Colorado passes the first AI bill in the country! Sarah Mercer breaks it down for us.

[00:00:00] Welcome back to another episode of The Political Life. Today we come to you from the beautiful

[00:00:17] state of Colorado, except as you know, we are not in Colorado. Our guest is in Colorado.

[00:00:23] Our guest is from Colorado, Sarah Mercer, the phenomenal lawyer lobbyist with Brownstein.

[00:00:30] Whenever we have a question in Colorado, we call up Sarah and we get the answers.

[00:00:35] Maggie Mick is with me here today and Maggie's juggling work, family duties, some kind of

[00:00:43] pick up in the middle of this. So we will make do. This is podcasting not radio. So

[00:00:50] this is all normal. Sarah, welcome to the show.

[00:00:53] Thanks, Jim. Thanks, Maggie.

[00:00:54] I'm glad to see you and it feels kind of like a washrag reunion. I think there

[00:01:01] was a meet cute of Sarah and Jim at a washrag inside the dome two years ago. So thank you,

[00:01:07] washrag for bringing us all together. Right. And it was run by you. You were the MC.

[00:01:14] So for our listeners out there, there were, you know, AI and regulating AI,

[00:01:20] artificial intelligence has been front and center in Washington and at state capitals.

[00:01:27] at state capitals. And it was a major issue this past legislative session in many capitals

[00:01:34] across the country. But two capitals where it was very prominent was Hartford, Connecticut,

[00:01:41] and out in Colorado. Now, the difference was Colorado passed an AI bill and Connecticut did

[00:01:47] not. Connecticut, it passed out of the Senate. It did not pass out of the House. In general,

[00:01:54] the concerns in Connecticut were more from the executive branch and concerns about economic

[00:01:59] development is where it ended up. We were also in a short session, which is the second year of

[00:02:04] a two year budget. And so they typically, typically don't try to tackle legislation like

[00:02:10] that. But we don't know but Senator Moroney who spearheaded the effort may have been laying

[00:02:17] the groundwork this year for passing something next year. However, in Colorado, they did pass

[00:02:23] it. And Sarah was working on that and, and knows it quite well. And I was somewhat even, you know,

[00:02:34] obviously not following Colorado when I heard that it passed in Colorado, and then that the

[00:02:37] governor signed it, it was not going to veto it. I was somewhat surprised. So Sarah, welcome

[00:02:45] to the show. And what were you surprised that, you know, when this all started that AI actually

[00:02:53] passed this year in Colorado? Very surprised. You know, when the bill when there was rumors

[00:02:59] that the bill was going to be introduced, and you know, we were in a 120 day session every

[00:03:04] year in Colorado, we are in session from January, mid January to mid May. And we,

[00:03:11] you know, the months went by and then the weeks went by and then there was very short amount of

[00:03:17] time. And, you know, finally, we saw a draft of the bill. I will say Senator Moroney, he may be

[00:03:24] the most well known non Colorado, non Colorado legislator in Colorado because his name was

[00:03:30] spoken very often throughout the halls of our state capital. In fact, you know, what we

[00:03:37] learned on the ground was that Senator Moroney and Senator Rodriguez were having we're talking

[00:03:42] every day. And I would often ask my clients who have a presence in multiple states and

[00:03:48] have a presence in Connecticut, what was going on with the billing Connecticut because it would

[00:03:53] foreshadow language and developments that I would see in the Colorado Capitol. And so

[00:03:59] them working so close together was very unusual and very interesting. And I was surprised that

[00:04:06] a bill of that magnitude and of that complexity was able to cross the finish line after,

[00:04:14] you know, being introduced quite late in session. And with, you know, very,

[00:04:21] very little actual support from stakeholders, although there was I think, and this is the

[00:04:27] most meaningful support, there's support from many legislators, not necessarily stakeholders.

[00:04:34] And I think the timing was interesting. On May 8, Connecticut, Sonny died after it failing to

[00:04:42] be passed. And then you all pass it on May 9. I mean, everybody was was it was like the

[00:04:47] tale of two states and it was kind of a horse race on who was going to get it passed. But

[00:04:52] it's like everybody kind of stepped back and took a breath and then whoa, Colorado passed

[00:04:57] it the next day. I just, it was it was quite the finish.

[00:05:02] Yeah, it felt that way in our Capitol too. It was quite the finish in the Capitol. We had a

[00:05:07] strike below amendment just less than 24 hours before the bill crossed the finish line. So

[00:05:14] there was a wholesale rewrite of the bill, although with maintaining similar concepts,

[00:05:21] but really changed a lot of the language and a little bit of the approach.

[00:05:24] So. And before you give us an overview, can you tell us the parts of the bill

[00:05:32] that entities are most concerned about developers or businesses?

[00:05:38] Yeah, you know, there were many veto request letters that went into the governor because,

[00:05:46] you know, another big question mark was would the governor sign the bill? Colorado's governor,

[00:05:52] Governor Jared Polis, is a very technology focused governor. He worked in the tech industry.

[00:06:00] He's very forward thinking. He's very proud of Colorado being a tech hub here in the West.

[00:06:07] And so there was a big question mark and even Senator Rodriguez, I heard him on

[00:06:12] in an interview just last week said that he was very nervous until he heard that the governor

[00:06:18] had signed the bill. So he met obviously with the governor's office and he wasn't even sure

[00:06:21] that the governor was going to sign the bill until the bill was signed. And in those veto

[00:06:27] request letters, and we also heard this in testimony and committee as the bill was working

[00:06:31] its way through the process, you know, the concerns were a couple. One was a broad concern

[00:06:39] that this would create, you know, would sort of set in motion kind of the first domino of a

[00:06:44] patchwork of regulations across the country. And that's very difficult when you're trying

[00:06:50] to develop and use an AI technology that are, you know, across multiple states, that it's very,

[00:06:59] very difficult if you have different regulations. The second was really around the definitions in

[00:07:05] the bill. You know, what does an AI system mean? What does the bill really as past focuses on,

[00:07:12] quote, high risk, end quote, AI? What does that mean? And where is that used? And so

[00:07:20] I think there was a lot of concern that there isn't even consensus in the AI community around

[00:07:25] what AI is. And so how and that the bill as as as passed really creates uncertainty around,

[00:07:36] you know, what systems are and are not affected by the regulation.

[00:07:41] And when it started, you said it in the end focused on high risk AI, which is similar to

[00:07:48] Connecticut. When it began the process, what were the general areas that it was going to

[00:07:55] regulate? Yeah, the bill as introduced was pretty broad and categorize AI into four

[00:08:03] different categories. The first being this quote unquote high risk AI, focusing really on AI that

[00:08:11] is used in certain types of decisions defined to be consequential decisions in areas that the

[00:08:19] bill identifies as being important to individuals. So that includes financial decisions, insurance,

[00:08:25] housing, employment. And so that was sort of one category. The other category was around AI that

[00:08:36] interacts with consumers. And that piece is still in the bill, although it's very small,

[00:08:40] but it does apply. There is a restriction in Senate Bill 205 that requires disclosure of any

[00:08:46] AI system. So not just high risk AI, but any AI system that's designed to interact with

[00:08:51] consumers. The fact that that is an AI system needs to be disclosed to consumers unless it's

[00:08:56] obvious. The other two categories of AI that were eventually removed from the bill were

[00:09:03] general AI, and that includes, you know, chat GPT and other, you know,

[00:09:09] general quote unquote, general forms of AI. And then generative AI, which was defined as AI

[00:09:16] that is creating synthetic digital content like artwork or, you know, other audio,

[00:09:24] you know, video content. And that had its own special sort of duties and responsibilities

[00:09:31] for the developers of that kind of AI. So you talked about Senator Moroney and Senator

[00:09:36] Rodriguez sharing notes, being in constant communication. I think one of the biggest

[00:09:44] takeaways for me watching this multi-state approach to AI through the lens of a working group

[00:09:53] that Senator Moroney stood up is that it was outside the confines of state associations that

[00:09:58] we often think of as the, it's not the labs, the states are the lab laboratories

[00:10:05] of democracies, but the experiments are usually taking place at an NCSL or an NGA or a CSG.

[00:10:11] That's where a lot of state lawmakers come together and chew on new ideas through

[00:10:17] processes established by these organizations that have been around for decades. So I think

[00:10:22] that this convening via Zoom with 90 lawmakers is something to watch and something to maybe not

[00:10:33] have a concern yet, but just the development of policy across state lines, the collaboration

[00:10:40] of lawmakers outside of these traditional, you know, convenings was a huge, I don't know,

[00:10:50] just a lesson or an observation for me. And I just found it interesting that you said that

[00:10:56] they were up until the passage communicating about amendments and that sort of thing.

[00:11:02] You know, it's so interesting, and I think it's such an important observation. And it really,

[00:11:07] I think, is born out of a lack of federal action on issues that are really critical to Americans.

[00:11:14] I mean, think about the places that we're seeing this. And my understanding is that

[00:11:18] Senator Moroney and Senator Rodriguez met through their shared work and interest in data

[00:11:24] privacy. And so you have issues around data privacy. We saw a ton of social media bills

[00:11:30] this year across the states. And then now obviously this legislation around the regulation

[00:11:35] of AI. And when you have a lack of action by the federal government, states are standing up

[00:11:43] and saying, hey, we want to do something to help to regulate this, that we believe that

[00:11:50] government needs to do something and we're going to do something. And I think that it was

[00:11:54] laudable actually. Again, one of the biggest concerns from the business community and the

[00:11:58] developers of AI is we don't want a patchwork of regulations. And so Senator Moroney gathered

[00:12:04] all these lawmakers together. Senator Rodriguez and Senator Moroney developed a very close working

[00:12:09] relationship as they were running legislation to try to pass bills in multiple states that had

[00:12:15] very similar approaches and language. Ultimately, their goal didn't come to pass. And

[00:12:25] that shows the challenge of how can you ever really have template legislation that passes

[00:12:33] and is sort of the same in every state? I mean, it's probably just not going to happen. But

[00:12:38] their goal and their intent was to help alleviate that concern that we have heard from the

[00:12:43] business community and from the AI developers about the patchwork of regulation. They said,

[00:12:49] okay, well great. Well, we'll work to try to pass something that's very similar. So you

[00:12:52] have predictability and you have similarity. Ultimately, that didn't come to pass though.

[00:12:58] Do you think that it comes down to, and you're right, state lobbying or multi-state lobbying

[00:13:03] is so challenging because every state, you don't know the political dynamics of the day

[00:13:08] or the session or the chamber. They're all different. Your whip counts are different.

[00:13:14] Do you think that the dynamics of Colorado were in a better position? And I guess this

[00:13:20] is a Jim question too, but were they in a better position at that point in session to

[00:13:24] pass something that big by a member of leadership because you had either a stronger caucus vote or

[00:13:34] it's a very progressive legislature right now, very blue, blue, blue. And then Connecticut's

[00:13:41] always been one of those flip-flop states. I mean, both Connecticut and Colorado have been

[00:13:46] purple at times and flip-flop, but just does it come down to the type of Democrat that is

[00:13:51] running the state right now? I'm just very curious about the political dynamics

[00:13:55] and how they were different. Yeah, maybe I'll answer for Colorado. I'd love to hear Jim's

[00:14:00] thoughts on Connecticut. And in Colorado, Slobbyists have a bit of an adage that it's

[00:14:07] hard to get a bill but easy to pass a bill. In Colorado, voters 20 or 30 years ago passed

[00:14:14] a citizen initiative called the Gavel Act that actually requires every single bill that gets

[00:14:19] introduced to have a hearing. We have a relatively egalitarian legislature. I mean, of course,

[00:14:26] leadership is in leadership and has more power than rank-and-file members. We have term limits.

[00:14:32] We have a lot of turnover in our legislature. Committee chairs, while they sort of hold the

[00:14:37] power of their calendar, really culturally in Colorado don't hold bills from having a hearing.

[00:14:43] Bills in Colorado sort of get to have their day and have a vote on their merits. And

[00:14:48] ultimately, I think that really weighed in favor of this bill. That was, although it was introduced

[00:14:54] quite late and again, although every stakeholder in the business community, tech community, even

[00:15:00] the advocacy community, the consumer protection community was in an amend or an opposed position,

[00:15:06] the bill had its day, had its votes, wasn't held up on the calendar and ultimately passed.

[00:15:13] Yeah. In Connecticut, it was Senate Bill 2. And the Senate, as you can probably guess,

[00:15:19] they put out their priorities 1 through 10. And so this was Senate Bill 2. So it gave you an

[00:15:26] idea of the priority. So it kind of grabbed our attention right from the beginning.

[00:15:30] I think some people were surprised that it was coming out in a short session, but

[00:15:35] you know, it's really ultimately didn't impact it coming out. And then you could tell the

[00:15:43] priority of the bill and the concept with the Senator Moroney and the two Senate leaders heading

[00:15:49] out to a conference in California. The three of them attending an AI conference is, you know,

[00:15:55] interesting. And I don't want to say unusual, but they don't do it a lot.

[00:16:00] I think in Connecticut, it was more the dynamics of the session and getting things done. And then

[00:16:07] the executive branch's kind of late entry of having concerns about economic development

[00:16:13] and would it impact in a negative way? And so I think that was enough to slow it down.

[00:16:19] And then the calendar, they just ran out of time. I was going to ask Sarah, was besides

[00:16:26] hearing from tech companies, what other entities were voicing concerns that the governor was weighing

[00:16:34] in the end and was one of them economic development?

[00:16:38] Economic development was something that our chambers of commerce raised. We have,

[00:16:43] you know, and Governor Polis is very proud of this, we have a strong tech community

[00:16:48] in Colorado. And one of the things that was interesting that I did not expect in listening

[00:16:53] to the testimony is, you know, what I kind of expected from the technology companies and business

[00:16:59] around concerns around ambiguity of the regulation, that it would be impractical and difficult

[00:17:04] to implement. We also had these smaller startup developers of AI, which we have a lot of in

[00:17:10] Colorado actually saying like, the tech companies want this because it's going to put us out of

[00:17:17] business and then they're going to be able to basically rule the roost with their development.

[00:17:22] That was an interesting line that I hadn't, I just hadn't really thought about that. So

[00:17:27] we did have a little bit of a divide in the tech community between the bigger tech companies

[00:17:32] who really came in and had their voice kind of through the technology associations.

[00:17:38] And then the smaller developers who were, you know, these startup companies who came in

[00:17:42] basically pleading to say, you know, you're going to put me out of business because I

[00:17:46] don't have any ability to comply with the duties and responsibilities that you're putting on

[00:17:52] developers. Like I, you know, create these, this technology and I just need the space

[00:17:58] to be able to experiment without this concern around algorithmic discrimination.

[00:18:03] I don't put that into my AI, but this creating so much legal risk that I can't,

[00:18:08] that I don't feel comfortable being able to, you know, bring that to market at the size

[00:18:14] that I am. So it really was on the economic development side, it focused a lot on those

[00:18:18] smaller startup developers and that was really where the concern lied.

[00:18:23] And Maggie, you all cover 50 states. Are you hearing from a lot of clients and members that

[00:18:29] concerns about AI going forward?

[00:18:32] Yes, we predict them on Zoom.

[00:18:36] I'm sure.

[00:18:38] Only takes one.

[00:18:39] Yeah. And Sarah, that's very interesting. You know, you hear that with a lot of these bills

[00:18:46] that the large companies will be able to deal with it and it's the smaller companies that

[00:18:50] will not be able to deal with it. You know, they can't hire lawyers and comply with new

[00:18:56] regulations and it's a hurdle. It's difficult to get over.

[00:19:00] And that's, I mean, isn't that, I mean, we've been lobbyists for a long time.

[00:19:03] You know, I mean, isn't that always the story of incumbents versus the startups and

[00:19:07] the disruptors? I mean, that's something that we hear a lot.

[00:19:11] But that is really where, you know, I think there was, you know,

[00:19:14] Governor Polis came from a startup background. So I think that was very resonant here.

[00:19:18] That testimony, it was very impassioned and was very resonant. And in fact,

[00:19:23] so much so that we had a companion bill that passed transforming. We've had in Colorado an AI

[00:19:29] or we've had a facial recognition task force. And there was a bill that got introduced

[00:19:33] even later than a bill 205 to really change the facial recognition task force into an AI task force.

[00:19:44] And there, the 15 member facial recognition task force is basically being scrapped.

[00:19:49] And now there's going to be a 26 member AI and biometric technologies task force

[00:19:53] that's going to, the governor still needs to sign the bill. We anticipate he'll sign the bill.

[00:19:58] The page for the facial recognition task force, the name of the task force has already been

[00:20:04] changed to the AI task force. So even though the governor hasn't signed the bill, I think that

[00:20:08] might be an indication of where that's going. But there is a specific, like there has to be a

[00:20:14] member on that task force. That task force legislation says a member must come from that

[00:20:20] small AI developer community so that there will be that voice on the task force. And, you know,

[00:20:26] it's interesting during the conversations and the lobbying against Senate bill 205 in Colorado,

[00:20:32] the business community, the technology companies were saying we should do a task force first.

[00:20:38] You want to study this bill. We want to make sure we get the regulation right.

[00:20:41] It's too important to get wrong. And we're going to do it a little backwards. We passed

[00:20:46] a bill. We're going to have a task force that's going to get started in late August,

[00:20:51] September. They're going to meet and then provide recommendations for the legislature

[00:20:56] for the 2025 session. And I think the other thing that helped the Senate bill 205 get across

[00:21:03] the finish line is the very long runway that Senator Rodriguez put. So the bill had an emergency

[00:21:10] clause, which means it took effect immediately when Governor Polis signed it. But the

[00:21:18] operational provisions of the bill, the duties, the responsibilities, those don't take effect

[00:21:24] until February 1st, 2026. So we're actually going to see new legislation next year that will

[00:21:29] rewrite to some degree, tweak it, maybe a wholesale rewrite, maybe add in general AI and

[00:21:34] generative AI to the bill next year. And then the AG who has rulemaking authority,

[00:21:39] they're not even going to start that process until next summer. So we shall see.

[00:21:45] Wow. So Sarah, you've always done the big stuff. You've always carried huge pieces of

[00:21:52] legislation or been part of major pieces of groundbreaking first in the nation legislation,

[00:21:59] cannabis. I think you've worked on sports betting, just a number of big, big items.

[00:22:06] What's next for you? What's next for Colorado?

[00:22:10] That's a great plug, Maggie. I mean, the states are where it happens, right? I mean,

[00:22:14] I love state lobbying. Not only do I love my home state of Colorado and being part of making

[00:22:19] this community better, but it's where there is a ton of action. And I just, I love that.

[00:22:27] I think what we're going to see next is we will see some additional tweaking to this legislation

[00:22:38] going forward. We're going to see, I think, a closer look at biometrics.

[00:22:45] It's part of the task forces work, but we're hearing and there has been concern, obviously,

[00:22:51] around facial recognition for a long time, how that's used, how it should be regulated.

[00:22:57] But there's a lot of other biometric technology that's now being incorporated

[00:23:02] and interwoven into AI. And so I think that's probably the next horizon is thinking about

[00:23:08] that use of the biometric technology as part of AI and really bringing together

[00:23:14] the data privacy piece that is, in many cases, data privacy bills are now being amended to

[00:23:21] include biometric data together with this AI so that you have a more wholesale regulation

[00:23:28] of these systems that are using biometrics and AI together.

[00:23:34] And how that's defined and what's included.

[00:23:36] 100%.

[00:23:38] Right.

[00:23:39] I mean, we have seen... What's interesting about Senate Bill 205 to me, and I've been watching AI

[00:23:46] legislation across the country for a while because, to my mind, Senate Bill 205 is a bit

[00:23:52] of an outgrowth to a piece of legislation that passed in Colorado in 2021, which was to

[00:23:58] prohibit algorithmic discrimination in insurance practices. So policy writing, claims, in all

[00:24:03] kinds of insurance, life insurance, auto insurance, health insurance, property and casualty

[00:24:08] insurance. So the insurance industry, they've been in Colorado, like our division of insurance

[00:24:14] has been engaged in rulemaking for the last three years around algorithmic discrimination.

[00:24:19] So to my mind, Senate Bill 205 didn't seem like too radical of a departure from what we've

[00:24:26] already seen in Colorado. And we've seen that in other states too. New York City passed a

[00:24:32] law a couple of years ago that prohibits the use of automated decision-making in hiring practices

[00:24:39] unless it's screened, unless that automated process is screened for bias. California passed

[00:24:44] way back in 2018 legislation that prohibits the use of AI that's intended to interact with

[00:24:53] consumers unless there's disclosure. And so I think these concepts aren't completely novel.

[00:25:00] I think putting them all together in one bill is what has made it be a little bit more novel

[00:25:04] because it's been a bit piecemeal up till now. And Senator Rodriguez has said that his goal

[00:25:10] with Senate Bill 205 is not to create the very specific regulation that you might see for the

[00:25:16] insurance industry or the employment industry or the financial services industry. He's trying

[00:25:21] to create kind of the chassis of and kind of the ground level of regulation of AI.

[00:25:28] And then I think we likely would see bills be introduced for the specific kind of sectors,

[00:25:34] the healthcare sector, financial services, employment. Those bills be introduced to deal

[00:25:40] with AI in more specific contexts. So I think that's what's unusual about Senate Bill 205.

[00:25:48] Yeah. And so it's going to continue for years.

[00:25:52] Yes, I think as long as AI is with us. I mean, I was talking with one of my legal colleagues at

[00:25:59] our firm who is a technology expert and he was sharing with me that AI is in sort of the

[00:26:07] predictions that technologists have about AI is that we've really just scratched the surface

[00:26:14] of what AI can do and that eventually we're going to develop systems with super-powered AI

[00:26:20] that can actually be, that has more intelligence than we do as humans. And so I think that

[00:26:28] this is of course every conversation I have about AI turns into a science fiction movie.

[00:26:33] I feel like you can't have a conversation and so this is the moment it's been a while.

[00:26:38] It didn't go there in the first five minutes. I feel like that's progress,

[00:26:42] but here we are. We're at the robots are going to take over the world moment of the

[00:26:46] AI conversation. I do think that Senator Rodriguez, his experience with the data privacy

[00:26:51] bill and coming in as a state to try to regulate data privacy, data processing

[00:26:57] after it had already been done by business for a really long time and in a big way that

[00:27:05] wrapping your arms around that as a regulator is really challenging. So what he's trying to do

[00:27:09] is get in with some groundwork regulation before we have the super AI that we'll never be able to

[00:27:18] control because every science fiction movie has told us that it's going to control us.

[00:27:22] So I think there is a balance there and I think that's what we're seeing,

[00:27:27] the difference between Connecticut and Colorado is the governor in Connecticut.

[00:27:32] At the end of the day, the innovation and economic development

[00:27:35] and the government arguments and concerns like won the day and won the balance and in Colorado,

[00:27:42] although we have a ways to go before the regulations actually take effect,

[00:27:45] like that idea of like let's get in with at least some groundwork regulation that kind

[00:27:50] of tipped the scales. And it could be because we've been working on this AI,

[00:27:56] an algorithmic discrimination in the insurance context and like the insurance industry is

[00:28:01] finding a way to manage that and it's finding a way to figure out how to test their algorithms

[00:28:06] that they use so that there's not bias and that they don't, it doesn't result in

[00:28:10] discriminatory outcomes. Well, that's a very good point and insight on the insurance.

[00:28:19] It was kind of the camel nose under the tent, kind of a precursor to this larger

[00:28:24] debate. Well, Sarah, it's always great to have you on and listeners are getting a sense as to

[00:28:32] how hard you work and how knowledgeable you are. It's just great to chat with you.

[00:28:39] You're so detailed focused and so hardworking. It's just great. We really appreciate it.

[00:28:44] Well, thanks, Jim. I will. Yeah. And I'll just make another plug for Washrag. Maggie

[00:28:49] said it at the beginning of the podcast. I'm going to be doing a webinar on Colorado's AI

[00:28:55] bill on July 18th. So for any listener who is a member of Washrag, please register and attend.

[00:29:03] You can attend that webinar for free. And July 18th feels like a hundred years away.

[00:29:08] I'll have a lot more Intel and a lot more information to be able to share at that time

[00:29:13] with folks. And hopefully I can also take some questions. So tune into that if you can.

[00:29:18] Yeah. And we will have as the as things continue in Colorado, we'll have to have you back as the

[00:29:23] task force is meeting and I'm sure Senator Moroney and Senator Rodriguez will be working

[00:29:28] together. We'll have to have them on and just tell us what they're planning. Well,

[00:29:32] we know it's going to happen in Connecticut. He's going to work on addressing the governor's

[00:29:39] economic people's concern about business development and such and move forward. So

[00:29:46] for our listeners out there, thank you for joining us. This has been Sarah Mercer from

[00:29:51] Brownstone, Brownstein in Colorado and we will see you next week.