What strings are attached to Intel’s federal subsidy?
May have to share some profits with government
Intel is going to have to do a lot more than make semiconductors in New Albany if it wants a piece of the recently enacted, $52.7 billion federal CHIPS Act.
The Silicon Valley-based company that has committed to spending $20 billion to build two factories, called fabs, in Licking County will need to arrange child care for its workers, may have to share a piece of its profit from the plants with the federal government, and can’t use the money for stock buybacks or dividends. And it can’t build certain facilities in China and some other countries.
That’s the price that Intel and other chipmakers and suppliers are going to have to pay in return for grants, loan and loan guarantees that the federal government is offering as part of the push to make the U.S. more competitive globally when it comes to the production of the tiny, critical devices that power cell phone, military equipment, appliances and other devices.
The incentives that the government is offering are expected to make up between 5% and 15% of what the companies’ projects are going to cost, meaning Intel could get billions of dollars from the federal government for the project.
“The CHIPS and Science Act presents a historic opportunity to unleash the next generation of American innovation, protect our national security, and preserve our global economic competitiveness,” Commerce Secretary Gina Raimondo said in a statement on Feb. 28 when her agency released guidance on how companies can apply for funding.
That the money comes with so many strings attached is no surprise, said Trevor Brown, dean of John Glenn College of Public Affairs at Ohio State University.
For decades, the government has used financial incentives such as grants, loans and contracts to make
public policy, he said. In return, business get money that doesn’t need to be repaid or comes with a low-interest loan.
“Set-asides for small businesses, female-owned firms, minority-owned firms, veteran-owned firms and other categories of firms are now well-established,” he said. “The tradeoff is that these requirements raise the costs of doing business with the government, but the upside is that the government uses its scale and public authority to advance important social objectives like equitable participation in the market.”
Intel welcomed the release of the guidance as an important step.
“The successful implementation of the CHIPS Act grant programs is imperative for U.S. national and economic security,” tweeted Al Thompson, Intel’s vice president of government relations. “Intel is proud to be building in Arizona, Ohio and New Mexico to expand our leading-edge manufacturing and rebalance advanced chipmaking.”
What does the legislation demand?
The legislation, called Creating Helpful Incentives to Produce Semiconductors in America, allocates $52.7 billion in subsidies for companies to research, design and manufacture semiconductors and to help with workforce development.
Of that money, $39 billion is for manufacturing incentives, $13.2 billion in research and development and workforce development, and $500 million to provide for international information communications technology security and semiconductor supply chain activities.
To land money from the bill, companies that receive more than $150 million in funding from the federal government may have to share with the government a portion of any profit that significantly exceeds projected cash flows.
Applicants will be required to detail their plans over the next five years for buying back company stock, and will consider the applicant’s commitment to refrain from stock buybacks during the review process. In addition, applicants are prohibited from using the money for dividends or stock buybacks.
Companies are prohibited from building certain kinds of facilities in China and what the White House labeled “as other countries of concern.”
“I would be concerned if there weren’t any conditions,” said Zach Schiller, research director at the leftleaning Policy Matters Ohio. “As taxpayers we have a right to make sure our money is going for good jobs and purposes that serve us overall, not just a particular interest.”
But Steve Stivers, president and CEO of the Ohio Chamber, worries that the restrictions go to far and could slow or even temporarily halt Intel’s project.
Stivers said, for example, that there needs to be clarification of the Commerce Department guidance that requires an environmental review of all projects. Ohio environmental regulators already have approved Intel’s project. “That’s the No. 1 concern that needs clarification,” he said.
Stivers disagrees with companies having to share profits with the government, saying it’s a tax on success. While not an issue with Intel, the chamber also objects to the restrictions on share buybacks because of its effect on the flow of capital, he said.
“When the government shares in my profits, we call that a tax. We think that’s weird and problematic,” he said.
Policy Matters’ Schiller said there are plenty of examples of the government taking stakes in companies or benefiting from a company’s success such as the government’s decision to buy shares of the automakers during the Great Recession. Ohio requires companies that are receiving a Job Creation Tax Credit to pay 150% of the federal minimum wage.
Schiller understands the government’s reasoning on banning share buybacks.
“If they have money left over to reward their shareholders, why do they need government money to begin with,”
he said.
Child care provisions in CHIPS Act meant to get more people to work
Companies seeking at least $150 million must submit plans to provide their facility and construction workers with access to affordable, accessible, reliable and high-quality child care.
Child care has emerged as major labor force issue coming out of the pandemic − the cost and the availability of care along with the struggles of childcare providers being able to hire staff in a tight labor market and control costs during a time of decades-high inflation.
The goal of what the Commerce Department labels as a first-of-its kind commitment is to get people, especially women, into the workforce. If women participated in the labor force at the same rate as men, there would be more than 10 million additional workers, the government said.
“Intel works to create an environment that allows employees to bring their whole self to work, and cultivate a sense of belonging for everyone,” the company said in a statement. “Access to affordable and reliable child care is important to this goal.
“We provide best-in-class benefits packages for Intel employees, including childcare programs with tuition discounts at local childcare centers and emergency backup childcare resources.”
Like other aspects of the Commerce Department’s CHIPS Act guidance, this one needs clarification, Stivers said.
Does it apply to Bechtel, the company that Intel has hired to build the fabs, Stivers asked. Would it have to build capacity for workers who may be on the jobsite for a year or two?
Schiller said the state has been working to make child care more available and affordable, he said. Childcare workers, among the lowest paid workers, need to be paid more and costs need to come down, he said.
“This is one step,” Schiller said of the federal regulations. “It will not solve the crisis.” mawilliams@dispatch.com @Bizmarkwilliams