Colorado AI Law update: Special legislative session offers opportunity for revisions

Colorado Governor Jared Polis has called a special legislative session set to begin Aug. 21 to address Colorado’s AI law (the Colorado Artificial Intelligence Act or “CAIA”), which is currently scheduled to take effect Feb. 1, 2026. This development provides a significant opportunity for Colorado lawmakers to address industry concerns and clarify implementation requirements before the law becomes effective.

CAIA background

Colorado’s AI Act represents the nation’s first comprehensive state-level regulation of artificial intelligence systems in the United States. After the failure of reform legislation (SB 25-318) during Colorado’s 2025 regular legislative session, stakeholders have continued advocating for modifications to improve the law’s workability for businesses while preserving consumer protections.

The special session was called primarily to address a nearly $1 billion budget shortfall, with the AI law being a secondary consideration. Governor Polis stated he included the AI law “because he wants the legislature to at least have the chance to address the policy” but “didn’t take a position on whether it should be delayed or tweaked — or both.” This signals recognition that additional legislative work may be beneficial before implementation.

Current Colorado AI Law requirements

Once Colorado’s AI Act goes into effect on Feb. 1, 2026, it will apply to businesses using artificial intelligence systems for “consequential decisions.” Under the CAIA, a “consequential decision” means a decision that has a material legal or similarly significant effect on the provision or denial to any consumer of, or the cost or terms of:

1. Education enrollment or an education opportunity
2. Employment or an employment opportunity
3. A financial or lending service
4. An essential government service
5. Healthcare services
6. Housing
7. Insurance or
8. A legal service.

Covered AI systems include: Automated hiring and screening tools, credit scoring and loan approval algorithms, tenant and background screening systems, insurance underwriting platforms, customer service systems making substantive decisions, and various algorithmic decision-making tools

Key compliance obligations under the CAIA

Risk management framework: Implementation of comprehensive policies governing AI system deployment, including regular reviews and systematic updates throughout the technology lifecycle.

Impact assessments: Completion of detailed evaluations before deploying high-risk AI systems and annually thereafter, analyzing potential discrimination risks, data inputs, and system performance metrics.

Consumer disclosures: Provision of specified notifications before AI-driven decisions, including system purpose, developer information, and explanations of decision-making processes.

Appeals and correction rights: Establishment of processes allowing consumers to challenge adverse decisions and correct inaccurate personal data used in AI decision-making.

Documentation and recordkeeping: Maintenance of comprehensive records throughout system deployment and for three years following discontinuation.

The failed CAIA fix: SB 25-318

The CAIA faced immediate industry backlash, with companies arguing the original law was too broad and would capture everyday business tools rather than genuine AI applications. Colorado Senate Bill 25-318 was an outgrowth of Colorado lawmakers listening to these concerns and significantly pulling back from the original law’s sweeping scope. The revised legislation introduced crucial safe harbors for open-source AI developers and small businesses, while redefining “algorithmic discrimination” to require violations of specific existing civil rights laws rather than creating vague new standards. Perhaps most importantly, the bill would have fixed circular exemption language that had rendered technology exclusions meaningless, attempting to clearly protect routine tools like spam filters, calculators, and cybersecurity software.

The proposed changes also reflected a more pragmatic approach to AI governance. Instead of requiring companies to proactively prevent any “reasonably foreseeable” discrimination risks, a nearly impossible standard, SB 25-318 focused on actual violations of established anti-discrimination laws. Consumer protections remained robust, with enhanced disclosure requirements and appeal rights, but would have been limited to situations where AI is the “principal basis” for decisions rather than just a “substantial factor.” The implementation timeline would have been pushed back from February 2026 to January 2027, giving businesses crucial additional time to develop compliance systems.

Stakeholder pressure and concerns

Industry opposition to the current law has intensified significantly. Some 200 business leaders, including some of Colorado’s most prominent executives, have written the governor about their “collective concern” regarding the new law. The state AI task force warned in February that the law’s terminology and compliance burdens could overwhelm smaller employers and create uncertainty for developers.

In a significant development just days before the special session announcement, Colorado Attorney General Phil Weiser warned that the AI law “is really problematic, it needs to be fixed” and could “stifle innovation and push businesses elsewhere.” This represents a notable shift, as Weiser had previously co-signed letters with Governor Polis supporting modifications to the law. The Chamber of Progress and other tech industry groups have intensified their advocacy, particularly highlighting concerns about the law’s impact during a time of budget constraints.

CAIA special session possibilities

Based on the proposed aim and language of the failed SB 25-318, the following potential outcomes from the upcoming special session seem most likely:

Implementation delay

Colorado Gov. Jared Polis has called lawmakers back to the Colorado Capitol on Aug. 21 for a special legislative session to address the state’s budget issues, and to potentially delay the state’s artificial intelligence law from being implemented until 2027. This approach would provide additional time for stakeholder collaboration and regulatory guidance development.

Targeted amendments

Lawmakers could maintain the February 2026 effective date while making specific modifications, most likely those proposed in SB 25-318, to address implementation challenges, such as expanding small business exemptions, clarifying key definitions, or streamlining documentation requirements.

No changes

Of course, the law could simply proceed as currently written if legislators cannot reach consensus on modifications during the special session.

The special session length “will be up to the legislature” (but must last at least three days, the minimum time required to pass a bill in Colorado) according to Governor Polis, with lawmakers having flexibility in how long they debate these topics.

Federal considerations

An additional consideration for Colorado lawmakers is potential federal preemption. Federal lawmakers are considering language that would prevent states from passing and implementing AI laws for 10 years, though this language may not pass. This uncertainty adds urgency to resolving Colorado’s regulatory framework.

Recommended actions for companies doing business in Colorado

Colorado businesses should consider taking the following steps:

Assessment and planning

• Conduct comprehensive inventory of current AI system usage
• Evaluate which systems may qualify as “high-risk” under existing definitions
• Begin preliminary assessment of compliance requirements and associated costs

Stakeholder engagement

• Monitor special session developments and potential legislative changes
• Consider participating in industry association advocacy efforts
• Engage with legal counsel to understand specific compliance implications

Implementation preparation

• Develop preliminary compliance frameworks adaptable to final regulatory requirements
• Assess vendor relationships and contractual obligations related to AI systems
• Begin budget planning for potential compliance investments

Looking ahead

The special session represents an important opportunity for collaborative refinement of Colorado’s AI legislation. In announcing the special session, Governor Polis expressed openness to delaying the law’s implementation and working toward a more “workable and equitable” framework.

Regardless of the session’s outcome, businesses using AI systems in Colorado should prepare for new compliance obligations. The timeline and specific requirements may be clarified through the legislative process, but the fundamental regulatory framework is likely to remain in place.

We will continue monitoring developments during the special session and provide updates as additional information becomes available. Organizations with questions about the CAIA and their specific compliance obligations should consult with legal counsel to develop appropriate preparation strategies.

This publication is intended for general informational purposes only and does not constitute legal advice or a solicitation to provide legal services. The information in this publication is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional legal counsel. The views and opinions expressed herein represent those of the individual author only and are not necessarily the views of Clark Hill PLC. Although we attempt to ensure that postings on our website are complete, accurate, and up to date, we assume no responsibility for their completeness, accuracy, or timeliness.