In recent weeks, Commerce Secretary Gina Raimondo has spoken with Arizona Sen. Mark Kelly, met with the president of Arizona State University and attended a meeting with the city of Phoenix. long meeting.
Their discussions centered on one topic: chips.
Ms. Raimondo oversees the $52 billion allocated for semiconductor manufacturing and research under the CHIPS Act, a funding program aimed at expanding domestic production of the underlying technology that is the brain of computers. The legislation, passed in August, is an important part of President Biden’s industrial policy and part of an effort to secure U.S. economic and technological leadership over China.
Arizona wants to make sure it gets a portion of the once-in-a-generation federal funding, and the Commerce Department will start accepting applications after Thursday. As a result, officials in Arizona have pressed Ms. Raimondo to boost the state’s growing chip industry, speaking with the chief executives of chip giants including Intel and TSMC.
Arizona, which is vying for subsidies with Texas, New York and Ohio, could get a head start. The state has been home to semiconductor manufacturers since the 1940s and is home to 115 chip-related companies, compared with just one major manufacturer in Ohio.
Arizona has also led the country in chip investment since 2020, with TSMC announcing two new chip manufacturing plants and Intel’s other two factories costing $60 billion. State leaders have helped persuade the companies to open these facilities by offering substantial tax breaks and grants for water and other infrastructure. They also pledged to expand technology and engineering education in the state.
State officials and chip companies also play lobbying roles in Washington. They helped create the CHIPS Act, which included federal tax credits, subsidies, and research and labor grants. TSMC expanded its lobbying staff from two to 19 in two years, and Intel spent more than $7 million on lobbying efforts last year, the most in two decades. ASU spent $502,000 on lobbying last year, the most in two decades.
“It was a deliberate, hands-on effort,” said Sandra Watson, president of the Arizona Business Administration, a nonprofit economic development organization that helped lead states’ efforts to attract chip companies and push the CHIPS Act.
The Commerce Department is expected to begin distributing $39 billion in subsidies to semiconductor manufacturers soon, followed by applications for $13.2 billion in research and workforce development subsidies for companies, universities and other institutions. The CHIPS Act also provides an investment tax credit of up to 25% on a manufacturer’s capital expenditure costs.
Ms Raimondo described the process as a “race” between states. “Every governor, every state legislature, every president of a public university in every state should put their plan of attack together right now,” she said during a visit to Arizona State University’s technology research and development center in August. “It’s going to be a competitive process.”
The Commerce Department declined to comment.
Arizona’s chipmaking history dates back to 1949, when telecommunications hardware and service provider Motorola opened a laboratory in Phoenix and later developed the transistor. In 1980, Intel built a semiconductor factory in Chandler, a suburb southeast of Phoenix, because of the state’s low property taxes, relative proximity to its Silicon Valley headquarters, and stable geology. (Earthquakes are rare in Arizona.)
During President Donald J. Trump’s administration, he pushed an “America First” policy agenda. That opened up the opportunity for then-Governor Doug Ducey, a Republican, and other state officials to transform the economy into a tech hub.
In 2017, Ducey and other Arizona officials traveled to Taiwan to meet with executives from TSMC, the world’s largest maker of cutting-edge chips. They tout the state’s low taxes, business-friendly regulatory environment and ASU’s engineering college of more than 30,000 students.
Ducey, who is close to Trump, also spoke with Commerce Secretary Wilbur Ross, Defense Secretary Mark Esper and Secretary of State Mike Pompeo about fiscal incentives to expand domestic chip production.
“My job is to sell Arizona,” Mr. Ducey said. “In this case, Arizona was sold to TSMC, and it was also sold to the government.”
In 2019, Ducey helped cabinet secretaries make phone calls with TSMC executives to seal a deal to open a manufacturing plant in Arizona. The state has promised tax credits and other financial incentives to help offset the company’s costs of shifting production from Taiwan to the United States.
In May 2020, TSMC announced plans to spend $12 billion to build a factory in Phoenix. Later that year, the city awarded TSMC $200 million in infrastructure incentives, including water lines, sewage treatment and roads. One traffic light will cost the city $500,000.
“TSMC appreciates the support of our dedicated partners at the state, local and federal levels,” said Rick Cassidy, CEO of TSMC Arizona, adding that the CHIPS Act funds will empower the company and its supply merchants can “expand over the next few years””
In early 2021, Intel Chief Executive Pat Gelsinger announced a sweeping strategy to increase U.S. chip production. States began to recruit companies. Arizona officials highlighted their longstanding relationship with Intel and benefits such as the state’s low property and sales taxes.
Intel soon announced a $20 billion expansion in Chandler and two other factories that would bring 3,000 new jobs to the state. Chandler also approved $30 million for water and road improvements at the new plant.
“The government of Arizona has been a great partner,” said Bruce Andrews, Intel’s chief government affairs officer. “By investing in semiconductors early on, they created an ecosystem that had an employment multiplier effect and a huge economic benefit.”
But some of the tax cuts have angered Arizona residents who say they hurt funding for public schools. The state ranks 47th in spending per student.
“We need to bring business to our state, but we need to find a balance,” said Beth Lewis, executive director of Save Our Schools in Arizona. “Companies choose not to settle in Arizona because of our broken public education system.”
Arizona continues to push Congress for chip subsidy legislation. In March 2021, Senator Kelly joined Texas Republican Senator John Cornyn and Virginia Democratic Senator Mark Warner in calling on the new Biden administration to push for White House support funding.
Mr. Kelly was an early sponsor of the CHIPS Act and later became the lead negotiator for the legislation in Congress. He negotiated a four-year 25% investment tax credit into the bill, including a provision to ensure that Intel and TSMC would receive tax credits even if their factory projects in Arizona were before the law went into effect announced.
Mr. Kelly also helped ASU President Michael Crow lobby for more than $13 billion in funding for research and development and workforce training. Mr. Kelly and state leaders hosted administration officials at the event, which showcased the state’s semiconductor efforts as part of the White House’s manufacturing strategy.
“We have the potential to lead the nation in microchip production,” Mr Kelly said in a statement. “I’m honored to lead this effort and now I’m trying to maximize it for Arizona”
Mr. Ducey, who left after his term expired in January, pushed for more tech-friendly policies, including cutting income taxes. He also said he would use the $100 million the state received from federal Covid grants to attract more chip companies and help them apply for funding provided by the CHIPS Act.
In December, TSMC announced that the second plant would bring its total investment in Arizona to $40 billion. Mr. Biden and Ms. Raimondo traveled to Phoenix to make the statement, and Mr. Kelly accompanied them aboard Air Force One.
Arizona officials continue to lobby semiconductor companies to open factories in the state.
This month, Ms. Watson hosted more than 20 chip CEOs at the Super Bowl in Glendale. Arizona’s new governor, Democrat Katie Hobbs, and Mr. Kelly touted how the state would benefit from the CHIPS Act.
“There’s a strong pipeline,” Ms Watson said.
