Colorado Gives Businesses Breathing Room Before AI Act Takes Effect

Colorado legislators have approved a five-month delay for the implementation of the Colorado Artificial Intelligence Act (the "Act"), moving the start date from Feb. 1, 2026, to June 30, 2026. The decision follows a special legislative session called because of concerns stemming from compliance costs, industry lobbying, and fiscal impacts on businesses and the state. Colorado Budget Director Mark Ferrandino indicated that the law could cost the state alone between $2.5 million and $5 million annually to implement, and Colorado Governor Jared Polis indicated that the amount could be as much as $6 million per year. The Act, originally designed to address risks of algorithmic discrimination in sectors like employment, housing, and lending, will now give both lawmakers and businesses more time to clarify provisions and prepare compliance programs.

The Act is a comprehensive state law regulating the development and use of high-risk AI systems that make or significantly influence consequential decisions about people, such as those involving employment, education, housing, financial services, health care, insurance, and legal services. Developers and deployers of such AI systems are required to exercise reasonable care to identify and mitigate discrimination risks, maintain appropriate documentation, conduct risk assessments, and ensure transparency in consumer interactions with AI. Enforcement authority rests exclusively with the Colorado Attorney General, although the statute gives consumers certain appeal rights. Limited exemptions apply to small businesses and federally-regulated systems.

Context of the Delay

The extra time results from extensive disagreement over how best to regulate high-risk AI systems, with critics pointing to vague legislative language, preemptive disclosure requirements, and significant consumer rights within the Act that could result in significant innovation barriers. Industry groups, including major technology companies, lobbied heavily for amendment of the Act, emphasizing that rushed implementation might deter investment and innovation and result in significant compliance costs for businesses across Colorado. Supporters of the Act, including Act sponsor Colorado Senator Rodriguez, sought additional consumer protections and limitations on the implementation of AI. Both parties negotiated throughout the regular legislative session and the special session, but were unable to come to a satisfactory compromise on the substance of the Act. The short delay in implementation gives the parties another opportunity to review and potentially revise the law during the next legislative session.

Compliance Implications

Although the Act's requirements remain unchanged, businesses now have additional months to adopt risk management procedures, conduct mandatory impact assessments, and prepare required disclosures about their use of AI for decisive outcomes. The Colorado Attorney General retains the authority to develop detailed compliance rules; no regulations have yet been proposed.

Recommended Steps for Businesses

In light of this legislative development, businesses utilizing or developing high-risk AI systems should:

1. Continue assessing existing and planned AI deployments for compliance with the law's antidiscrimination and transparency obligations and develop thoughtful internal company AI policies.
2. Use the delay period to strengthen internal risk management frameworks that address foreseeable AI risks, with documentation and accountability measures.
3. Monitor ongoing legislative activity and prepare to adapt compliance programs when further amendments or regulatory clarifications emerge in early 2026.
4. Engage legal counsel and policy teams to ensure readiness for new rules and potential enforcement upon the law's effective date in June 2026.

Colorado's experience will likely influence future legislative efforts on AI in other states, so proactive preparation remains crucial for all enterprises subject to the law. Taft has the experience to help you evaluate and implement AI policies and risk management frameworks in compliance with all applicable laws, as well as political experience to engage in the continued discussions regarding the Act.

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