MSPAlliance Position Paper
Executive Summary
The rapid advancement of artificial intelligence (AI) technologies has sparked a national debate over the appropriate locus of regulatory authority in the United States. The objectives related to AI are clear: the United States (US) wants to become a dominant player in the AI game. To accomplish this objective, the US government must fashion a policy for AI growth and stability, while at the same time managing the often conflicting rights of the States to act legislatively on the issue of AI.
Federal preemption of state AI laws (implicating the Commerce Clause of the US Constitution) is increasingly proposed as a means to ensure national security, foster innovation, and maintain consistent standards. However, this approach raises significant legal, constitutional, and practical challenges, especially regarding data privacy, security, and the risk of offensive AI use by hostile actors.
Managed Service Providers (MSPs), as stewards of critical digital infrastructure, are uniquely positioned to support national cyber hygiene and compliance with evolving regulations, including AI implementation and management. This paper examines the motives behind federal preemption, the mechanisms and threats employed, legal and constitutional constraints, stakeholder reactions, policy trade-offs, and enforcement conflicts. It concludes with recommendations for balanced AI governance and the necessary inclusion and integration of MSPs in any regulatory framework.
Introduction
Artificial intelligence is transforming industries and national security alike. As AI systems become deeply embedded in critical infrastructure, healthcare, finance, and defense, the question of who should regulate AI—federal or state governments—has become urgent. For MSPs, who manage and secure IT environments across sectors, clarity and consistency in AI regulation directly impact their ability to protect data, comply with standards, and defend against cyber threats. National cyber hygiene, defined as the collective practices that safeguard digital systems, is foundational to both AI safety and the United States’ competitive position in AI innovation. Put simply, there can be no dominance in AI until cybersecurity hygiene issues have been resolved.
Federal Preemption Mechanisms
Federal preemption refers to the use of national authority to override or limit state laws. In the AI domain, several mechanisms have emerged:
- Legislative Moratoria: Congress may pass statutes imposing temporary or permanent restrictions on state-level AI regulation, arguing the need for uniformity during rapid technological evolution.
- Executive Orders: The President may direct federal agencies to set national AI policy, instructing the preemption of state requirements seen as impediments to national interests.
- Funding Threats: Federal funding for research, infrastructure, or cybersecurity may be conditioned on state compliance with federal AI guidelines, leveraging fiscal power to encourage uniformity.
These mechanisms aim to prevent a patchwork of state laws that could hinder innovation, complicate compliance, or weaken collective defenses against AI-enabled threats.
Legal and Constitutional Constraints
Federal preemption is subject to legal and constitutional boundaries:
- Executive Authority: The President’s power is limited by statute and the separation of powers; executive orders cannot override clear legislative intent or constitutional protections.
- Commerce Clause: Congress may regulate interstate commerce, including digital and AI activities crossing state lines. However, purely intrastate uses of AI may fall outside federal reach.
- Spending Clause: While the federal government can attach conditions to funding, such conditions must relate to the purpose of the funding and not be coercive.
- Litigation Risks: States, industry groups, or civil liberties advocates may challenge federal preemption in court, citing state sovereignty, due process, or overreach.
Stakeholder Reactions
The debate over federal versus state AI regulation has elicited a range of responses, many of which can exist while simultaneously remaining supportive of a US dominance in AI:
- Industry Support: Technology companies and MSPs often support federal preemption, seeking clear, nationwide standards that reduce compliance costs and uncertainty.
- State and Advocate Opposition: State governments and privacy advocates frequently resist preemption, arguing that states can better address local concerns, experiment with innovative protections, and close regulatory gaps. Advocacy around State action can most easily be explained due to the notable absence of any cohesive Federal action around national cybersecurity or AI policies.
- Bipartisan Concerns: Both parties express apprehension over ceding too much authority to Washington, risking regulatory capture, or stifling beneficial experimentation at the state level.
Practical Risks and Policy Trade-Offs
Federal preemption of state AI laws involves several practical risks and trade-offs:
- Regulatory Vacuum: Premature preemption may leave critical issues—such as AI data privacy and security—unaddressed if federal rules lag behind technological change.
- Fragmentation vs. Innovation: A patchwork of state laws can create compliance burdens and hinder national cyber hygiene, but it can also drive innovation by allowing states to experiment with novel approaches.
- State Legislative Activity: States have led on privacy and cybersecurity (e.g., the California Consumer Privacy Act), and broad preemption could undermine these efforts.
Governance and Enforcement Conflicts
Divided authority creates governance and enforcement challenges:
- Federal Agency Roles: Agencies such as the Federal Trade Commission (FTC) and the Cybersecurity and Infrastructure Security Agency (CISA) are tasked with AI oversight, but may lack resources or statutory clarity for robust enforcement.
- State Law Challenges: States may enact laws that conflict with federal standards, leading to litigation and uncertainty for MSPs and industry.
- Coordination Issues: Overlapping or conflicting regulations complicate compliance, incident response, and the sharing of threat intelligence essential for national cyber hygiene.
The Role of MSPs
Managed Service Providers are critical partners in the AI regulatory landscape:
- Supporting National Cyber Hygiene: MSPs deploy, monitor, and secure AI systems across sectors, implementing best practices that align with both federal and state requirements.
- Compliance and Regulatory Adaptation: MSPs help organizations interpret and comply with evolving laws, offering technical solutions and risk management services tailored to diverse regulatory environments.
- Threat Mitigation: MSPs are on the front lines of detecting and neutralizing offensive AI uses by hostile actors, including cyberattacks, data exfiltration, and misinformation campaigns.
Summary of Tensions and Risks
| Dimension | Federal Perspective | State Perspective | Risks |
| Innovation | Uniform standards foster nationwide innovation | State experimentation drives diverse solutions | Stifling or uneven innovation |
| Authority | Centralized control for national security | Local control for tailored responses | Jurisdictional confusion |
| Legal Limits | Broad preemption via commerce/spending powers | 10th Amendment, state sovereignty | Constitutional litigation |
| Regulatory Gaps | Risk of slow federal action | Potential for inconsistent patchwork | Vacuum or fragmentation |
| Enforcement | Agency resource and scope limitations | Variable state capacity | Compliance, coordination failures |
Conclusion and Recommendations
The debate over federal versus state regulation of AI reflects enduring tensions between innovation, authority, legal limits, regulatory gaps, and enforcement burdens. While federal preemption promises consistency and national security, it must not create regulatory vacuums or undermine the valuable role of states in addressing emerging risks. MSPs are indispensable in operationalizing cyber hygiene and ensuring compliance across jurisdictions. To achieve balanced AI governance, policymakers should:
- Adopt a cooperative federalism model, establishing baseline federal standards while allowing states to innovate above the floor.
- Clarify federal agency roles and resource commitments for effective AI oversight and cybersecurity enforcement.
- Engage MSPs in the regulatory process, leveraging their expertise in cyber hygiene and risk mitigation.
- Apply reciprocity and flexibility into any AI framework adopted. The same should apply to any Federal cybersecurity framework.
- Ensure any Federal AI framework is consistent and not in conflict with any existing cybersecurity frameworks currently being used.
- Prioritize interoperability and information sharing across federal, state, and private sector stakeholders to counter offensive AI threats.
- Regularly review and update AI laws to adapt to technological change and evolving threat landscapes.
By balancing national interests with local innovation and leveraging the capabilities of MSPs, the United States can strengthen its AI regulatory posture, safeguard privacy and security, and maintain global leadership in responsible AI development.