“While President Donald Trump would prefer direct regulation of prominent issues like AI at the federal level, without Congress passing laws to preempt state legislation, the states are serving as what Supreme Court Justice Louis Brandeis hailed as ‘laboratories of democracy.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies
The Cozen Lens
- Congress’s lack of action on tech issues leaves an opening for states to take the lead on regulation, which has created a patchwork of laws across states.
- While a prolonged shutdown of the Department of Homeland Security will have unequal impacts across its various agencies, the immigration policy changes discussed have sparked interest from a broader set of stakeholders due to their potential far-reaching impact.
- The Environmental Protection Agency finalized its revocation of the endangerment finding for greenhouse gases last week, with major consequences for environmental regulation going forward.
States Are Weaving Regulatory Patchworks in Absence of Federal Preemption
States’ Leadership on AI Regulation. Despite President Trump’s executive order (EO) that seeks to preempt state AI laws, state legislators are charging ahead.
- Trump’s EO sought to prevent the emergence of a patchwork of AI rules in different states, which can pose compliance challenges for companies that operate nationally. Without a single national AI standard from Congress on the books, state lawmakers are proposing an array of new rules for AI use cases this year.
- In Virginia, lawmakers have introduced measures to regulate AI in K-12 education, enact chatbot guardrails for children, and restrict the use of AI in mental health care. In California, AI in the workplace is a major topic this year, setting up a test for Democratic Governor Gavin Newsom in navigating competing interests of labor and Big Tech. Lawmakers have introduced bills to require advanced notice of AI-related layoffs and restrict the use of automated decision-making systems in employment. A previous bill to limit workplace surveillance remains active.
- Some lawmakers in red states are also seeking to regulate AI and are confronting a split in the GOP over the issue. Some MAGA populists want new rules for AI, while the Trump administration backs a light-touch approach. In Florida, legislation to enact protections for name, image, and likeness (NIL) and user privacy and establish parental controls for children’s use of AI chatbots, among other topics, has advanced in the state Senate but not the state House. The chamber’s cool reception indicates the limits of Republican Governor Ron DeSantis’s ability to enact his AI agenda. In Utah, Republican Governor Spencer Cox has called for “pro-human” AI but Axios reported last week that the White House sent a letter to the state’s Senate majority leader opposing an AI transparency bill.
States’ Leadership on Social Media Regulation. State lawmakers are looking to crack down on social media platforms, particularly limiting children’s access to social media.
- California lawmakers have introduced bills to mandate an age threshold for social media accounts (specific age not yet determined) and establish an eSafety Commission in the mold of Australia’s, an independent agency that regulates online safety. If the measure passes, it would follow the California Privacy Protection Agency as an example of a state-level regulator filling a policy vacuum left on the national level by congressional inaction.
- In New Jersey, lawmakers have proposed new guardrails. Bills in this year’s session would require social media mental health warning labels, establish a social media research center, and enact a New Jersey Kids Code to require platforms to implement safety and privacy protections. California, Maryland, Nebraska, and Vermont have previously passed age-appropriate design codes. This offers an example of a “copycat effect” in which policy developments in one state can inspire others.
Data Centers in the States. Data centers and zoning is a quintessential local issue and is garnering significant attention at the state level this year.
- Recent Politico polling found a slight majority of voters in favor of data center development in their communities. However, when the issue is real rather than theoretical, vocal opposition to data center construction has emerged across the country. This issue requires state leaders to balance economic benefits with potential negative environmental and community impacts. Moreover, affordability, including utility costs, is a top political issue this year.
- In Virginia, a global data center hot spot, some bills to reform data center rules have failed to gain traction, though a bill from the state Senate president to shift energy costs from ratepayers to data centers has advanced.
- Up for reelection in an energy-rich battleground state, Democratic Pennsylvania Governor Josh Shapiro proposed new rules for data center developers to provide their own power, hire local jobs, practice transparency, and adhere to water conservation guidelines in a recent budget address. In New York, Democratic Governor Kathy Hochul proposed requiring projects with high power demand to cover their own costs or provide their own energy, while Democratic lawmakers called for a three-year data center moratorium.
DHS Funding Fight Poses Impacts Beyond Immigration Reform
An Immigration Fight in a Funding Bill. After failing to reach a deal last week, funding for the Department of Homeland Security (DHS) lapsed, triggering another government shutdown, albeit a partial one.
- While there had been some thought that Senate Democrats and the White House would be able to reach an agreement on a short-term funding patch that allowed DHS to remain open, no such deal could be struck before last Friday’s deadline. Now, with both chambers of Congress in recess this week, although talks are continuing in the background, the shutdown will almost certainly last at least until next week.
- The fight over DHS funding has little to do with the actual funding levels under discussion and instead centers on the immigration policy changes Democrats are seeking to push through as part of the bill. These reforms would impose new limits on the White House’s immigration enforcement tactics, which have faced growing political backlash in recent weeks.
Not All Agencies Are the Same. While the focus of the DHS funding fight is on the department’s role in President Trump’s immigration enforcement, the impact on the department’s agencies will be unequal.
- For much of the Trump administration’s immigration enforcement efforts, they will not be significantly impacted by any prolonged funding lapse. This is due to the additional funds appropriated to these agencies as part of the budget reconciliation bill passed by Republicans last summer. A shutdown of DHS will likely have little impact on this part of the department.
- One of the most high-profile agencies within DHS during a shutdown is the Transportation Security Administration (TSA), where worker shortages have led to travel disruptions in previous shutdowns. These employees will not miss full paychecks until mid-March, which will likely delay any initial disruptions, but the risk of problems will rise the longer the shutdown lasts.
- Other agencies set to be affected by the shutdown include the Federal Emergency Management Agency (FEMA), the Coast Guard, the Cybersecurity and Infrastructure Security Agency (CISA), and the Secret Service. Based on past shutdowns, CISA will likely be the most affected, with only about a third of its employees designated as essential. At the other agencies, there may be disruptions to normal operations, but work such as the Coast Guard’s collaboration with the military will continue.
Narrow Changes, Broad Impacts. With the immigration enforcement policy changes under discussion for inclusion in the DHS funding legislation, the potential effects of the legislation have grown to include a much wider audience.
- Although the end of the funding fight will be significant, more consequential could be any reforms to immigration enforcement tactics that Democrats can force into the bill. These policy changes could affect a broader swath of the population and businesses, sparking some interest in their fate among groups not typically associated with the DHS, such as hospitals.
Trump Strikes Big Deregulatory Move by Revoking EPA Endangerment Finding
“The largest act of deregulation in the history of the United States.” Although a bit behind schedule, the well-forecasted revocation of the endangerment finding was finalized last week.
- Section 202 of the Clean Air Act lays out the framework for federal emissions controls for new vehicles in the US. A handful of specific compounds are singled out explicitly for regulation but the text also says that the Environmental Protection Agency (EPA) has the ability to promulgate standards for new harmful pollutants as it sees fit. In the 2009 endangerment finding, the EPA concluded that greenhouse gas emissions were harmful to public health and thus subject to the Clean Air Act.
- Simply put, this report is the basis for the federal government’s power to regulate carbon dioxide emissions in the transportation sector. Tailpipe emissions standards have been issued under its authority for more than two decades since under presidents of both parties; the Biden administration’s regulations would have required two-thirds of new car sales be electric vehicles by 2032. With the finding rescinded, the federal government (including future presidents) no longer would have the ability to propagate these standards. The imminent rescission is a big deal, even just considering the tailpipe rules alone. The Biden EPA calculated $870 billion in compliance costs associated with their tailpipe rule through 2055 (though with a societal net benefit in the trillions of dollars due to less pollution).
- But the implications could stretch even further, depending on how the Trump administration and courts decide to go. EPA Administrator Lee Zeldin called the move, “the largest act of deregulation in the history of the United States.” The EPA is separately seeking to repeal greenhouse gas standards on power plants based on a different endangerment finding for stationary pollution sources. The repeal of the vehicle finding could undermine other findings or make them more susceptible to legal challenge (reports suggest that the rule itself will not target power plants).
Can They Pull It Off? The repeal will undoubtedly be subject to legal challenge, and may actually lead to unintended negative consequences for polluters.
- President Trump’s strategy has been to swing for the fences on repealing environmental rules, aiming to score court wins from a sympathetic, conservative Supreme Court within this presidential term that will bind the federal government going ahead. The White House asserts that the EPA fundamentally lacks the authority to regulate greenhouse gases under the given statute. If the courts agree with this interpretation, future Democratic administrations wouldn’t even be able to undo the deregulation (i.e., first by re-imposing a new endangerment finding). The White House doesn’t exactly have the best track record in the courtroom. Trump agencies had only a 23 percent legal win rate during his first term in challenges against agency actions (the historical average is around 70 percent). Although we cannot necessarily expect such an abysmal performance this time around, the administration faces new headwinds. The Washington Post earlier reported that officials delayed the release of the final rule due to concerns that it would not stand up to legal scrutiny in its current form — a risk the executive branch faces when the strategy is to intentionally move as quickly as possible. The Supreme Court’s unraveling of the Chevron deference also makes agency rulemakings across the board more vulnerable to legal challenges. Moreover, layoffs have seriously impacted the office at the Justice Department tasked with defending the government’s environmental actions in court.
- There is a real chance the government can actually pull it off, though. While the Supreme Court ruled in 2007’s Massachusetts v. EPA case that greenhouse gases were unmistakably an air pollutant, it explicitly left open the second step of the test: whether or not it actually counted as posing a harm to public welfare. Justices John Roberts, Samuel Alito, and Clarence Thomas all dissented, arguing that Massachusetts didn’t have standing to sue because the commonwealth couldn’t prove easily traceable harms and that the commonwealth’s complaints could likely be redressed.
- The consequences of repeal may not be unambiguously good news for polluters, however. For one thing, it threatens to open up a patchwork of stricter state standards. The EPA argues in its proposal that although the Clean Air Act does not empower it to issue federal greenhouse gas rules, it nevertheless continues to act as federal preemption preventing states from doing so on their own — a legally vulnerable proposition that states previously contended was an impossibility. The American Petroleum Institute implored the agency to make clear that its conclusions extended no further than to vehicle emissions to prevent this argument from potentially applying to different sectors of the economy.
