The Semiconductor Shell Game Has a Big Winner

All the money for Micron.

New York Gov. Kathy Hochul signs the Micron deal.

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New York state and federal officials last week announced a deal with Micron that will see the semiconductor manufacturer bring a new factory to the Empire State, in return for a truly massive corporate subsidy package. Initial estimates place the state’s share at $5.8 billion, plus an anticipated $3 billion in federal funds from the recently passed CHIPS Act, plus $275 million from Onondaga County. That last number, importantly, doesn’t include the cost of a 49-year property tax break the county economic development agency will almost certainly approve.

Yikes.

This is the latest and by far the largest salvo in what I’ve dubbed The Chip Wars, the race to the bottom amongst states to throw gobs of money at semiconductor corporations, with the federal government encouraging the whole thing by swinging around its own pot of public dollars that states are fighting over. While it’s certainly a good thing to have domestic chip manufacturing, some bad policy decisions and the generally bleak politics of corporate incentives are putting taxpayers on the hook for a lot, with little in the way of guarantees that their investment will pay off.

New York is the best example, so far, for how it’s all going wrong, despite the glowing local and national press around the Micron deal, and the self-congratulatory tweets and press releases emanating from federal and state lawmakers.

To start, Reinvent Albany has a good rundown on why the particular’s of Micron deal should be concerning: There’s reason to be skeptical that the Boise, Idaho-based Micron will ever need as many workers as it says it plans to hire, those workers likely won’t all come from New York anyway, and the use of New York’s absurd “green chips” bill — which was passed in the dead of night at the very end of this year’s legislative session — amounts to greenwashing, pretending that a resource-heavy industry is somehow combating global warming.

Micron is promising 9,000 jobs at the new facility, so even if it follows through on that, just the state’s subsidy payment comes in at a massive cost of more than $600,000 per job created. That’s …. a lot. Also, New York Democratic Gov. Kathy Hochul admits her office has been secretly negotiating with Micron for months, which means they’ve been intentionally preventing the public from knowing what was on the table until the deal was announced.

And though New York officials claim they needed such a large subsidy package to beat out other states, including Texas, there’s little reason to think that’s true, due to both the existence of federal subsidies and that both Texas and Ohio recently made semiconductor deals that were large, but still several billion dollars smaller than this one. I don’t think inflation or interstate competition justifies more than doubling what other states were willing to pay just a few months ago.

So what really drove New York’s super-subsidy to Micron? Politics.

First, this deal clears up one of the two very embarrassing economic development boondoggles New York officials dug their way into. Both the White Pine Commerce Park — where Micron will take up residence, just north of Syracuse — and a site known as STAMP in Genesee County were constructed under the “build it and big manufacturers will come” theory of economic development. But nobody ever came. Despite a bunch of public time and money being plowed into both, they’ve been largely empty except for a massively subsidized project for a company called Plug Power, just hanging out there as reminders of how New York’s economic strategy, particularly in upstate areas where manufacturing jobs have been hard to come by, has failed.

The Micron deal gets at least one of those embarrassments off the board, at least for now, even though the history of subsidy projects in upstate New York is long and bleak. (STAMP boosters, meanwhile, are wondering why they were still left out.)

Second, both Hochul and New York Democratic Sen. Chuck Schumer are up for re-election this year, and while neither is likely to lose in a deep blue state, a big “win” on economic development certainly doesn’t hurt their chances. (Remember my favorite stat: One of the most reliable ways to predict if a state will increase its subsidy spending in a given year is simply to check if the incumbent governor is up for re-election.)

Case in point: Schumer is already running local ads touting the deal.

And Schumer now gets to lay claim to the pot of federal semiconductor subsidies he was a huge champion of in the Senate. He also gets to claim a victory for Democrats nationally ahead of the midterms, pointing to the Micron deal as proof that the CHIPS bill “worked.”

This deal confirms my worst fears about the confluence of a genuine semiconductor shortage and lack of domestic manufacturing with a huge pot of federal subsidies that state officials are vying for in an election year. The table was perfectly set for overspending on giant deals in order to facilitate ribbon cuttings, and well, here we are.

Rob Galbraith @RobCGalbraith

Y'see, the thing is, we HAVE to poison our children with lead, waste millions of cubic feet of methane gas heating uninsulated houses, and have a transit system held together with shoelaces because we needed to give the computer chip company $5.5 billion

Pat_Garofalo @Pat_Garofalo

"The New York incentive package is put at $5.5 billion, one of the largest ever by a state." 🤯🤯🤯🤯 https://t.co/RbKK039Eh0

Indeed, it’s distressing to see several levels of government — federal, state, and local — coming together efficiently and quietly in order to deliver billions of dollars to an already massively profitable corporation, led by a spigot of dollars from the state that was passed with just the barest veneer of democratic legitimacy.

There’s no one policy idea that can fix a deal of this magnitude, but a lot of the stuff I write about here a lot — hard caps on the amount spent per job in state subsidy programs, better transparency and disclosure, and a public application process — would have all helped. It’d also be nice, in general, to see a similar commitment to delivering public services that went into shoveling corporate subsidies into an election year narrative. But I guess I’ll have to keep waiting.

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