by Rosanne Foust, President & CEO, San Mateo Economic Development Association and Clint Olivier, President & CEO, Central Valley Business Federation
As Californians, we pride ourselves in being leaders in technology and innovation. Many of our member companies have been pioneers in the industry and continue to create jobs, opportunities, and harness entrepreneurism. In 2023, Governor Gavin Newsom signed an executive order to prepare California for the progress of artificial intelligence (AI), and just last month he announced new initiatives to advance safe and responsible AI.
Governor Newsom has carefully balanced California’s approach to AI regulation with a thoughtful combination of programs to support innovation and regulations to ensure consumer protection, which includes recently vetoing several bills which would have allowed the State’s California Privacy Protection Agency (CPPA) to create overreaching new regulations detrimental to small and medium sized businesses.
Yet the CPPA continues to work on their new regulations that would give them oversight on AI and other automated decision-making tools (ADMT). They are doing this work despite the Governor’s opposition, and members of their own Board expressing these proposed regulations go beyond their scope and mission of protecting consumer data.
We collectively have a couple of major concerns about the CPPA’s Economic Impact Assessment they issued earlier this year; specifically the impact on 66 percent of the 66,000 businesses they identified as being impacted. Those being the small businesses that are the “backbone of our economy.”
From the CPPA’s risk assessment, the estimated costs in the first year of the annual ADMT requirements, cybersecurity audits, and risk assessments will be more than $1.2 billion, and more than $900 million year after year. We do understand that businesses that need to comply, should pay for these protections and protocols, however, the industries that have most egregious cybersecurity breaches have been exempted from the CPPA regulations. Those being government, nonprofits, and healthcare.
According to the California Foundation for Commerce & Education, the Tech Sector and its supported activity account for 30 percent of California’s total tax revenue generation. Our state legislators like to tout California as the “technology capital of the world,” but it feels like the state’s youngest agency would like to see that change, despite the Governor and other leaders making commitments towards a future in tech.
One other concern we have is with the CPPA anticipated negative impacts on the overall California economy after implementing these suggested regulations. All their calculations are from 2022, so we anticipate these are a little lower given natural
inflation our state and nation have been faced with, also the increased cost of these services that will be required causing a demand in the market.
The CPPA anticipates a negative $31 billion in direct impact costs and profit margins to businesses. They also anticipate an investment shortfall of an additional negative $50 billion.
Over the next 10-12 years, they project a net loss of nearly 100,000 jobs, while our state already has the second highest unemployment rate in the United States at 5.3%, according to the US Bureau of Labor Statistics from last month.
And lastly, the CPPA projects a loss of $27 billion in our Gross State Product which will ultimately weaken our total economic output production.
We will be bringing these concerns to the CPPA Board at their meeting on November 8th. But we feel the California public needs to know what is happening, and we are doing everything we can to educate businesses of all sizes and industries about the severe economic impact these regulations will have on the Bay Area, Central Valley, and entire Golden State economy. The Governor and state legislature need to regain oversight on this fast-growing and overreaching agency.
We are already $68 billion in a deficit. Let’s not make a bad situation worse.
