Patrick Semansky/AP Photo
President Joe Biden tours the building site for a new computer chip plant for Taiwan Semiconductor Manufacturing Company, December 6, 2022, in Phoenix.
Commerce Secretary Gina Raimondo today published the first funding application for the CHIPS and Science Act, offering guidance to commercial semiconductor manufacturers on how the department will evaluate applications for federal subsidies.
The guidance includes new pro-labor requirements, and the administration is selling it by using a novel argument: Well-paid union construction workers will help keep these vital national-security projects on schedule.
CHIPS appropriated $39 billion for manufacturing incentives, with some of that money available to be levered up with loans and loan guarantees. All told, program outlays could exceed $100 billion.
There is no fixed amount for how much any single project can receive, a Department of Commerce official said on a Monday press call with Raimondo. Instead, the official said, the department will take a “dynamic, commercial approach.”
Raimondo has emphasized three key considerations in the guidance: training a new labor force, using taxpayer money judiciously, and—above all—delivering on the administration’s national-security goals.
“This is fundamentally a national-security initiative,” she said. To that end, the department will require chip-makers to agree not to expand semiconductor manufacturing capacity in China for a decade after taking the money.
Commerce did not add any similar guardrails to prevent recipients from using subsidies on stock buybacks. Lawmakers including Sens. Ed Markey (D-MA) and Tammy Baldwin (D-WI) had urged that awardees be restricted from engaging in buybacks for at least ten years.
While Raimondo has vocally discouraged buybacks, nothing in the law prevents awardees from engaging in them. The application will require chip-makers to “detail their intentions with respect to stock buybacks over five years, including whether they intend to refrain from or limit them.”
The department will also give preference to companies that “credibly commit to investing in the domestic semiconductor industry.” But, facing a sudden semiconductor glut, leading chip-makers have recently suggested that they may slow down manufacturing, or time it with the infusion of federal cash.
In a recent earnings call, CEO Pat Gelsinger said that Intel will first build “shells,” or factory buildings, and wait for consumer demand to increase before investing in the expensive equipment that will fill them.
The CHIPS Act, Gelsinger said, “give[s] us a lot of flexibility … to make sure we’re spending the capital, the more expensive equipment capital, more timed with the market demand clarity.”
Rival semiconductor maker Advanced Micro Devices has criticized Intel for that strategy, questioning whether it should receive funds to build shells that sit empty.
While Raimondo has vocally discouraged buybacks, nothing in the law prevents awardees from engaging in them.
The administration’s workforce goals are the third major plank of the funding design. The secretary argued that the current labor crunch represents both a bottleneck and an opportunity.
“We are in an incredibly tight labor market. Labor is hard to find,” she said. The U.S. needs to triple the number of Ph.D.s and students in semiconductor-related fields, and train 100,000 technicians in the next decade, she said, in addition to training a skilled construction workforce.
Currently, according to the Associated Builders and Contractors, an industry group, the construction sector is short as many as half a million workers. Areas like Phoenix, where multiple semiconductor fabs are under construction, are already experiencing commercial construction labor shortages.
The single most important factor keeping people out of the workforce, Raimondo said, is a lack of affordable child care. With the new guidance, she announced a new child care initiative. Applicants seeking more than $150 million in direct funding will be asked to submit plans to provide facility and construction workers with access to affordable child care. To her knowledge, Raimondo said, no other federal program has made a similar requirement.
Trade unions won language they had sought, encouraging chip-makers to use project labor agreements, a prehire collective-bargaining agreement between building trade unions and contractors. While non-union firms can compete for those jobs, they raise the floor for standards and wages, preventing open shops from undercutting union work.
PLAs are also useful to employers, covering employment dispute procedures and banning strikes and work stoppages for the duration of the agreement.
Unions are often criticized for being a drag on project completion. But the Commerce Department framed its reliance on organized labor as consistent with its overriding national-security aims.
“Applicants who don’t commit to using PLAs will have to submit a construction workforce continuity plan, to demonstrate exactly how they’ll be on schedule,” the official said, adding that PLAs are “effective in keeping things on schedule and avoiding things like work stoppages.”
