The CHIPS Dirty Dozen

Cutting through the semiconductor subsidy spin.

Photo credit: Thomas Hawk

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Commerce Secretary Gina Raimondo appeared before a House of Representatives committee last week to talk about the Creating Helpful Incentives to Produce Semiconductors Act. The CHIPS Act, as it’s known, is federal legislation that supplies tens of billions of dollars to semiconductor manufacturers in order to encourage them to open new plants in the U.S. The goal is to revive domestic production of the chips required in many of the products we use every day.

The Biden Administration has been all in on promoting CHIPS, because federal lawmakers rightly love being able to take credit for domestic manufacturing, so it’s no surprise Raimondo is out there making the hard sell. This bit, though, in response to a question from an Ohio congressman who said he preferred the use of local resources to federal ones when it comes to promoting manufacturing, caught my attention:

RAIMONDO: Can I say one thing on that? As part of the incentive program, the CHIPS money we’re putting out, we are requiring the applicant to come to us with money from the state, including workforce. So we’re putting the burden on the company, say Intel in your case, for example, would go to Ohio or go to Columbus, and find out what incentives, including workforce or apprenticeship programs, whatever, put it in the application before they apply to us. We’re trying to draw forward all that at the local level.

Raimondo is not wrong about what’s occurring thanks to the law she’s promoting — the existence of CHIPS has most definitely ignited an arms race amongst states when it comes to semiconductor-related subsidies — but she’s spinning what’s turned out to be largely a negative dynamic for states and local communities as some sort of positive, as well as misleadingly explaining what semiconductor manufacturers need to do and are doing to receive CHIPS funding. I’m going to try to cut past all that to explain what’s really going on.

First, just on a semantic level, it’s a little weird for Raimondo to characterize corporations chasing state and local subsidies as a “burden,” when they often do so gleefully, because who doesn’t love free money?

More importantly, Raimondo makes it seem like corporations are applying for CHIPS funds after having explored the available universe of existing state and local incentives. But that’s not what’s happening: In order to have CHIPS funding come their way, state leaders are creating new, very expensive, programs explicitly for semiconductor manufacturers, putting the public on the hook twice — once federally and once locally — for the same exact thing.

I’ve dubbed this unfortunate dynamic “The Chip Wars.” According to the Tax Foundation, at least 12 states have either created or expanded corporate subsidy programs specifically with the intent of giving money to semiconductor corporations so those corporations can qualify for CHIPS funds. The states are: Arizona, California, Colorado, Florida, Idaho, Illinois, Kansas, New York, Ohio, Oregon, Pennsylvania, and Texas.

Call them the dirty dozen of semiconductor subsidies: A bipartisan set of states that pushed through new corporate handouts to magnify their ability to get even more public largesse from all of us, to the benefit of corporate titans such as Intel (Ohio), Samsung (Texas), and Micron (New York). Indeed, nothing really says bipartisanship quite like New York, Texas, Kansas, and California all lining up to hand public resources to big corporations.

And it’s actually worse than all that. I’ve heard many times from legislators and advocates in these states that the semiconductor corporations and other local leaders claim state governments have to provide direct corporate subsidies in order for their favored semiconductor manufacturers to qualify for CHIPS funding.

Raimondo certainly reinforced that belief in the clip I referenced above, even saying states need to bring “whatever” to the table, as long as it’s local funding.

However, the actual CHIPS law is much more nuanced. As Good Jobs First’s Greg LeRoy wrote in a really important piece, yes, corporations must receive state and/or local economic development funding in order to qualify for CHIPS funds, but that funding is not supposed to be direct, corporation-specific cash. Instead, Commerce is supposed to preference more general spending on public goods that help the semiconductor corporation, as well as other businesses in the local area.

As LeRoy wrote, “Translation: states and localities should focus on making themselves ‘sticky’ for tech employers by investing in cost-effective public goods and services that generate the biggest payoffs. That’s the opposite of risky ‘megadeals’.”

If you look sideways and squint a little bit, maybe, possibly some of what the 12 states have approved fits into that bucket, but a lot of it definitely does not. One of the favorites that states have adopted, a sales tax exemption for the semiconductor corporations buying equipment, is, to my reading, diametrically opposed to what the CHIPS rules are supposed to encourage.

Not a lot of the CHIPS money has gone out the door yet, so it’s unclear to what extent Commerce is going to follow the rules as they are written or just ignore them in favor of the more “whatever” stance Raimondo takes publicly. But state lawmakers and bureaucrats really need to know this: If some semiconductor lobbyist says you must give his corporation direct subsidies in order for it to apply for CHIPS funds, he is lying to you.

To be clear: I do think there is some wisdom in federal support for domestic semiconductor manufacturing. Uncritically throwing money at the usual suspects who gutted America’s manufacturing capacity in the first place, though, isn’t the way to do it, especially when that action creates a subsidy arms race at the state level.

This is an evolving situation, so there’s still time to turn it around, but so far: Not great.

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— Pat Garofalo