The California economy and state leadership in the global artificial intelligence (AI) industry will be hurt by a pending bill that aims to establish a model for training AI, according to a recent analysis.
If the bill, SB 1047 (Wiener; D-San Francisco), passes, substantial portions of the California industries related to AI will cease operations or move out of the state, the analysis by Encina Advisors, LLC concludes.
SB 1047’s provisions would create substantial uncertainty around liability for both AI-related startups and established companies operating in California, according to the analysis.
Opponents of SB 1047 include a coalition of business and industry groups led by the California Chamber of Commerce; leading California Democratic Congressional representatives, including the former Speaker of the House and a member on the U.S. House committee with jurisdiction over AI; a renowned computer scientist; and academic researchers from seven University of California campuses, plus the University of Southern California and Stanford University.
California Dominance
California currently dominates the global AI industry. Forbes reports the state is home to 32 of the top 50 most promising privately held AI companies.
In 2023, AI-related startups in the San Francisco Bay Area received an estimated $27.4 billion in investments — 52.6% of the global total — from seed, venture and private equity investors. Moreover, companies in the San Francisco Bay Area were responsible for 59% of AI-related job postings in the United States, according to data from late 2023 from Comprehensive.io.
Economic Impact
A look at current state tax revenue related to AI industry companies and the high-paying jobs of industry employees offers a glimpse at the potential fallout if the companies and related jobs are eliminated or move out of state, according to the analysis:
• California received an estimated $17.6 billion in capital gains taxes in 2023, up from $7.6 billion 10 years earlier (a 32% increase), according to the California Department of Finance. While AI-related companies produced just a portion of this tax revenue, the growth of the industry is expected to be similar over the next decade.
• California’s AI jobs are high-paying ones and generate significant tax revenue. In 2023 for just one AI-related sector, an annual average of 3,496 establishments were located in the state with annual employment of 111,259 and total wages of $24 billion. The annual wage in the industry was $215,968.
• Assuming single-filing status, the same AI-related sector generated about $1.86 billion in California state income taxes in 2023.
Leaders in Opposition
In a commentary for Fortune on August 6, renowned computer scientist Dr. Fei-Fei Li said the bill was “well-meaning,” but warned that due to the penalties and restrictions the legislation sets on open-source development, SB 1047 will not just harm innovation in California, but in the entire country as well.
In an August 7 letter to the author of SB 1047, Congresswoman Zoe Lofgren (D-San Jose) said that while she firmly supports AI governance to guard against demonstrable risks to public safety, “unfortunately, this bill would fall short of these goals — creating unnecessary risks for both the public and California’s economy.”
On August 16, former House Speaker Nancy Pelosi issued a statement in opposition to SB 1047, pointing out that, “AI springs from California. We must have legislation that is a model for the nation and the world. We have the opportunity and responsibility to enable small entrepreneurs and academia — not big tech — to dominate.”
Signing a statement of opposition to SB 1047 are academic AI researchers — faculty, postdoctorate, and graduate students of the University of California at Berkeley, Davis, Los Angeles, Riverside, San Diego, Santa Barbara, and Santa Cruz, and postdoctorate and graduate students of the University of Southern California and Stanford University. To read their statement, click here.
