R Street Testimony in Opposition to VA HB 2094: ‘High-Risk Artificial Intelligence; development, deployment, and use; civil penalties.’
Testimony from:
Adam Thierer, Senior Research Fellow, R Street Institute
R Street Testimony in Opposition to HB 2094: “High-Risk Artificial Intelligence; development, deployment, and use; civil penalties.”
January 27, 2025
House Communications, Technology, and Innovation Committee,
Communications Subcommittee
Chairwoman Glass and Members of the Committee:
My name is Adam Thierer. I reside in Spotsylvania, Virginia, and I am a Resident Senior Fellow in the Technology and Innovation program at the R Street Institute. The R Street Institute is a nonprofit, nonpartisan public policy research organization. Our mission is to engage in policy research and outreach to promote free markets and limited, effective government in many areas, including emerging technology.
This is why HB 2094, the “High-Risk Artificial Intelligence Developer and Deployer Act,” is of particular interest to our organization. The bill represents a major effort to regulate artificial intelligence (AI) systems that is unnecessary, burdensome, and will subvert the ability of the Commonwealth to continue to be a leader of state-level digital innovation. There are better ways for Virginia to address concerns about AI systems that would not involve a heavy-handed, top-down, paperwork-intensive regulatory system for the most important technology of modern times.[1]
Virginia Has Benefited from Smart Digital Policy
Since the dawn of the digital revolution, Virginia has been a hotbed of innovative activity. This was thanks to a light-touch regulatory approach that the Commonwealth and America as a whole adopted for digital commerce and speech.[2] This policy vision helped U.S. digital technology firms become global powerhouses and allowed the digital economy in 2022 alone to contribute over $4 trillion of gross output for the nation, $2.6 trillion of value added (translating to 10 percent of U.S. GDP), $1.3 trillion of compensation, and 8.9 million jobs.[3]
Virginia has garnered substantial benefits from digital innovation and remains one of the most important high-tech hubs in the nation. Virginia is currently leading the country in data center development and is sometimes referred to as the “Data Center Alley” with an astonishing 70% of the world’s internet traffic passing through Northern Virginia.[4] Virginia is currently enjoying the benefits of an improved business climate with more people moving into Virginia than leaving for the first time in over a decade.[5] Virginia also ranked first in a summer 2024 CNBC survey of America’s top states for business.[6] Smart policy decisions—especially for the digital economy—helped bring this about.
Unfortunately, proposed AI-related restrictions could upend the successful American policy model that gave Virginia and the nation these riches and instead replace it with one that resembles how the European Union (E.U.) regulates digital technology. While well-intentioned, European regulations like the 2018 General Data Protection Regulation and the E.U.’s new AI Act seek to limit innovation based on hypothetical harms about future AI systems. These laws are rooted in preemptive, proscriptive mandates that limit digital innovation by default and have decimated European tech innovation, investment, and competition. While America has 19 of the 25 largest digital companies in the world by market cap, Europe has only two.[7] The resulting regulatory morass has left innovators stuck in a “compliance doom loop,” and led scholars to conclude that the E.U. is “the biggest loser” in the global technology race.[8]
Virginia Should Not Follow the Failed European Regulatory Model
It is perplexing, therefore, that some U.S. states are looking to model new AI regulations around destructive European laws.[9] Regrettably, Virginia is considering adoption of one of these measures, HB 2094. The bill looks to address concerns about “AI discrimination” or “algorithmic unfairness” through a new preemptive regulatory structure that is at odds with America’s traditional technology policy model.
HB 2094 is essentially modelled after E.U. AI policy. It represents a type of ex ante regulation of digital technology that treats innovators as “guilty until proven innocent.” The Commonwealth should not be creating novel AI regulatory bureaucracies, and imposing layers of preemptive paperwork mandates on entrepreneurs based on the mistaken assumption that AI systems are inherently dangerous or discriminatory.
The specific problem with laws like the E.U.’s AI Act and HB 2094 lies in the open-ended nature of terms in the measures, like “consequential decisions,” “substantial factors,” “high-risk” applications, and even more amorphous language about only releasing products that are “in the public interest.” These terms are remarkably ambiguous and create considerable confusion for AI entrepreneurs. With HB 2094, before new innovation can occur, AI “developers,” “deployers,” and “distributors”—three additional terms that will also involve considerable legal wrangling—will need to wait for new government technology bureaucrats to interpret and reinterpret these ever-changing terms as part of a highly politicized permitting process.
The combination of nebulous terminology, technocratic micromanagement, proliferation of paperwork requirements, and “algorithmic impact assessments” is precisely what led to Europe’s predicament today, where it is almost impossible to name any major digital technology companies across the continent.[10] Indeed, the only major digital technology companies left in Europe that can handle those significant regulatory compliance hassles are large American technology companies.[11] Only these large tech firms can afford to deal with all the E.U. over-regulation. Most small and mid-sized tech enterprises cannot cope with the significant compliance costs, leaving Europe suffering from a continent-wide competitiveness crisis.[12]
Compliance Costs Will Undermine Innovation & Investment in Virginia
That should be instructive for Virginia as it considers HB 2094. The paperwork hassles and regulatory requirements involved with HB 2094 could have a profoundly deleterious effect on innovation, investment, and competition throughout the Commonwealth. It is likely that only the largest tech companies will have resources and lawyers to afford the formidable compliance costs associated with the regulatory regime mandated by this bill. Moreover, will even the largest firms want to invest in the Commonwealth if they can find more welcoming, pro-innovation legal environments in other states?
A state fiscal analysis of HB 2094 revealed that at least three new officers (two new lawyers and an investigator) costing $425,475 per year would be needed to carry out the new regulations required by the measure. It is likely, however, that far more bureaucrats will need to be hired in coming years to administer the law as this technology grows.[13]
Importantly, no state agency has undertaken any sort of broader analysis of the economic impact of this bill on Virginia business, especially the small and mid-sized business that would be unduly impacted by the compliance costs associated with it. If Virginia passes HB 2094, it will add to a growing patchwork of state AI bills and add still more confusion and compliance costs to the mix.[14]
Virginia Has Better Ways to Address AI-Related Concerns
While there are some legitimate concerns about AI, and addressing algorithmic harms is important, there is a more sensible way to do so than we see in HB 2094.
While HB 2094 is meant to address “AI discrimination,” the reality is that the federal government and all U.S. states including Virginia already have many civil rights laws and consumer protection regulations in place that address such concerns. For example, the Virginia code includes provisions addressing discrimination in employment, housing, and public accommodations. Thus, any “algorithmic discrimination” that might be identified is already flatly illegal under both Virginia civil rights statutes and federal civil rights laws.
Consumer harms that might arise from AI systems are no different than harms created by any other product or sector, and there are many existing legal tools to address such harms if they indeed come about. The Virginia code specifically includes extensive consumer protection regulations and penalties for unfair and deceptive practices. The Virginia Attorney General’s office and state consumer protection offices can and do work with federal agencies and consumer protection officials and other agencies to address these problems.
The problem with HB 2094 is that it legislates based on speculative future harms about technologies that have not yet even been widely deployed to the public. That is basically the E.U.’s misguided approach to digital technology policy, and it has severely undermined innovation, competition, and job creation across that continent. Again, Virginia should not be treating AI innovators as guilty of unrealized activities, and any potential issues can be readily addressed under much of current state law.
Rather than adopting HB 2094 and creating new, burdensome regulatory requirements, Virginia should instead look to modify existing laws as needed to ensure they cover algorithmic systems. For example, measures like HB 2411 would give the Department of Law a Division of Consumer Counsel the ability to “establish and administer programs to address artificial intelligence fraud and abuse.”[15] Another proposal, HB 2554, would require new disclosure requirements for AI-generated content such that any generative artificial intelligence system produced content includes “a clear and conspicuous disclosure.”[16] While these laws would add some new regulatory requirements and budgetary expenditures, these measures at least have the benefit of being somewhat more focused in scope and intent than the open-ended nature of HB 2094.
If Virginia is looking to advance any broad-based AI legislation in the near-term, a better model can be found in a bill that Utah passed last year, which encourages innovators to work with the state to foster new AI applications and devise more balanced governance approaches through partnerships to mitigate regulatory risks.[17] Utah has created an AI Learning Laboratory to facilitate this and a so-called “sandbox” system to encourage creative and collaborative policy responses. Utah and other states have also wisely undertaken reviews of existing regulatory powers and programs to evaluate how they might already address AI-related concerns.[18] This represents a more constructive way forward on AI policy, and one that does not create a thicket of new innovation-killing mandates that would hurt companies and consumers alike.
Virginia should look to remain a leader in digital innovation with a forward-looking governance approach that embraces the AI future and its many benefits. For these reasons, I encourage you to oppose HB 2094.
Thank you,
Adam Thierer
Resident Senior Fellow, Technology and Innovation
R Street Institute
[1] Adam Thierer, “Getting AI Innovation Culture Right,” R Street Institute Policy Study №281 (March 2023). https://www.rstreet.org/research/getting-ai-innovation-culture-right.
[2] Adam Thierer, “The Policy Origins of the Digital Revolution & the Continuing Case for the Freedom to Innovate,” R Street Real Solutions, Aug. 15, 2024. https://www.rstreet.org/commentary/the-policy-origins-of-the-digital-revolution-the-continuing-case-for-the-freedom-to-innovate.
[3] U.S. Bureau of Economic Analysis, “U.S. Digital Economy: New and Revised Estimates, 2017–2022,” Dec. 6, 2023. https://apps.bea.gov/scb/issues/2023/12-december/1223-digital-economy.htm.
[4] Craig Kaiser, “Top States for Data Center Development,” Landgate, Dec. 31, 2024. https://www.landgate.com/news/top-states-for-data-center-development.
[5] Dwayne Yancey, “New census data shows a switch: More people are now moving into Virginia than out,” Cardinal News, Nov. 19, 2024. https://cardinalnews.org/2024/11/19/new-census-data-shows-a-switch-more-people-are-now-moving-into-virginia-than-out.
[6] “America’s Top States for Business 2024: The full rankings,” CNBC, July 11, 2024. https://www.cnbc.com/2024/07/11/americas-top-states-for-business-full-rankings.html.
[7] “Largest Tech Companies by Market Cap,” las accessed Jan. 24, 2025, https://companiesmarketcap.com/tech/largest-tech-companies-by-market-cap.
[8] Luis Garciano, “The Compliance Doom Loop,” Silicon Continent, Nov. 13, 2024. https://www.siliconcontinent.com/p/the-compliance-doom-loop; “The Biggest Loser,” The International Economy, (Spring 2022). https://www.international-economy.com/TIE_Sp22_EuropeTechLoser.pdf
[9] Dean Ball, “America is Sleepwalking into a Permanent DEI Bureaucracy That Regulates AI,” Pirate Wires, Nov. 11, 2024. https://www.piratewires.com/p/america-is-sleepwalking-into-a-permanent-dei-bureaucracy-regulating-ai.
[10] David S. Evans, “Why Can’t Europe Create Digital Businesses?” Market Platform Dynamics; Berkeley Research Group, LLC, May 2, 2024. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4781503
[11] Carlo Martuscelli and Hanne Cokelaere, “7 Ways the US is Beating Europe,” Politico, Oct. 3, 2024. https://www.politico.eu/article/united-states-europe-competition-covid-economy-gdp-food-cities-jobs-data.
[12] Mario Draghi, The future of European competitiveness — A competitiveness strategy for Europe, September 2024. https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en.
[13] https://lis.blob.core.windows.net/files/1026457.PDF.
[14] Dean Woodley Ball, “The Coming Year of AI Regulation in the States,” Tech Policy Press, Jan. 7, 2025. https://www.techpolicy.press/the-coming-year-of-ai-regulation-in-the-states.
[15] https://lis.virginia.gov/bill-details/20251/HB2411/text/HB2411.
[16] https://lis.virginia.gov/bill-details/20251/HB2554/text/HB2554.
[17] https://le.utah.gov/~2024/bills/static/SB0149.htm.
[18] Neil Chilson & Adam Thierer, “A Sensible Approach to State AI Policy,” Federalist Society Regulatory Transparency Project blog, Oct. 9, 2024. https://rtp.fedsoc.org/blog/a-sensible-approach-to-state-ai-policy.