States sweeten their offers to chipmakers to outdo one other

Semiconductors, known as chips, power nearly every aspect of life.

HILLSBORO, Ore. (AP) — “Oregon’s been at this for decades,” the governor’s office assures potential Silicon Forest investors. The governor of Texas calls it a “race that Texas must win for our state, workforce, national security, and future.” And the governor of New York boasts on the state’s YouTube channel that the state will “lead America’s microchip resurgence.”

States have been competing to attract chipmakers since Congress passed the $52.7 billion CHIPS Act in 2022 to encourage domestic semiconductor manufacturing design and research. Semiconductors, also known as chips, power nearly every aspect of life, and states want the industry’s investment and high-paying engineering and fabrication jobs. They’re sweetening the pot with their own tax breaks and other incentives to entice chipmakers to expand existing factories or build new ones. States are also assisting chipmakers in locating and preparing factory sites, as well as developing new programs to educate and train required workers.

It’s all part of President Joe Biden’s plan to bring chip manufacturing back to the United States in order to strengthen the industry’s long-term prospects and make the country less reliant on volatile supply chains. During the pandemic, global chip shortages slowed the delivery of cars, video game consoles, and even items like refrigerators.

Chips are the brains of most devices, large and small, such as laptop computers, automobiles, and jet engines. They all rely on tiny electronic devices to function, and they’re crucial for future advances in artificial intelligence, biotechnology, and clean energy. According to the White House, none of the most advanced chips used in personal computers, smartphones, and supercomputers are manufactured on a commercial scale in the United States.

Much of the technology for the tiny electronic devices was invented in the United States, but chip manufacturing has shifted overseas in recent decades. The majority of semiconductors are currently manufactured in Taiwan, positioning the industry in the midst of the complex geopolitical rivalries between the United States and China.

According to the White House, companies have announced more than $166 billion in private-sector domestic manufacturing investments since the CHIPS Act was signed into law last year. Furthermore, 50 community colleges in 19 states have announced new or expanded programs to prepare students for jobs designing and manufacturing chips in the new factories.

According to Commerce Secretary Gina Raimondo, the former governor of Rhode Island, the Commerce Department has received more than 460 expressions of interest in new factories or chip-related education and training projects from 42 states. States play a critical role in collaborating with private employers to access federal incentives, tax credits, and other CHIPS Act benefits. Companies competing for federal funds must show that they have worked with states to plan industrial facilities, workforce training centers, and research centers.

According to the administration, federal funding for most projects will range between 5% and 15% of total capital expenditures. The chip fabrication factories, known as “fabs,” are costly production centers that take many years to build and can be difficult to site due to their massive footprint.

Making their case

States have been innovative – and aggressive – in their collaborations with industry, according to Ayodele Okeowo, a Commerce Department official in charge of state outreach for the CHIPS program, who spoke at a summer seminar with the National Conference of State Legislatures.

“This is a unique program and a new initiative,” Okeowo explained. “This is the first time we’ve attempted to catalyze our domestic semiconductor industry.” However, states are not waiting to see how this plays out.”

States such as New York and Ohio have offered generous incentives to attract manufacturers. In New York, Democratic Gov. Kathy Hochul announced last year that Micron Technology of Boise, Idaho, would invest $100 billion over the next two decades to build a “megafab.” According to state officials, it will result in 50,000 jobs statewide, 9,000 of which will be directly from Micron, with an average annual salary of more than $100,000. In turn, the state will provide $5.5 billion in tax credits over two phases over a 20-year period.

The state of New York will also invest $200 million in road and infrastructure improvements surrounding the campus, as well as $100 million in other community benefits funding. According to the state, the megafab will be approximately 2.4 million square feet in size, or the size of more than 40 football fields.

The competition between states is intense. Hochul boasted that 50,000 chipmaking jobs were on their way to Texas until New York persuaded Micron, one of the world’s largest chipmakers, that it could provide “the highly educated workforce that they need for them to succeed.”

“We told them this, we promised them this, and now we’ll deliver on this,” Hochul said in a speech a few months ago. “And this entire state will benefit from it, as it will create this entire industry, building on the existing legacy businesses in the semiconductor manufacturing space.”

Many state officials in Oregon, where its long-standing semiconductor hub in the Portland suburbs is known as the Silicon Forest, were stunned last year to learn that Intel, Oregon’s largest private employer, planned a $20 billion manufacturing investment in Ohio. Intel has pledged an additional $100 million in Ohio for partnerships with educational institutions “to build a pipeline of talent and bolster research programs in the region,” according to the company.

Semiconductor workforce

California, Texas, and Oregon have the most semiconductor workers, but because Oregon has a smaller population and a less diverse economy, it is more reliant on the chip industry.

“It’s one thing to throw a lot of money at a project, but it’s another thing to be organized, intentional, and simply just a great place to live,” said Janelle Bynum, an Oregon Democratic state representative and former automotive engineer who sponsored legislation that eventually led to a $240 million state incentives pool to entice chipmakers with tax breaks, grants, and other outlays.

Nonetheless, according to Jacob Whiton of Good Jobs First, a Washington, D.C.-based nonprofit watchdog group that tracks economic development incentives, the Commerce Department prefers states entice chipmakers with workforce development, infrastructure, and site preparation incentives that will have spillover benefits for the broader community, rather than direct incentives like tax breaks.

“We’ve been trying to spread the word that federal CHIPS money only requires state and local involvement in a project, not direct subsidies,” Whiton explained via email.

The stakes are high in long-established semiconductor hubs like Oregon, especially because the state couldn’t immediately offer large, prepped industrial tracts of land like Texas, Ohio, or New York. Current Oregon land use laws make it difficult to convert productive farmland to industrial sites, a sprawl restriction that some lawmakers and business leaders want to reconsider.

The semiconductor industry is “a pillar of Oregon’s economy,” according to a recent analysis by state economist Josh Lehner. “Its significance cannot be overstated.” Oregon has about 15% of the nation’s semiconductor workforce, with an estimated 40,000 jobs in the industry. In the Portland suburbs, Intel alone employs over 22,000 people.

Bynum stated that the infrastructure for future semiconductor investment, including from other large companies, is now in place in Oregon: “Our legislature is on board, our governor is on board, we’re walking lockstep in sync with business.” We are mindful of our environmental concerns. As a result, I believe we are quite competitive in the overall landscape.”