Biden's semiconductor push has states jockeying for billions in federal cash

WASHINGTON — The global race to make next-generation computer chips has reached Nebraska — and dozens of other states, too.

In the coming months, the government plans to start doling out more than $50 billion for semiconductor manufacturing and research as part of the CHIPS and Science Act signed into law last year. The prospect of that much cash has sparked a scramble among states to pitch themselves as the best place to spark a semiconductor boom.

The CHIPS legislation was designed to help bolster America’s supply chain when it came to the production of computer chips used in everything from coffee makers and cars to pacemakers and missiles. While the measure was primarily centered on addressing national economic and security concerns about the lack of domestic manufacturing, it presents a windfall opportunity for state and local governments.

More than a dozen states have begun pulling together incentive packages with tax credits, zoning changes and cuts to regulatory red tape to lure the limited number of companies looking to expand their chip production in the U.S. are scrambling, according to data from the Semiconductor Industry Association and interviews with industry leaders and officials.

“We haven’t had this kind of economic potential since corn,” said Nebraska state Sen. Mike McDonnell, who has introduced legislation to smooth the way for chip makers looking to expand in his state. “It’s a big idea and it’s something that can really help change the state of Nebraska.”

President Joe Biden tours the IBM facility in Poughkeepsie, N.Y.  (Mandel Ngan  / AFP via Getty Images)
President Joe Biden tours the IBM facility in Poughkeepsie, N.Y. (Mandel Ngan / AFP via Getty Images)

National security experts and corporate executives have urged the U.S. for years to do more to bolster its domestic chip manufacturing, with Taiwan making 92% of the world’s most advanced chips.

But the pitfalls came into stark relief during the pandemic when Covid shutdowns and supply chain disruptions caused a worldwide shortage of chips, leading to shortages of appliances, cars and manufacturing equipment. Adding to the urgency has been increased tensions between the U.S. and China and concerns that China could be moving toward annexing Taiwan, potentially putting the U.S. chip supply in jeopardy.

In anticipation of the federal funds, semiconductor companies have already been making billions of dollars in commitments. Since the bill was introduced in the spring of 2020, companies have announced plans for $187 billion in new or expanded semiconductor facilities in 16 states that would create more than 30,000 jobs, according to the Semiconductor Industry Association. 

Joe Biden arrives for a ceremony at the groundbreaking of the new Intel semiconductor manufacturing facility near New Albany, Ohio, in 2022. (Gaelen Morse / Bloomberg via Getty Images)
Joe Biden arrives for a ceremony at the groundbreaking of the new Intel semiconductor manufacturing facility near New Albany, Ohio, in 2022. (Gaelen Morse / Bloomberg via Getty Images)

“I don’t think it’s hyperbole to say it’s unprecedented and historic,” said Dan Berglund, head of the State Science and Technology Institute, of the influx of federal and state funds to expand manufacturing. “Between the CHIPS Act and some of the other bills that Congress passed in the last session, it really has the opportunity to completely restructure or reshape the face of American manufacturing.”

Competing for the next big deal, state officials are proposing to cut taxes and ease regulations while touting everything from their electric grid to the reliable weather in an effort to lure chipmakers.

In Michigan, officials are hoping to use their auto industry and highly skilled manufacturing workforce to their advantage. The state has also tried to promote its weather as an advantage, since despite cold winters, the state is largely isolated from extreme weather events like hurricanes, floods or wildfires. The state has already seen a boom in facilities to make chip-reliant electric vehicles and batteries, driven in part by separate legislation last year that offered incentives for electric vehicle production.

“This has been like nothing I’ve ever seen before,” said Quentin Messer, head of the Michigan Economic Development Corporation. “Once upon a time, if you got a $1 billion opportunity, you felt like ‘Wow, I may not ever see that ever again.’ Now we have a pipeline of 20-plus projects that are at least $1 billion.”

In Kansas, officials are "locked and loaded" with a series of proposals for the federal dollars as soon as the application process opens, according to Paul Hughes, the deputy secretary of business development for the Kansas Commerce Department.

He said state officials have been talking with companies and the Biden administration for months to sharpen their pitch, which will be focused on the end-stage of chip production in aerospace and defense-related industries.

But competition for the dollars will be fierce, with a number of states having spent years laying the groundwork to become a semiconductor hub.

Before moving to Kansas, Hughes worked on efforts by Arizona to convince the world's biggest chip maker, Taiwan Semiconductor Manufacturing Company, to open a $40 billion facility there, something the company announced last year. But he said those types of opportunities are slim and the expectations for some states may be out of whack.

"It gets competitive fast, so it'll be interesting to see how some of these states fare," Hughes said. "You will definitely not get it if you don't try, but there are a good number of them that are probably a little overzealous, or perhaps their expectations aren't quite in alignment with reality."

The Taiwan Semiconductor Manufacturing Co. facility under construction in Phoenix, on Dec. 6, 2022.  (Caitlin O'Hara / Bloomberg via Getty Images)
The Taiwan Semiconductor Manufacturing Co. facility under construction in Phoenix, on Dec. 6, 2022. (Caitlin O'Hara / Bloomberg via Getty Images)

New York state officials spent more than a year in constant talks with semiconductor company Micron before being selected last October as the site for a $20 billion semiconductor campus near Syracuse. Officials there are hoping the project, which could grow to as much as $100 billion, will transform the face of the region, restoring it to its former cutting-edge manufacturing glory.

New York's pitch to Micron touted everything from the large number of engineers graduating from schools within a two-hour radius of Syracuse to the region's power grid, since Micron would have access to power coming from four different regions of the state, including carbon-free power from hydro and nuclear plants.

"There is a sentiment here that Syracuse did miss a piece of the second industrial revolution technology wave. We missed it, many communities missed pieces of it too and the goal here obviously is to figure out how to reconnect to that," said Rob Simpson, CEO of CenterState Corporation for Economic Opportunity, which represents the region's business community.

Along with competition among each other, states are also having to compete in a global market. Europe is working on its own semiconductor program to the tune of 43 billion Euros, and China is reportedly considering whether to offer subsidies worth more than $100 billion to maintain its semiconductor industry.

But scaling up a U.S. semiconductor industry in a matter of years rather than decades is rife with challenges, said industry leaders.

The country lacks the workforce of engineers and highly specialized manufacturing workers to run facilities, and paying those workers will make building and operating a plant in the U.S. more expensive than in Asia — even with government grants and tax breaks. At the same time, technology companies have been seeing a slowdown in demand over the past year, causing them to lay off workers and look for ways to cut costs, said Thomas Sonderman, CEO of Minnesota-based semiconductor company SkyWater Technology.

“There will be a 'made in America' premium that people are going to have to be comfortable with, and at the end it’s about economics,” Sonderman said. “The bill was passed as we were in this major upswing in the semiconductor sector. The sector is going through a correction now about the same time CHIPS is going to be implemented, and in many ways, for certain companies, their sense of urgency maybe has been reduced.”

SkyWater Technology chose Indiana for its new $1.8 billion facility because of the access to workforce training programs at Purdue University and the ease of doing business in the state, said Sonderman.

Indiana is among the states that have been aggressively courting chipmakers, with Gov. Eric Holcomb and state economic development leaders traveling to Taiwan last August to pitch the state to computer chip and electric vehicle battery makers.

While the Midwest isn’t known as a semiconductor hot spot and doesn’t have an established workforce, Sonderman says he sees those states as having an advantage because of their apparent hunger to not miss out on the next manufacturing boom.

“The ones that are thinking differently, are hungry or eager or are nimble and able to move quickly, I think they are going to be ones that will take advantage of CHIPS in a unique way,” he said. “That’s why when you look at the map of where semiconductors are made in the U.S. today, and then project out five years, it’s going to be a very different map.”

CORRECTION (Jan. 30, 2023, 2:46 p.m. ET): A previous version of this article misattributed a quote about Syracuse missing “a piece of the second industrial revolution technology wave.” The quote was from Rob Simpson, CEO of CenterState Corporation for Economic Opportunity, not Dominic Robinson, a senior VP at CenterState.

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