California Tightens AI Contract Rules as Fight With Trump Admin Grows

The conflict between Washington and the states over artificial intelligence policy escalated Monday after California Governor Gavin Newsom signed an executive order requiring stronger safeguards from AI companies seeking state contracts.

According to the order, companies selling AI systems to California agencies will be required to demonstrate policies that prevent misuse and protect privacy, security, and civil rights.

“California’s always been the birthplace of innovation. But we also understand the flip side: in the wrong hands, innovation can be misused in ways that put people at risk,” Newsom said in a statement. “California leads in AI, and we’re going to use every tool we have to ensure companies protect people’s rights, not exploit them or put them in harm’s way. While others in Washington are designing policy and creating contracts in the shadow of misuse, we’re focused on doing this the right way.”

Newsom’s order directs the state’s Government Operations Agency to develop procurement standards for AI vendors that address issues including illegal content generation, model bias, and risk to civil rights and freedom of speech. The order also directs the California Department of Technology to develop recommendations for watermarking AI-generated images and manipulated video.

The order places California in conflict with the Donald Trump administration’s effort to establish national AI standards and limit state-level regulation. Earlier this month, the Trump administration released a national artificial intelligence policy framework urging Congress to establish federal standards and reduce what officials describe as a patchwork of state AI regulations.

Kevin Frazier, an adjunct research fellow at the Cato Institute, said the dispute reflects a longstanding constitutional balance between state and federal authority.

“Every technological breakthrough—from the steamboat to superintelligence—raises key questions about how to allocate regulatory authority between the states and the federal government,” Frazier told Decrypt. “The Constitution provides a clear answer: the federal government must lead on matters of economic and national security as well as those demanding a uniform response; states can exercise their traditional police powers within their borders.”

Frazier called Newsom’s executive order “a prime example of federalism in action,” and said that companies that reject California’s requirements can choose not to sell to the state.

“Meanwhile, Congress is still in a position to set the terms of the pace and direction of the country’s AI ambitions,” he said.

Quinn Anex-Reis, a senior policy analyst at the Center for Democracy and Technology, said California’s size and purchasing power mean it could influence how companies design and test AI systems if they want to sell to the state.

“Government contracting is very valuable to companies,” Anex-Reis told Decrypt. “It’s a huge part of business for technology developers generally, and a growing avenue of business for AI developers specifically.”

He said procurement rules are one of the most effective ways governments can shape how AI systems are developed and evaluated.

“The procurement process is a really important place to pay attention to,” Anex-Reis said. “Because that’s really the most important place the state can look to set protections and expectations about how vendors develop their tools.”

Newsom has emerged as a national Democratic figure and potential 2028 presidential candidate. A recent Politico–UC Berkeley Citrin Center poll found him leading former Vice President Kamala Harris by 14 points among likely Democratic primary voters in California.

The policy clash over AI regulation places him in direct conflict with the Trump administration as debates intensify over who should set the rules governing the technology. Last summer, the Trump administration ordered federal agencies to avoid contracts with what it called “woke AI” models and to procure systems that demonstrate ideological neutrality.

Despite that, Anex-Reis said the question around AI regulation is bigger than politics.

“This really shouldn’t be a political issue,” Anex-Reis said. “This is really about making sure taxpayer dollars aren’t wasted and that the tools that our government buys works.”