Our third piece in our Sunshine Week series highlights the need for better transparency around existing subsidies given to domestic semiconductor production, and calls for full disclosure on which companies get the $39 billion set aside in the CHIPS and Science Act for semiconductor production, and what the public will get in return.
As the story goes in Washington D.C. these days, the 2022 CHIPS and Science Act’s $39 billion grant program for domestic semiconductor production reverses decades of lagging government spending on an industry of outsized geostrategic importance.
However, this account selectively ignores the exorbitant subsidy packages states and local governments have doled out to American chip makers over the last 30 years, which evidently failed to stem industry job losses or maintain the country’s technological edge.
As Good Jobs First’s Subsidy Tracker readily reveals: Oregon and New Mexico lavished Intel, the country’s leading chip-making champion, with over $5.4 billion worth of tax credits and exemptions, making it the single largest subsidy recipient in both states.
This eye-popping sum sets Intel apart, but many of the industry’s major players have been the beneficiaries of public largesse: $1.2 billion to GlobalFoundries (formerly of AMD) in New York; $850 million to Hemlock Semiconductors in Tennessee and Michigan; $600 million to Texas Instruments in its home state; $372 million to Micron Technology in Utah and Virginia. Adjusting for inflation, these deals would be worth hundreds of millions more in today’s dollars.
The application process for CHIPS Act funding opens next month, and in anticipation, states have already begun announcing even heftier subsidy packages. Intel is set to receive $2.1 billion from the state of Ohio for its $20 billion investment in a new fabrication plant. Massive as this subsidy is, it still does not include an additional 30-year 100% local property tax abatement, which was approved by the New Albany City Council — without any estimate of its cost made public.
The CHIPS Act does not require states to match federal spending, nor does it stipulate that companies receive any direct state or local subsidies at all. While eligible projects must be offered some form of state or local assistance, the Commerce Department’s program guidance explicitly discourages the use of tax abatements and other kinds of corporate subsidies with limited spillover benefits to the broader regional economy. Instead, they call for parallel investments in infrastructure, public education, and workforce development.
This positive provision suggests Uncle Sam finally realizes that state and local support has up to now done little more than pad companies’ bottom lines. In the spirit of Sunshine Week, we at Good Jobs First also hope to see the Commerce Department disclose the full extent of public support for CHIPS grantees.
Intel, for instance, says it intends to invest $30 billion expanding its chip fabs south of Phoenix. The company’s operations there are fully contained in a Foreign-Trade Zone that also entitle it to a special assessment rate equivalent to a 73% property tax cut. Neither Intel nor Arizona’s economic development authorities have ever disclosed the company’s annual savings from this abatement.
The COVID-19 pandemic made all too clear the centrality of semiconductor production to the U.S. economy and the vulnerability of existing supply chains to global shocks. In response, Democrats and Republicans have shown an openness to industrial policy not seen in a generation. For the CHIPS Act to succeed in its stated goals, though, industrial policy cannot just be a euphemism for the same old corporate-shakedown-as-economic-development model that chip makers have been handsomely benefiting from for decades.
CHIPS provisions related to workforce development and childcare illustrate how federal subsidies can be leveraged to improve industry job quality and ensure communities that wind up giving big companies their money share in the economic gains. The same conditionality should be used to ensure state and local partners are operating transparently and leveraging their spending to the same effect.