What's Happening?
The divergence between federal and state approaches to AI regulation is creating significant challenges for nonprofits operating across multiple jurisdictions. Federal efforts to preempt state-level AI laws have introduced uncertainty, as states continue
to experiment with protections related to algorithmic discrimination, transparency, and government use. This regulatory conflict affects nonprofits' eligibility, procurement requirements, compliance obligations, and liability exposure. The governance gap is becoming more consequential, as nonprofits are often left to manage the harms caused by AI systems without having authority over them. The sector is largely unprepared for this shift, with only a small minority of nonprofits having formal policies governing AI use. This reflects a broader failure to treat AI as a governance issue rather than just a collection of tools.
Why It's Important?
The regulatory uncertainty surrounding AI has significant implications for the nonprofit sector, which is already operating under chronic underinvestment in infrastructure and staffing. The lack of clear governance mechanisms risks reinforcing existing hierarchies and power imbalances, as decisions about AI use are often made by vendors, markets, and states, with limited nonprofit influence. This could lead to AI becoming another layer of surveillance and control, disproportionately harming those with the least ability to contest outcomes. The sector's ability to participate in policy development and narrative formation is at stake, as efficiency and control tend to define the rules in the absence of nonprofit values like equity and community accountability.
What's Next?
Nonprofits have a narrowing window to shape AI governance. They can take practical steps to treat AI as a governance responsibility, such as developing clear AI use policies that include staff and community perspectives, establishing shared principles for engaging with AI-enabled systems, and building internal capacity to identify and document patterns of harm. These efforts can help shift understanding of AI-related issues from isolated problems to systemic ones. Nonprofits also have the choice not to adopt AI tools that undermine mission alignment, client trust, or accountability, which can challenge the assumption that AI adoption is inevitable.
Beyond the Headlines
The broader implications of AI regulation in the nonprofit sector include ethical and power dynamics. Without meaningful community input, AI risks reproducing existing power relationships rather than disrupting them. Clear governance and accountability could help address long-standing capacity constraints, but without them, AI risks becoming another extraction mechanism that concentrates power while dispersing risk. The choice remains available for nonprofits to influence AI governance, but the opportunity is not indefinite.
