Don't California My Texas: Stargate Edition
By Andy Jung, Associate Counsel at TechFreedom
AI developers want to invest in Texas. On January 21, President Trump announced the Stargate Project, a joint venture between OpenAI, Oracle, MGX, and SoftBank that will invest up to $500 billion in US-based artificial intelligence infrastructure. Larry Ellison, the co-founder of Oracle, exalted that “data centers are already under construction here in Texas,” including the first center in the city of Abilene.
Texas wants to position itself as a leader in AI. Governor Abbott aims to “cement Texas’ position as a national leader in innovative technology, ensuring our state continues designing and employing the latest and greatest AI technology while prioritizing the security of all Texans.” Misty Mayo, President and CEO of the Development Corporation of Abilene, hopes Stargate “can transform our community into a leader on the global stage” and “shap[e] the future—creating extraordinary opportunities for Abilene and Texas.”
But the Texas legislature is threatening to shoot the state in the foot by overregulating AI. HB 1709, the Texas Responsible AI Governance Act (TRAIGA), would require AI “developers,”1 “distributors,”2 and “deployers”3 in Texas to “use reasonable care to protect consumers from any known or reasonably foreseeable risks of algorithmic discrimination.” This “reasonable care”/“reasonably foreseeable” standard is open to a broad range of interpretations. As Republican FCC Commissioner Robert McDowell explained when dissenting from the Obama-era 2010 Open Internet Order: “‘Reasonable’ is a subjective term [and] ... perhaps the most litigated word in American history.”
TRAIGA would also require AI developers and deployers in Texas to create and submit to the state complex compliance policies and reports. Worse yet, TRAIGA would create the Texas Artificial Intelligence Council, a powerful state agency with rulemaking authority to issue “standards for ethical artificial intelligence development and deployment”—with no guidelines for the sweeping rules.
Make no mistake: TRAIGA would apply to and burden the AI development and infrastructure envisioned by Stargate. The project’s key technology partners, Arm, Microsoft, NVIDIA, Oracle, and OpenAI, would qualify as developers and/or distributors. TRAIGA would also apply to infrastructure that distributes or “makes available” AI technologies, like the data centers currently under construction in Texas.4 The Artificial Intelligence Council would demand mountains of compliance paperwork from Stargate and scour for violations, all while issuing broad regulations burdening AI development.
The penalties under TRAIGA would be staggering. State agencies like the Council could sanction individuals with monetary penalties up to $100,000 per violation, and the attorney general could assess administrative fines between $50,000 to $200,000 per violation against developers and deployers. Developers and deployers found in violation who continue to operate could be assessed additional fines of $40,000 per day. Stargate data centers, for example, would host and deploy hundreds, if not thousands, of AI models. Given the scope of the project, Stargate could potentially face multi-million dollar fines annually.
Federal law already covers much of the conduct targeted by TRAIGA, and agencies like the Federal Trade Commission police algorithmic discrimination. Instead of creating a broad duty of care for AI developers and propping up a powerful (and expensive) new state agency, Texas should aim to fill potential gaps in federal law and narrowly target specific high-risk AI use-cases. AI regulations should carefully balance known risks against the costs and burdens imposed by the rules.
Technology companies are leaving California because the state’s obscene overregulation punishes entrepreneurs and innovators. Texas should avoid making the same mistake. Stargate has already announced plans to “expand to 20 other locations beyond the Abilene location.” If Texas implements a light-touch approach to AI, the state will attract more investment. Don’t California your Stargate.
"Developer" means a person doing business in this state that develops a high-risk artificial intelligence system or substantially or intentionally modifies an artificial intelligence system.
"Distributor" means a person, other than the Developer, that makes an artificial intelligence system available in the market for a commercial purpose.
"Deployer" means a person doing business in this state that deploys a high-risk artificial intelligence system.
Although the bill exempts “databases” and “data storage” from the definition of “high-risk artificial intelligence system,” the exemption does not apply if “the technologies, when deployed, make, or are a substantial factor in making, a consequential decision.” Modern data centers host a variety of technologies and rely on complex algorithms and AI models to process massive swaths of data and automate processes. The Stargate data centers, or at least certain aspects of their operations, will certainly fall outside the exemption.