Trump’s AI Order Threatens $1.8B California Funding Cut

President Donald Trump has signed a sweeping executive order that creates a federal task force specifically designed to challenge state AI laws through lawsuits and funding cuts.
The saga continues, and this news marks the latest federal attempt to strip states of their power to regulate AI technology, potentially affecting billions in federal funding across dozens of states.
After failed congressional attempts to block state AI regulation in July and November, Trump is now using executive power to accomplish what lawmakers couldn’t. The administration argues that fragmented state-by-state rules threaten America’s competitive edge against nations like China, where companies face unified federal oversight.
“To win, United States AI companies must be free to innovate without cumbersome regulation,” says the White House announcement.
Lawsuits and lost funding
Attorney General Pam Bondi now has 30 days to establish an “AI Litigation Task Force” with one mission: challenge state AI laws that conflict with Trump’s light-touch regulatory vision. The task force will target laws on grounds of violating interstate commerce protections and conflicting with federal authority.
Commerce Secretary Howard Lutnick must identify state laws requiring AI models to modify their outputs, which the administration views as potential First Amendment violations. States with such “onerous” regulations face losing discretionary federal funding unless they agree not to enforce their AI statutes.
The financial stakes are enormous. California alone has $1.8 billion in broadband funding at risk, money already committed to deliver internet access to over 300,000 people. The order specifically threatens funding from the Broadband Equity Access and Deployment Program, affecting infrastructure projects nationwide.
California in the crosshairs
No state faces greater impact than California, which has enacted more AI regulations than any other state since 2016. The state is home to a lot of famous AI companies including Anthropic, Google, Nvidia, and OpenAI, creating an ironic situation where the industry’s headquarters could lose federal support for trying to regulate it.
Recent California laws now in jeopardy include bans on AI companies blaming their technology for harm in court, prohibitions on algorithmic price manipulation, and requirements for AI-generated content identification tools. A law taking effect next month requiring disclosure of AI training data could also face federal challenge.
The broader scope is intriguing: 27 states passed over 70 AI-related laws this year alone, with California leading at roughly a dozen laws, followed by Texas, Montana, Utah, and Arkansas. Colorado’s algorithmic discrimination law, specifically criticized in the order, faces implementation delays until June 2026.
The resistance
The backlash was swift and bipartisan. Labor union AFL-CIO called the order a brazen effort to give tech billionaires unchecked power over working people’s jobs, rights, and freedoms. The Center for Democracy and Technology warned it’s designed to chill state-level action while doing nothing to address real and documented harms.
Public opinion strongly favors regulation over industry preferences. Nearly 80% of Californians believe safety should be prioritized over innovation, according to Carnegie Endowment polling from October. A September Gallup poll found four out of five Americans want lawmakers to prioritize safety even if it slows technological development.
California’s film industry mobilized in response, with Animation Guild president Danny Lin warning that AI threatens nearly 40,000 jobs in the state’s entertainment sector. More than 100 film workers recently supported legislation requiring AI companies to disclose copyrighted training material.
The order
This executive order represents the most sweeping federal challenge to state authority in the AI era. With venture capitalist David Sacks effectively overseeing the litigation task force as an unconfirmed “Special Government Employee,” critics argue the administration is prioritizing Silicon Valley interests over public protection.
States now face an impossible choice: abandon AI protections their citizens support or risk losing billions in federal funding for essential infrastructure projects. The order creates immediate uncertainty for ongoing broadband deployments and other federally-funded initiatives, potentially affecting millions of Americans who depend on these programs.
But business goes on as normal. Spanish banking giant BBVA and OpenAI have teamed up for an ambitious AI transformation.
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