US President Joe Biden’s administration has said it will require companies that win money from the $52 billion semiconductor manufacturing and research program to share excess profits and explain how they plan to provide affordable childcare to workers.
The U.S. Department of Commerce on Tuesday released plans to begin accepting applications for a $39 billion manufacturing subsidy program by the end of June. The funding is part of the CHIPS and Science Act, which President Joe Biden signed into law last August. The law also creates a 25 percent investment deduction for building chip factories, worth an estimated $24 billion.
The CHIPS Act plays a central role in the Biden administration’s efforts to bring semiconductor manufacturing back to the US. Its success is essential to US ambitions to stay ahead of China in the global market.
Semiconductor companies have announced more than 40 new projects since the law was introduced in August, including nearly $200 billion in private investment to boost domestic production.
Recipients receiving more than $150 million in direct funding “will be required to share with the U.S. government a portion of cash flows or proceeds that exceed the applicant’s projections by an agreed-upon threshold,” the department said.
Commerce also expects that “upside sharing will only be material in cases where the project significantly exceeds expected cash flows or revenues, and will not exceed 75 percent of the recipient’s direct funding award.”
‘No free handout’
Democratic Senator Jack Reed praised the profit-sharing plan, saying that chip funding “is not a free gift to multibillion-dollar tech companies… There is no disadvantage for companies that participate, as they only have to share a portion of future profits if they do…exceedingly well”.
The rules also require companies to provide quality and affordable factory childcare for construction workers and operators. This could include building daycare centers near construction sites or new factories, paying local childcare providers to add capacity at an affordable price or directly subsidizing workers’ healthcare costs, the New York Times reported.
Commerce Secretary Gina Raimondo said companies should submit a plan outlining staffing needs. Applicants seeking more than $150 million in direct funding must “submit a plan for how they will provide affordable and accessible childcare for their employees.”
Frank Lucas, chairman of the Republican House Science Committee, criticized the childcare and revenue-sharing provisions, saying they exceeded the authority granted by the US Congress. He said the Department of Commerce was “focusing less on the urgent need for chip manufacturing and more on trying to impose their labor agenda on this critical industry.”
Companies that raise funding are also not allowed to use chip funds for dividends or share buybacks, and must provide details of any plans to buy back their own shares over a five-year period. The department will consider an applicant’s commitments to refrain from repurchasing its own shares.
Democratic lawmakers have noted that the largest U.S. semiconductor companies have poured hundreds of billions of dollars into stock buybacks in recent years, with Intel having spent more than $100 billion on stock buybacks since 2005. Intel also pays a dividend.
It is not uncommon for states to require specific employment targets as a condition of tax subsidies, but the Biden administration is a significant expansion.
Public incentives
White House economic adviser Heather Boushey said the announcement is “symbolic of using public incentives to simultaneously build strategic supply chains for our economic and national security while investing in our healthcare infrastructure.”
The Biden administration made ambitious plans to pay millions of caregivers, mostly women, better wages and make care for children and the elderly cheaper by 2021, but failed to win support from the majority in Congress.
Applicants must address six priority areas of the program, including plans to commit to investment in R&D in the U.S. semiconductor industry, for example, building domestic manufacturing plants and other R&D facilities.
Applicants must also “create opportunities for businesses owned by minorities, veterans and women; demonstrate climate and environmental responsibility; invest in their communities by tackling barriers to economic integration; and undertake to use iron, steel and building materials produced in the United States.”
The Semiconductor Industry Association said it was carefully reviewing the financing notice, which “outlines the rules of the road for companies to apply for the CHIPS Act manufacturing grants.”
Most direct funding awards are expected to range between 5 and 15 percent of the project’s capital expenditure. Commerce said it generally expects the total amount of any award, including any loan or loan guarantee, to not exceed 35 percent of the project’s capital expenditure.
“We are going to do our own diligence. We don’t write blank checks to a company that asks for it,” Raimondo said. “We’re getting companies to open their books.”
(The style guide asks that we don’t use US seasons for time frames – can we change “spring” and “fall” to months below?)
The initial funding opportunity seeks applications for leading semiconductor, current generation and mature node semiconductor projects. It will release funding opportunities for semiconductor materials and manufacturing equipment facilities in late spring and R&D facilities in the fall.
Raimondo also noted that companies that win awards will be required to enter into agreements that limit their ability to expand semiconductor production capacity abroad, such as China, for 10 years after winning the funding. They cannot engage in joint research or licensing efforts with a foreign entity of interest involving sensitive technologies.
“We are going to publish very detailed rules in the coming weeks that will give companies a clearer picture of what the red lines are,” said Raimondo.
