U.S. Policy Threatens To Withhold Federal Funds From States With Burdensome AI Rules

The U.S. government has announced a policy shift that threatens to withhold federal funding from states implementing AI regulations deemed “burdensome,” signaling a heightened focus on streamlining innovation and minimizing bureaucratic hurdles. The White House AI Action Plan, released under President Donald Trump’s administration, mandates federal agencies to scrutinize state AI laws and withhold grants from jurisdictions where rules could “weaken federal support” or “waste these funds.” While the plan explicitly permits “thoughtfully crafted legislation” that does not “unduly restrict innovation,” it establishes a framework where states face pressure to align with federal priorities [1][3].

Federal agencies will now evaluate state AI policies before awarding grants, with the authority to reduce or deny funds if they perceive regulatory conflicts. The plan also tasks the Federal Communications Commission (FCC) with assessing whether state-level AI laws infringe on its regulatory jurisdiction. This approach mirrors legislative proposals in Congress, such as the “Big Beautiful Bill” banning state AI rules for a decade and Senator Ted Cruz’s initiative linking federal funding to states rolling back stringent regulations [2][5]. Critics argue the policy favors large tech firms over public interests, with Sarah Myers West of the AI Now Institute stating it prioritizes “corporate interests over the needs of everyday people” [4].

The plan’s ambiguity around what constitutes a “burdensome” rule has sparked concerns about legal disputes and compliance challenges. Grace Gedye of Consumer Reports highlighted uncertainties over which federal funds are at risk and how states might adapt to vague guidelines. Forrester analyst Alla Valente noted that undefined terms like “ideological bias” and “burdensome regulations” could complicate implementation [5][7]. The administration has also revised the National Institute of Standards and Technology (NIST) AI Risk Management Framework, removing references to misinformation, climate change, and diversity, equity, and inclusion [6].

Infrastructure and export strategies form key pillars of the policy. The plan seeks to expedite permitting for AI data centers and semiconductor facilities, including proposing exemptions under the National Environmental Policy Act for projects with minimal environmental impact. It also enforces export controls on semiconductor subsystems to protect U.S. technological leadership. Industry groups have mixed reactions: the National Association of Manufacturers praised regulatory reforms, while critics warn that excluding specific data sources could inadvertently introduce bias [5][6].

The policy’s emphasis on ideological neutrality in AI models has raised further debate. Georgetown University’s Bonnie Montano cautioned that excluding contested data might conflict with the plan’s goals of fairness and inclusivity [6]. Mashable observed that the funding linkage creates a “lurch” for states, which must reinterpret existing laws without clear federal guidelines [8]. As federal agencies begin implementation, stakeholders will monitor how states adapt and whether the administration clarifies definitions for regulatory compliance.

The administration’s strategy reflects broader ambitions to position the U.S. as a global AI leader, but its success hinges on balancing innovation incentives with ethical safeguards. Over 10,000 public comments shaped the plan, according to a BBC report, underscoring the contentious nature of AI regulation. The plan’s rollout coincides with Trump’s international efforts, including relaxed export limits on Nvidia and AMD chips to China and infrastructure deals in Gulf countries [1][4].

Sources:

[1] [White House unveils U.S. strategic plan on AI](https://www.cbsnews.com/news/trump-uai-plan-data-centers-us-infrastructure/)

[2] [Defeated state AI moratorium finds new life in Trump’s AI Action Plan](https://statescoop.com/trump-ai-action-plan-state-moratorium/)

[3] [Trump releases AI action plan targeting regulatory 'red tape'](https://www.cfodive.com/news/trump-ai-action-plan-takes-aim-at-regulatory-red-tape/753845/)

[4] [White House AI plan places scrutiny on state AI laws](https://www.techtarget.com/searchenterpriseai/news/366628092/White-House-AI-plan-places-scrutiny-on-state-AI-laws)

[5] [Trump’s AI Action Plan resurrects state, fed battle over regulations](https://mashable.com/article/trump-ai-action-plan-revives-state-regulation-issue)

[6] [What’s in Trump’s new AI policy and why it matters](https://www.pbs.org/newshour/show/whats-in-trumps-new-ai-policy-and-why-it-matters)

[7] [Unpacking Trump's AI Action Plan: Gutting Rules and Speeding Rollout](https://techpolicy.press/unpacking-trumps-ai-action-plan-gutting-rules-and-speeding-rollout)

[8] [Trump AI Action Plan Proposes Defunding States With Regulations](https://news.bgov.com/bloomberg-government-news/trump-ai-action-plan-proposes-defunding-states-with-regulations)