now a condition of all BEAD funding and hold the approval of a state’s final proposal until the state agrees to the AI pause.
On the same day Sen. Cruz released the draft reconciliation text that claimed the AI pause was an “optional $500 million state AI program,” Commerce Secretary Lutnick tweeted that the bill was “non-negotiable for our national security.” “By creating a single national standard for AI,” he added, “The bill ends the chaos of 50 different state laws. … This is required to stay ahead of our adversaries and keep America at the forefront of AI.” Yet, the most plausible way for the bill to create a single national AI standard while harmonizing the laws of all 50 states is by requiring each state to comply with the AI pause in order to get access to their BEAD funds. The difference between Sen. Cruz’s draft text and Secretary Lutnick’s tweet could not be starker.
Secretary Lutnick leads the department that administers the BEAD program and already announced changes that revoked three states’ approved BEAD final proposals. He also serves in an administration that has terminated scores of federal grants and in which official policy is often announced through social media. Senators should be gravely concerned that the NTIA and Commerce Department could use these new authorities to condition BEAD funds on states’ compliance with the AI pause.