What Texas Businesses Must Know About Proposed AI Regulation

4 Min. Read

Understanding the Implications and Staying Competitive Amid Proposed AI Laws

The regulatory landscape for artificial intelligence (AI) is evolving rapidly. Texas House Bill 1709, introduced as the Texas Responsible AI Governance Act, exemplifies a growing trend in state legislatures seeking to formalize AI governance. Indeed, with federal regulations surrounding AI in a state of flux, there may be an increased drive for states to enact legislation that mitigates the potential risks of AI and provides clarification to organizations that seek to develop and deploy AI. Thus, while HB 1709 is a proposed bill it raises important considerations for business leaders developing, deploying, or relying on AI systems.

Moreover, recent executive orders at the federal level have signaled increased attention to AI oversight and innovation. Whether or not HB 1709 ultimately passes, it underscores a broader movement toward more comprehensive AI regulations. Organizations that proactively prepare will be best positioned to respond effectively, no matter what final shape any state or federal AI regulation takes.

This overview explores the potential impact of HB 1709 and, more importantly, the broader regulatory trends shaping AI oversight. By taking practical steps now, leaders can transform compliance considerations into strategic opportunities.

Proposed Texas House Bill 1709: An Overview

Though not yet enacted, HB 1709 as drafted aims to introduce rigorous standards for the design, deployment, and use of AI systems in high-stakes areas such as healthcare, finance, housing, and employment. Key provisions focus on:

• Transparency: Requirements for clear disclosures when AI is used to make decisions that affect individuals’ lives.
• Accountability: Clear lines of responsibility for AI developers and deploying organizations.
• Risk Mitigation: Specific obligations to identify, assess, and mitigate potential bias or misuse in “high-risk” AI systems.

Because these provisions mirror elements of new or proposed laws in other states (and echo aspects of recent federal executive orders), they highlight a broader regulatory trend. Regardless of this specific bill’s outcome, business leaders should anticipate increased scrutiny of AI activities and begin laying the groundwork for responsible AI strategies now.

Similar Laws Already Enacted in Other States

While HB 1709 remains under consideration, other states have already enacted AI legislation that shares key elements with the Texas proposal:

1. Colorado's AI Act (effective February 2026):
   • Adopts similar risk-based approach targeting "high-risk" AI systems
   • Requires developers and deployers to exercise "reasonable care" in preventing algorithmic discrimination
   • Mandates transparency through system disclosure requirements
2. California's AI Transparency Act (effective January 2026):
   • Requires free AI detection tools from generative AI developers
   • Implements content marking requirements for AI-generated material
   • Establishes clear penalty structures for violations
3. Illinois has enacted focused AI regulations through:
   • Civil rights law updates specifically addressing AI applications
   • Legislation covering AI-generated digital likenesses

These enacted laws demonstrate the broader regulatory momentum across states. While HB 1709 proposes a more comprehensive framework, these existing regulations offer insights into how states are approaching AI governance. Organizations operating across state lines should particularly note these existing requirements while monitoring Texas developments.

Why Leadership Should Pay Attention—Even to a Proposal

1. Regulatory Momentum: Legislative proposals related to AI are surfacing across the country. While HB 1709’s passage is uncertain, it reflects a nationwide push, especially in states like California, New York, and Illinois, to clarify AI obligations. The future will almost certainly bring further state-level initiatives or federal mandates, influenced by executive orders and ongoing policy debates.
2. Potential for Amendment or Future Reintroduction: Even if HB 1709 does not pass in its current form, some or all of its provisions could resurface in revised legislation or new bills. Lawmakers often draw on prior attempts, and the rapid pace of AI advancement will likely keep governance on the legislative agenda.
3. Preemptive Risk Management: Preparing for possible AI regulations positions businesses to adapt more smoothly when laws do pass or when regulators or executive orders tighten existing rules. Proactive measures enhance consumer trust, reduce legal exposure, and bolster market reputation.

Strategic Priorities for Leadership

1. Talent Development and Upskilling: AI strategy and governance requires interdisciplinary skills, from data science and ethics to legal compliance. Leaders should invest in ongoing training or consider hiring professionls adept in AI policy and risk management. Building these capabilities now ensures organizations can respond swiftly to new legislation, whether at the state or federal level.
2. Cross-Functional Oversight: As echoed in several state proposals and federal directives, effective AI governance calls for collaboration among legal, IT, HR, and business units. Consider forming an internal oversight committee that regularly reviews AI deployments, identifies risk areas, and stays abreast of policy changes, both locally and nationally.
3. Transparency as a Leadership Imperative: Whether mandated by new legislation or best-practice standards, transparency fosters stakeholder trust. Leaders should proactively develop communication strategies around AI-driven decisions, ensuring consumers and employees understand when and how AI influences outcomes.
4. Preparing for Potential “High-Risk” Criteria: Given HB 1709’s focus on high-impact areas like finance, healthcare, and housing, organizations operating in these sectors should expect closer scrutiny. Even if the Texas bill does not pass, other legislation, state or federal, may still define “high-risk” categories similarly. Align existing AI systems with emerging best practices to minimize future legal or reputational harm.

Turning Compliance into Competitive Advantage

Regardless of the immediate fate of HB 1709, the drive toward responsible AI is unlikely to slow. Indeed, many legislative proposals also emphasize AI experimentation and innovation, evidenced by ideas like:

• Regulatory Sandboxes: Modeled after programs in states like Utah, these frameworks allow businesses to develop and test AI solutions under relaxed rules. If a sandbox proposal becomes part of future Texas or federal initiatives, it could offer companies a space to innovate responsibly without excessive legal risk.
• Ethics Councils and Advisory Boards: As seen in bills across the nation, councils or task forces often help shape AI policy. Proactive engagement—through direct input or by adopting recommended guidelines—can position organizations as thought leaders and responsible innovators.

Forward-thinking organizations that invest in compliance structures, transparent practices, and cross-functional governance now will likely be best prepared to leverage these opportunities. While regulations can pose hurdles, they can also catalyze trust-building, differentiate ethical market leaders, and attract top industry talent.

Practical Next Steps

1. Review Your AI Strategy: Examine how AI supports core business processes. Identify areas, particularly in “high-risk” use cases, where potential legislation would impose new obligations.
2. Establish (or Refine) AI Steering Committees: If you haven’t already, create a dedicated team to track legislative developments, oversee AI risk management, and steer compliance. Ensure direct reporting to senior leadership.
3. Invest in Education and Training: Foster a culture of responsible AI by training employees on ethics, data privacy, and evolving regulations at both state and federal levels. Early education can prevent costly missteps later.
4. Collaborate with Experts: External advisors knowledgeable about emerging AI laws can provide tailored strategies. This includes preparing for state-level initiatives, like HB 1709 in Texas, and upcoming federal guidance or executive orders.
5. Stay Agile: Legislative landscapes can shift quickly. Keep flexible structures in place so your organization can adapt to amended bills, new mandates, and updated federal guidance without disrupting core operations.

Looking Ahead: Leaders in the AI Era

While the future of HB 1709 remains uncertain, its introduction underscores a broader regulatory and ethical trend that continues to unfold. Businesses that adopt a forward-thinking approach to AI governance, aligning with emerging best practices for transparency, accountability, and risk mitigation, will be positioned to thrive, regardless of the final shape these laws take.

By proactively investing in AI oversight, education, and cross-functional collaboration now, leaders can ensure that their organizations are not only prepared for potential compliance requirements in Texas but also well-equipped to handle the evolving federal regulatory environment. This alignment of responsible AI practices with strategic goals transforms compliance into a catalyst for innovation, consumer trust, and sustainable growth.

Key Takeaways

• HB 1709 is a Proposed Bill: While its passage is uncertain, the mere introduction signals a broader push for AI regulation in Texas and beyond.
• Align with Growing National & Federal Trends: Recent executive orders and parallel legislation in other states point to greater oversight of AI systems.
• Invest Early in Governance & Talent: Preparing now makes regulatory compliance smoother later and opens doors to ethical AI leadership.
• Turn Constraints into Opportunities: Effective AI governance can foster consumer trust, reduce risk, and differentiate your organization in a crowded market.

Meet the Authors

Lisa Hooker MANAGING PARTNER, GLOBAL TECHNOLOGY PRACTICE LEADER

Bennett Borden FOUNDER & CEO, CLARION AI PARTNERS