Seizing the Semiconductor Opportunity
The CHIPS Act: What it Does
The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS+Science Act), signed into law on August 9, 2022, was derived from parallel bills in the House and Senate – America COMPETES in the House and USICA (the United States Innovation and Competition Act) in the Senate. While many other provisions were stripped out, funding for semiconductor manufacturing and research and development (R&D) was at the core of both the House and Senate versions and of the final bill, reflecting bipartisan agreement on the importance of semiconductors to the economy and national security, and on the need to increase semiconductor manufacturing in the United States. In addition to its provisions on semiconductors, the Act more broadly invests in scientific research, the commercialization of leading-edge technologies, and STEM workforce development, and establishes new regional technology and innovation hubs to increase opportunity in regions of the United States outside historic technology centers.
Specifically, the Act contains $278 billion in new funding:
■ $200 billion is authorized for scientific R&D and workforce and economic development programs at the National Science Foundation ($81 billion), the Department of Energy ($67.1 billion), the Economic Development Administration ($11 billion), the Department of Commerce ($10 billion), and NASA.
■ $3 billion targets programs focused on leading edge technology and wireless supply chains.
■ $52.7 billion is appropriated for semiconductor manufacturing, R&D and workforce development, and another $24 billion in tax credits allocated for chip production.
The distinction between authorization and appropriation is key. Only funds for semiconductor development (i.e. manufacturing) have been appropriated and are currently available to be committed. The balance of funding, primarily for science, is only authorized and still must go through the appropriations process.
Of the funds allocated to semiconductors, $52.7 billion will be invested over five years to support domestic manufacturing, including $39 billion in manufacturing incentives ($6 billion will provide loans and loan guarantees to support a $75 billion direct loan and loan guarantee program) and $13.2 billion to support R&D and workforce development.1
Within those figures, in the national security and defense field $2 billion is allocated to the Department of Defense to fund microelectronics research, fabrication and workforce training (the CHIPS for America Defense Fund), $500 million to the Department of State to coordinate with overseas government partners on semiconductor supply chain security (the CHIPS for America International Technology Security Fund), $2 billion for the National Semiconductor Technology Center, $2 billion to the National Advance Packaging Manufacturing Program, $500 million for Manufacturing USA Institutes, $6 billion to National Institute of Standards and Technology (NIST) for semiconductor programs, $200 million to the CHIPS for America Workforce and Education Fund, and $1.5 billion to the Public Wireless Supply Chain Innovation Fund to support hardware and software supply chains for 5G open radio access (ORAN) networks.
In addition to direct funding, private entities are eligible for a 25% advanced manufacturing investment tax credit for investments in semiconductor manufacturing and related processing equipment – an amount that the Congressional Budget Office (CBO) expects will generate $24 billion in activity over the next five years.
California has the opportunity to capture a significant share of CHIPS Act funding, but competition will be intense and other states (Texas, New York, Arizona, Oregon and Ohio among others) are already shaping their own initiatives. Succeeding at a level that meets the state’s potential will require a strategy, a proactive outreach, and a well-organized partnership between the state, local governments, the business and economic development community, universities (including the University of California, CSU, and community colleges), and workforce development agencies.