States put up their own money to attract chips manufacturing

A little over a year ago, Congress passed the CHIPS and Science Act to catalyze investments in the U.S. semiconductor industry. The law set aside billions for the construction of new and expanded manufacturing facilities and to support research into new chip technologies. But the industry has complained that it’s not enough to reverse the troubling decline in the amount of semiconductor chips that are produced here. Now, states are stepping in.

Arizona, New York and Texas are among the states putting up their own money to attract more companies to open semiconductor plants in the country. During a webinar Tuesday sponsored by the Information Technology and Innovation Foundation, officials from those states said state governments also play a key role in supporting research.

In pushing for the bill last year, the Biden administration noted that the number of chips manufactured in the U.S., which are needed in everything from smartphones to washing machines, has dropped from 40% in 1990 to 12% last year. 

The largest portion of the money—$39.4 billion—will go to companies to build, expand or modernize semiconductor plants that manufacture “leading-edge” semiconductors. In February, the Commerce Department opened applications for the first batch of funding. But the billions in federal dollars will not be enough to help companies in the U.S. compete globally with those that are funded by other governments, like China, said David Isaacs, vice president for government affairs at the Semiconductor Industry Association.

Isaacs noted that the Commerce Department has said one of the factors it will consider in awarding grants to companies to build a facility in an area is how much funding state and local governments are willing to chip in.

“I think that was a recognition that the federal incentive is insufficient to level the playing field and close the cost gap,” he said.

Some states like New York have set aside billions to improve local companies’ chances of getting federal funding. Two days after President Joe Biden signed the CHIPS Act into law, New York Gov. Kathy Hochul signed the Green CHIPS program. It will provide $10 billion in tax credits to build semiconductor facilities in the state that would create at least 500 jobs each. 

“Green CHIPS was designed to work in tandem with the federal program,” said Kevin Younis, chief operating officer for New York’s Empire State Development agency.

In June, Texas Gov. Greg Abbott signed his state’s own CHIPS Act, creating $698 million in grants to bolster the creation of more semiconductor facilities in a state that’s already the nation’s leader in chips manufacturing. In anticipation of the passage of the federal CHIPS Act, Abbott created a task force to offer recommendations for how to attract more semiconductor businesses to the state, said Adriana Cruz, executive director of the state’s Department of Economic Development and Tourism.

“We brought together our higher education institutions or regional economic development organizations, the private sector and industry associations, and had everyone work together to identify the state's assets and to help us to prepare for when the CHIPS Act would be passed and funded,” she said. 

Last November, then Gov. Doug Ducey announced the state would be using $100 million of its American Rescue Plan Act dollars for grants to create facilities, which Sandra Watson, president and CEO of the Arizona Commerce Authority, called a “historic investment here in Arizona.”

Arizona had been trying to form a strategy to grow its semiconductor industry when the federal dollars became available. The state in 2021 convened industry leaders from across the country to try to ”understand what other issues outside of funding were required to ensure that the U.S really maintained a leadership position, not only in the production of chips, but research and development,” Watson said. 

She added that Arizona has also been working to ensure it can provide the talent and workforce needed. The state, for instance, contributed $30 million in July to a $270 million effort by Arizona State University and materials engineering company Applied Materials to create a semiconductor research center and to train faculty and students. The state university has seen a dramatic increase in the number of engineering students—up one and a half times to 30,000, Watson said.

Rachel Lipson, senior policy advisor for the U.S. Commerce Department's CHIPS Program Office, said that a key part of the law is to create strong partnerships, like Arizona, between companies and higher education institutions to develop more advanced semiconductor technology. 

“Our ability to continue to innovate and lead the way on future innovations really depends on new ways of making chips,” she said.

Under the Texas CHIPS Act, a consortium consisting of 19 higher education institutions was created to “look to the future,” according to Cruz of the state’s economic development agency. The idea, she said, is “to ensure that we have a strategic plan and understand what the needs of the industry are so that we are preparing for the needs of the industry.” 

Texas’ law, she added, also provided $68 million in semiconductor research and development funding for the University of Texas at Austin.

“In Texas, you can't have economic development without workforce development,” Cruz said. “Bottom line, we need to have the workers for the projects that we're attracting to the state. And it's not just the engineers that we need, but in the semiconductor industry, you need the technicians. You need the construction labor that is going to build the facilities.”