Colorado lawmakers are moving to rewrite the state’s first-in-the-nation artificial intelligence regulations. Mounting criticism of the poorly crafted effort comes not just from the technology industry, but also includes the prime legislative sponsor of the original bill–Senator Robert Rodriguez–as well as Governor Jared Polis, who ironically enough signed the measure in to law.
The reform effort comes as the state faces a high-profile federal lawsuit from Elon Musk’s AI company, xAI, which argues the law is unconstitutional.
Swing and a miss
Senate Bill 205, passed in 2024, aimed to curb “algorithmic discrimination” in high-risk AI systems. But almost immediately after its passage, concerns emerged.
Colorado’s top elected officials, including Governor Jared Polis, Attorney General Phil Weiser, U.S. Senator Michael Bennet, and Representatives Joe Neguse and Brittany Pettersen, called on state lawmakers to delay implementation of the law, warning it could harm the state’s economy.
In a series of joint letters, they urged the legislature to pause the rollout until 2027, citing the need for a framework that protects consumers “without stifling innovation or driving business away from our state.”
Even Polis, who signed the bill into law “with reservations,” cautioned that a patchwork of state-level regulations could hamper innovation and deter competition. He was the fist governor to call for a national 10-year moratorium of new AI legislation.
Industry groups echoed those concerns. Technology coalitions warned the law was “deeply flawed,” arguing that trying to rigidly define artificial intelligence risks imposing oppressive burdens on emerging companies.
A second bite
The proposed rewrite, Senate Bill 26-189, represents a significant shift in approach.
Rather than requiring companies to proactively prevent algorithmic discrimination through risk management programs and impact assessments, the new law focuses on transparency and consumer rights. Companies would be required to disclose how artificial intelligence is being used, but would face fewer internal compliance mandates.
Complicating matters is a lawsuit filed in federal court by xAI, which seeks to block enforcement of the original law entirely.
The company argues that SB-205 violates the First Amendment by effectively compelling AI developers to adopt the state’s preferred viewpoints. According to the complaint, the law would force companies to alter AI outputs to align with government-defined concepts of fairness and discrimination.
“[The law] seeks to force xAI to abandon its disinterested pursuit of truth and instead promote the State’s ideological views,” the lawsuit states.
Additionally, xAI lawsuit claims the law is unconstitutionally vague, leaving key terms undefined and granting broad discretion to regulators, which could lead to arbitrary enforcement.
On April 27th, the U.S. District Court in Colorado singed off on a stipulation between xAI and Colorado Attorney General Phil Weiser, to delay enforcement of the 2024 law. This stipulation also extends to “or any legislation replacing or amending SB24-205 enacted during this legislative session.”
High stakes
Federal officials have warned that a patchwork of state laws could undermine U.S. competitiveness in a rapidly evolving global AI race. At the same time, consumer advocates continue to push for safeguards against what they consider bias and discrimination in automated decision-making.
For Colorado, the stakes are particularly high. The state has positioned itself as a technology hub, but critics argue that overly aggressive regulations could drive companies elsewhere, a warning that became reality when Palantir, Colorado’s largest company based on market capitalization, fled the state earlier in the year, citing Colorado’s overburdensome regulatory landscape.
As lawmakers consider the rewrite, they face a difficult balancing act: crafting a law that protects consumers without discouraging the very innovation Colorado has, in part, bet its economic future on.
Whether lawmakers can pull off that balancing act remains to be seen.
Vanessa Rutledge is Senior Fellow in Emerging Technologies at Independence Institute, a free market think tank in Denver.

