By: Parker S.B. No. 1964

A BILL TO BE ENTITLED

AN ACT

relating to the regulation and use of artificial intelligence systems and the management of data by governmental entities.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 2054.003, Government Code, is amended by adding Subdivisions (1-a), (2-b), (6-a), and (6-b) to read as follows:

(1-a) "Artificial intelligence system" means a machine-based system that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environment. Different artificial intelligence systems vary in their levels of autonomy and adaptiveness after deployment.

(2-b) "Controlling factor" means a factor that is:

(i) the principal basis for making any decision that has a material legal or similarly significant effect on the provision, denial, or conditions of a person's access to a government service;

(ii) capable of altering the outcome of a any decision that has a material legal or similarly significant effect on the provision, denial, or conditions of a person's access to a government service; and

(iii) is generated by an artificial intelligence system.

(6-a) "Heightened scrutiny artificial intelligence system" means an artificial intelligence system that is specifically intended to autonomously make, or be a substantial controlling factor in making, any decision that has a material legal or similarly significant effect on the provision, denial, or conditions of a person's access to a government service. The term does not include an artificial intelligence system intended to:

(i) perform any narrow procedural task;

(ii) improve the result of a previously completed human activity;

(iii) perform a preparatory task to an assessment relevant to a any decision that has a material legal or similarly significant effect on the provision, denial, or conditions of a person's access to a government service; or

(iv) detect decision-making patterns or deviations from previous decision-making patterns

(6-b) "Principal basis" means the use of an output of a heightened scrutiny artificial intelligence system to make a decision without:

(A) human review, oversight, involvement, or intervention; or

(B) meaningful consideration by a human.

SECTION 2. Section 2054.068(b), Government Code, is amended to read as follows:

(b) The department shall collect from each state agency information on the status and condition of the agency's information technology infrastructure, including information regarding:

(1) the agency's information security program;

(2) an inventory of the agency's servers, mainframes, cloud services, artificial intelligence systems, including heightened scrutiny artificial intelligence systems, and other information technology equipment;

(3) identification of vendors that operate and manage the agency's information technology infrastructure; and

(4) any additional related information requested by the department.

SECTION 3. Section 2054.0965, Government Code, is amended by amending Subsection (b) and adding Subsection (c) to read as follows:

(b) Except as otherwise modified by rules adopted by the department, the review must include:

(1) an inventory of the agency's major information systems, as defined by Section 2054.008, and other operational or logistical components related to deployment of information resources as prescribed by the department;

(2) an inventory of the agency's major databases and applications;

(3) a description of the agency's existing and planned telecommunications network configuration;

(4) an analysis of how information systems, components, databases, applications, and other information resources have been deployed by the agency in support of:

(A) applicable achievement goals established under Section 2056.006 and the state strategic plan adopted under Section 2056.009;

(B) the state strategic plan for information resources; and

(C) the agency's business objectives, mission, and goals;

(5) agency information necessary to support the state goals for interoperability and reuse; [and]

(6) an inventory and identification of the artificial intelligence systems and heightened scrutiny artificial intelligence systems deployed by the agency, including an evaluation of the purpose of and risk mitigation measures for each system and an analysis of how each system supports the agency's strategic plan under Subchapter E; and

(7) confirmation by the agency of compliance with state statutes, rules, and standards relating to information resources and artificial intelligence systems, including the artificial intelligence system code of ethics developed under Section 2054.702, and minimum standards developed under Section 2054.703.

(c) Local governments shall complete a review of the deployment and use of a heightened scrutiny artificial intelligence system and provide the review to the department, in a manner described by the department.

SECTION 4. Section 2054.137, Government Code, is amended by adding Subsection (a-1) and amending Subsection (c) to read as follows:

(a-1) A state agency with 150 or fewer full-time employees may:

(1) designate a full-time employee of the agency to serve as a data management officer; or

(2) enter into an agreement with another state agency or agencies to jointly employ a data management officer if approved by the department.

(c) In accordance with department guidelines, the data management officer for a state agency shall annually post on the Texas Open Data Portal established by the department under Section 2054.070 at least three high-value data sets as defined by Section 2054.1265. The high-value data sets may not include information that is confidential or protected from disclosure under state or federal law.

SECTION 5. Chapter 2054, Government Code, is amended by adding Subchapter S to read as follows:

SUBCHAPTER S. ARTIFICIAL INTELLIGENCE

Sec. 2054.701. DEFINITION. In this subchapter, "unlawful harm" means any condition in which the use of an artificial intelligence system results in any decision that has a material legal or similarly significant effect on an individual who is a member of a state or federally protected class's denial, or conditions of a government service in violation of law. The term does not include a developer's or deployer's offer, license, or use of a heightened scrutiny artificial intelligence system for the sole purpose of testing the system before deployment to identify, mitigate, or otherwise ensure compliance with state and federal law.

Sec. 2054.702. ARTIFICIAL INTELLIGENCE SYSTEM CODE OF ETHICS. (a) The department by rule shall establish an artificial intelligence system code of ethics for use by state agencies and local governments that procure, develop, deploy, or use a heightened scrutiny artificial intelligence system.

(b) At a minimum, the artificial intelligence system code of ethics must include the following principles for state agencies to guide the adoption of heightened scrutiny artificial intelligence systems and that align with the National Institute of Standards and Technology's Artificial Intelligence Risk Management Framework on:

(1) Human oversight and control;

(2) Fairness and Accuracy;

(3) Transparency;

(4) Consumer disclosures;

(5) Data privacy and security;

(6) Accountability and liability;

(7) Continuous evaluation and improvement;

(8) Public redress.

Sec. 2054.703. MINIMUM STANDARDS FOR HEIGHTENED SCRUTINY ARTIFICIAL INTELLIGENCE SYSTEMS. (a) The department by rule shall develop minimum risk management and governance standards for the development, procurement, deployment, and use of heightened scrutiny artificial intelligence systems by a state agency or local government.

(b) The minimum standards must be consistent with the Artificial Intelligence Risk Management Framework (AI RMF 1.0) published by the National Institute of Standards and Technology and must:

(1) establish accountability measures, such as required reports describing the use of, limitations of, and safeguards for the heightened scrutiny artificial intelligence system;

(2) require the assessment and documentation of the heightened scrutiny artificial intelligence system's known security risks, performance metrics, and transparency measures:

(A) before deploying the system; and

(C) at the time any material change is made to:

(i) the system;

(ii) the state or local data used by the system; or

(iii) the intended use of the system;

(3) provide resources to local governments to advise on the management of heightened scrutiny artificial intelligence system procurement and deployment, data protection measures, and employee training; and

(4) establish guidelines for:

(A) risk management frameworks, acceptable use policies, and training employees; and

(B) mitigating the risk of unlawful harm by contractually requiring third party vendors to implement risk management system frameworks when deploying heightened scrutiny artificial intelligence systems on behalf of state agencies or local governments.

(c) State agencies and local governments shall both adopt the code of ethics developed under Section 2054.702 and the standards developed under Subsection (b).

Sec. 2054.704. EDUCATIONAL OUTREACH PROGRAM. (a) The department shall develop educational materials on artificial intelligence systems to promote the responsible use of the systems and awareness of the risks and benefits of system use, explain consumer rights in relation to the systems, and describe risk mitigation techniques.

(b) The department shall develop training materials for state and local government employees and the general public. The training materials must be made available on the department's public Internet website.

(c) The department shall host statewide forums and training sessions on artificial intelligence systems best practices for state and local government employees.

(d) The department may:

(1) use money appropriated to the department to produce materials required by this section; and

(2) contract with a vendor to produce those materials.

Sec. 2054.705. PUBLIC SECTOR ARTIFICIAL INTELLIGENCE SYSTEMS ADVISORY BOARD. (a) A public sector artificial intelligence systems advisory board is established to assist state agencies in the development, deployment, and use of artificial intelligence systems.

(b) The advisory board shall obtain and disseminate information on artificial intelligence systems, including use cases, policies, and guidelines, facilitate shared resources between state agencies, and consult with the department on artificial intelligence systems issues.

(c) The department shall provide administrative support for the advisory board.

(d) The advisory board is composed of eight members as follows:

(1) six members representing state agencies, including one member representing an agency with fewer than 150 employees, appointed by the governor; and

(2) two public members, appointed by the governor or the governor's designee, with technology expertise.

(e) Advisory board members serve two-year terms. Advisory board members may be reappointed.

(f) Advisory board members are not entitled to compensation or reimbursement of expenses for service on the advisory board.

(g) The advisory board shall direct state agencies to:

(1) Identify opportunities to implement AI solutions that reduce administrative burdens;

(2) Recommend the elimination of regulations that unnecessarily restrict AI innovation; and

(3) Identify opportunities to streamline procurement processes to enable AI adoption.

Sec. 2054.706. ARTIFICIAL INTELLIGENCE SYSTEM SANDBOX PROGRAM. (a) In this section:

(1) "Eligible entity" means an eligible customer under Section 2054.0525.

(2) "Program" means the program established by this section that is designed to allow temporary testing of an artificial intelligence system in a controlled, limited manner without requiring full compliance with otherwise applicable regulations.

(3) "Vendor" means a person registered with the department as a contractor to provide commodity items under Section 2157.068.

(b) The department shall establish and administer a program to support eligible entities in contracting with vendors to engage in research, development, training, testing, and other pre-deployment activities related to artificial intelligence systems to effectively, efficiently, and securely assist the entity in accomplishing its public purposes.

(c) The department shall create an application process for vendors to apply to participate in the program. The application process must include:

(1) a detailed description of the artificial intelligence system proposed for participation in the program and the system's intended use;

(2) a risk-assessment of the system that addresses potential impacts on the public; and

(3) a plan for mitigating any adverse consequences discovered during the system's testing phase.

(d) A vendor participating in the program shall, with oversight by the department, provide eligible entities with secure access to an artificial intelligence system used in the program.

(e) The department shall provide to vendors and eligible entities participating in the program detailed guidelines regarding the exemption from compliance with otherwise applicable regulations provided by the program.

(f) The eligible entities and vendors shall submit quarterly reports to the department that include:

(1) performance measures for the artificial intelligence system;

(2) risk mitigation strategies implemented during system testing;

(3) feedback on program effectiveness and efficiency; and

(4) any additional information the department requests.

(g) Not later than November 30 of each even-numbered year, the department shall produce an annual report and submit the report to the legislature summarizing:

(1) the number of eligible entities and vendors participating in the program and the program outcomes; and

(2) recommendations for legislative or other action.

(h) Notwithstanding Section 2054.383, the department may operate the program as a statewide technology center under Subchapter L.

Sec. 2054.707. DISCLOSURE REQUIREMENTS. (a) A state agency that procures, develops, deploys, or uses an artificial intelligence system shall provide clear disclosure of the system to the public as provided by the artificial intelligence system code of ethics established under Section 2054.702.

(b) A vendor contracting with a state agency to deploy or operate an artificial intelligence system must also provide the disclosure required under Subsection (a).

Sec. 2054.708. IMPACT ASSESSMENTS. (a) A state agency that deploys or uses an artificial intelligence system or a vendor that contracts with a state agency for the deployment or use of a system shall conduct a semiannual system assessment that outlines:

(1) risks of unlawful harm;

(2) system limitations; and

(3) information governance practices;

(b) The state agency or vendor shall submit make available a copy of the assessment to the department upon request.

(c) The impact assessments created under this section are confidential and not subject to disclosure under Chapter 552. The state agency or department may redact or withhold the information as confidential under Chapter 552 without requesting a decision from the attorney general under Subchapter G, Chapter 552.

(d) The Department shall take all necessary steps to ensure the confidentiality of Submitted Information, including but not limited to, restricting access to submitted information to authorized personnel only and implementing physical, electronic, and procedural safeguards to protect submitted information.

Sec. 2054.710. ENFORCEMENT. (a) If a state agency or vendor is made aware that a violation of this subchapter has occurred, the agency or vendor shall report the violation to the department, if applicable, and the attorney general.

(b) The attorney general shall:

(1) review a report submitted under this section or a complaint reported through the webpage established under Section 2054.711; and

(2) determine whether to bring an action to enjoin a violation of this subchapter.

(c) If the attorney general determines that a vendor violated this subchapter, the attorney general shall provide the vendor with a written notice of the violation. The vendor shall have 30 days from the date of the notice to cure the violation.

(d) If the vendor fails to cure the violation within the 30-day period specific in subsection (c), the state agency may void the contract without further obligation to the vendor. The state agency shall provide the vendor with a 30-day notice of its intent to void the contract, during which time the vendor may address any remaining issues to the satisfaction of the state agency.

(e) If the vendor does not satisfactorily address the issues within the 30-day notice period specified in subsection (d), the state agency may void the contract without further obligation to the vendor.

(d) If the department determines that a vendor has had more than one contract voided under Subsection (c), the department shall refer the matter to the comptroller. Using procedures prescribed by Section 2155.077, the comptroller may bar the vendor from participating in a state agency contract.

Sec. 2054.711. ARTIFICIAL INTELLIGENCE SYSTEM COMPLAINT WEBPAGE. (a) The attorney general shall, in collaboration with the department, establish a webpage on the attorney general's Internet website that allows a person to report a complaint relating to artificial intelligence systems, including:

(1) instances of an artificial intelligence system allegedly unlawfully infringing on the person's constitutional rights or financial livelihood; or

(2) the use of an artificial intelligence system that allegedly results in unlawful harm.

(b) A complaint submitted on the webpage created under Subsection (a) must be distributed to the department.

(c) A person who submits a complaint on the webpage created under Subsection (a) may request from the department an explanation as provided by Section 2054.702(b)(1)(D).

(d) The attorney general shall post on the attorney general's Internet website information that:

(1) educates persons regarding the risks and benefits of artificial intelligence systems; and

(2) explains a person's rights in relation to artificial intelligence systems.

(e) Not later than November 30 of each even-numbered year, the attorney general shall submit to the legislature a report summarizing the complaints received under this section, the resolutions of the complaints, and any enforcement actions taken.

Sec. 2054.712. STANDARDIZED NOTICE. (a) Each state agency and local government that deploys or uses an artificial intelligence system that the public directly accesses or that is a controlling factor in a any decision that has a material legal or similarly significant effect on the provision, denial, or conditions of a person's access to a government service shall include a standardized notice on all related applications, Internet websites, and public computer systems.

(b) The department shall develop a form that agencies must use for the notice required under Subsection (a). The form must include:

(1) general information about the system;

(2) information about the data sources the system uses; and

(3) measures taken to maintain compliance with information privacy laws and ethics standards.

Sec. 2054.713. RULES. The department shall adopt rules to implement this subchapter.

SECTION 6. (a) As soon as practicable after the effective date of this Act, the Department of Information Resources shall:

(1) adopt rules necessary to implement Subchapter S, Chapter 2054, Government Code, as added by this Act; and

(2) develop the outreach program and form required by Sections 2054.704 and 2054.712, Government Code, as added by this Act.

(b) As soon as practicable after the effective date of this Act, the office of the attorney general shall establish the webpage as required by Section 2054.711, Government Code, as added by this Act.

SECTION 7. This Act takes effect September 1, 2025.