Trevor Wagener: Bill would undermine tech startups in Utah

Spencer Cox should veto Senate Bill 228, which would load tech startups with unsustainable costs.

(Jeff Chiu | AP file photo) This July 9, 2019, photo shows a sign outside of the Twitter office building in San Francisco.

Utah Gov. Spencer Cox ran on a promise to incentivize local business growth with fewer regulations, and later offered his “2020 vision for economic strength.” Utah recently has emerged as a tech hub, attracting both investors and entrepreneurs.

Now the Legislature has sent Cox a bill that would undermine tech companies and startups that allow users to generate content.

Senate Bill 228 would impose regulations on companies that moderate content online and allows users to appeal decisions. Where it gets expensive is the requirement that the platform provide written notice to the user or attorney general, describing the moderated post and explaining why each post was moderated. This likely requires a human moderator’s time. In addition, each appeal must be adjudicated by a human moderator within 30 days, effectively prohibiting appeal automation.

Digital services often need to automate responses to prevent problematic activity like terrorist content and financial scams from spreading. That issue aside, these requirements add up to enormous costs. Given the rates at which automated content moderation is often priced, substituting manual content moderation could cost about $0.625 per post and $5 per appeal, a 1,000 to 10,000-fold cost increase.

Recent transparency reports by some platforms suggest that moderation actions occur at an average rate of twice per user annually. If human employees prepare the required written notices, that could add an estimated five minutes of employee time per Utahn account annually which, even at $15 an hour, would likely cost each platform approximately $1.25 per Utahn user annually, and likely more.

Then if the internet user appeals, the costs go up again: a different human moderator must review the original post plus up to five linked posts, which would require 15 minutes for review. The human moderator then must draft a detailed written explanation of the content moderation decision, like violating a policy against anti-American extremism, for example. If total average appeal time reached just 20 minutes, each appeal could cost the platform $5. If one in ten moderated posts is appealed, two content moderation actions per user may cost each platform $1 per Utahn user annually.

In sum, SB228 could cost each platform at least $2.25 per Utahn user annually in additional content moderation and appeals burdens alone, up to $5 million per platform annually in aggregate. Small platforms typically operate at a loss during their growth phase, so the bill amounts to a tax over 100% on startups — the sort of policy that sends businesses packing. This goes against the governor’s goal of lower taxes and fewer regulations.

Larger platforms may be able to absorb these regulatory costs, but smaller platforms may have little choice but to leave the Utah market. Utahns could hear about exciting new apps and platforms from friends and family in neighboring states, only to find that when they try to use the app, it says “Not available in Utah due to SB228.”

Lawmakers argue that the legislation is a means to rein in “Big Tech,” but the reality is a major barrier for startups and small platforms seeking to enter the market.

Unlike a tax however, SB228 won’t provide any revenue for the state’s coffers. Instead, the Legislature’s own estimates show it will cost the state at least $90,000 in administrative costs annually. In addition, some lawmakers expect lawsuits challenging the bill’s constitutionality, which could cost taxpayers millions.

With this legislation on his desk, the governor should reject this bill that would cost taxpayers now and hurt startups and innovation later.

Trevor Wagener

Trevor Wagener is director of research and economics for the Computer & Communications Industry Association, Washington, D.C.