The CHIPS Act: What it Does

The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS+Science Act), signed into law on August 9, 2022, was derived from parallel bills in the House and Senate – America COMPETES in the House and USICA (the United States Innovation and Competition Act) in the Senate. While many other provisions were stripped out, funding for semiconductor manufacturing and research and development (R&D) was at the core of both the House and Senate versions and of the final bill, reflecting bipartisan agreement on the importance of semiconductors to the economy and national security, and on the need to increase semiconductor manufacturing in the United States. In addition to its provisions on semiconductor, the Act more broadly invests in scientific research, the commercialization of leading-edge technologies, and STEM workforce development, and establishes new regional technology and innovation hubs to increase opportunity in regions of the United States outside historic technology centers.

Breaking this down specifically, the Act contains $278 billion in new funding: 

$200 billion is authorized for scientific R&D, and workforce and economic development programs at the National Science Foundation ($81B), the Department of Energy ($67.1B), the Economic Development Administration ($11B), the Department of Commerce ($10B), and NASA. 

$3 billion targets programs focused on leading edge technology and wireless supply chains. 

$52.7 billion is appropriated for semiconductor manufacturing, R&D and workforce development, with another $24 billion in tax credits allocated for chip production.

The distinction between authorization and appropriation is key. Only funds for semiconductor development have been appropriated and are currently available to be committed. The balance of funding, primarily for science, is only authorized and still must go through the appropriations process.

Of the funds allocated to semiconductors, $52.7 billion will be invested over five years to support domestic manufacturing, including $39 billion in manufacturing incentives ($6 billion will provide loans and loan guarantees to support a $75 billion direct loan and loan guarantee program) and $13.2 billion to support R&D and workforce development.1 

Within those figures, in the national security and defense field $2 billion is allocated to the Department of Defense to fund microelectronics research, fabrication and workforce training (the CHIPS for America Defense Fund), $500 million to the Department of State to coordinate with overseas government partners on semiconductor supply chain security (the CHIPS for America International Technology Security Fund), $2 billion for the National Semiconductor Technology Center, $2 billion to the National Advance Packaging Manufacturing Program, $500 million for Manufacturing USA Institutes, $6 billion to National Institute of Standards and Technology (NIST) for semiconductor programs, $200 million to the CHIPS for America Workforce and Education Fund, and $1.5 billion to the Public Wireless Supply Chain Innovation Fund to support hardware and software supply chains for 5G networks open radio access (ORAN) networks.

In addition to direct funding, private entities are eligible for a 25% advanced manufacturing investment tax credit for investments in semiconductor manufacturing and related processing equipment – an amount that the Congressional Budget Office (CBO) expects will generate $24 billion in activity over the next five years.

Why Semiconductor Investment is Important

Semiconductor companies fall into three main baskets: integrated device manufacturers (IDMs), fabless, and foundries. Integrated Device Manufacturers handle the complete manufacturing process from design through production, Fabless companies design semiconductors but outsource their production. The outsourced production of semiconductors is done by foundries. Major IDMs in the United States include Intel, Micron, and Texas Instruments. Fabless companies include Qualcomm, Nvidia, Broadcom, AMD and Marvell, all based in California. Other industry leaders 

including Samsung, TSMC, Texas Instruments and Global Foundries also have a presence. In addition to companies that produce semiconductors, the industry includes companies that produce the tools and equipment to manufacture semiconductors. Industry leaders in this segment include. Industry leaders in this segment include ASML, KLA Tencor, Lam Research, and Applied Materials. 

Passage of the bill stemmed from the recognition that where the United States produced 37% of the world’s semiconductor chips in the 1990s it produces only 12% today, and none of the most advanced chips. Seventy-five percent of chips consumed in the United States are now produced in East Asia. This happened as production moved offshore to countries with lower costs and particularly to Taiwan, where TSMC is now the world’s leading produced of advanced chips. Looking beyond the United States’ acknowledged leadership in research and design, the ubiquity of chips in modern technology, US-China tensions, and the potential vulnerability of shipments from Taiwan have together increased the focus on manufacturing and the need to develop a more integrated capacity. Chip shortages in 2021 reportedly cost the U.S. economy $240 billion, particularly affecting the automotive sector.2 

In addition to supporting national security goals and economic competitiveness, new investment in chip manufacturing is expected to bring major economic benefits to the regions where it occurs. In 2021 the Semiconductor Industry Association estimated that $50 billion in federal incentives would directly create 43,000 in new semiconductor industry jobs, and a total of 280,000 permanent jobs when the secondary effects of increased semiconductor manufacturing are included. 185,000 temporary jobs would also be created as new fabs are constructed, adding close to $25 billion to the economy. The industry, with a total economic impact of $246.4 billion in 2020, currently employs more than 277,000 workers in high-paying jobs in R&D, design and manufacturing, and supports 1.6 million additional jobs indirectly. The secondary employment impacts are attributable to the industry’s high jobs multiplier factor of 6.7, meaning that for each worker directly employed in the semiconductor sector an additional 5.7 jobs are supported in the wider economy. One in five workers in the industry has not attended college, indicating that the semiconductor sector is a significant source of blue-collar opportunities. It also employs a larger share of non-white workers than the national average for industry. Jobs in the sector are highly paid.3

The Competitive Landscape

In competing for CHIPS funds California is entering an already competitive landscape.

In the run-up to the Act’s passage industry investors communicated to federal officials that with investment decisions pending and the high cost of production in the United States, decisions on where to manufacture would be influenced by the passage of the bill, as subsidies were considered to narrow the 35-45% cost gap between producing chips domestically and overseas. In its aftermath, Micron announced an initial $20 billion investment in upstate New York, a figure Semiconductor Inductor Industry Employment by State Rank State Employment % US Rank State Employment % US 1 California 63,300 23% 7 Massachusetts 12,200 4% 2 Texas 43,800 16% 8 New York 10,200 4% 3 Oregon 40,300 15% 9 North Carolina 7,900 3% 4 Arizona 28,900 10% 10 Washington 5,000 2% 5 Florida 12,900 5% 11 Virginia 4,100 1% 6 Idaho 12,300 4% 12 Ohio 4,000 1% Source: Semiconductor Industry Association 

that could rise over time to $100 billion. In addition to federal support the package of incentives included $5.5 billion in incentives from the State of New York. That followed a July announcement that the company would invest $15 billion in a new factory in Idaho.4 

Also in August, Qualcomm and GlobalFoundries announced a new partnership that includes a $4.2 billion purchase agreement to buy chips produced through an expansion of GlobalFoundries’ facility in upstate New York, adding to a $3.2 billion purchase agreement that was announced earlier.5 Qualcomm, a fabless semiconductor company, says it will increase production in the U.S. by up to 50% over the next five years.

Intel, which plans to build a massive semiconductor plant in Ohio, also indicated that the pace of its development would depend on the passage of the CHIPS Act. To secure the investment the State of Ohio offered Intel $1.9 billion in cash, infrastructure improvements, and tax breaks plus $150 million from JobsOhio and local property tax abatements. To secure the site the city of New Albany annexed 1,689 acres of Jersey Township, providing 900 acres for Intel, rezoning the land from Agricultural to the new classification Technology Manufacturing District. Other locational benefits that Intel found to be beneficial included land availability, affordable utilities, an ample water supply (though some may be recycled semiconductor fabs can use 5 million gallons of water a day), and proximity to universities, ports and airports.6 

Overseas companies are also actively expanding production in the U.S. Taiwan’s TSMC has committed to investing $12 billion in a fab in Arizona that will produce chips by 2024. Korea’s Samsung is building an advanced production facility in Taylor, Texas with a $17 billion investment and has announced plans for 11 additional fabs by at its complexes in both Taylor and Austin. 

Noteworthy in all these projects is the level of direct subsidy provided by state and local governments.

Among the leading states competing for CHIPS funding, Arizona is out in front with the Arizona Commerce Authority’s launch of its National Semiconductor Economic Roadmap. Texas has created a National Semiconductor Centers Texas Task Force to secure National Semiconductor Technology Center (NSTC) and advanced packaging R&D funding. New York, working with the State University of New York (SUNY) is aggressive at both the state and local levels. Oregon is behind other states but is mobilizing. Ohio, a newer entrant in the field, and Idaho are also competing. To leverage resources, states including Idaho, New York, Arizona, and Texas are working with their institutions of higher education to strengthen their infrastructure for manufacturing and design. While not alone, New York and Arizona provide attractive matching funds. 

Two broad coalitions are organizing around CHIPS funding: the ASIC coalition led by New York and IBM, which is focused on using the NSTC to bolster promotional efforts in Albany (where IBM has an R&D Center) and is being actively pushed by Senate Majority Leader Chuck Schumer), and the MITRE Engenuity Coalition, which is also focusing on the NSTC but has a more distributed model.

Implementing the CHIPS Act

Sections 9902 and 9906 of the National Defense Authorization Act of 2021 (NDAA) authorized a range of semiconductor related manufacturing and R&D activity, including the funding of applicants to incentivize investment in facilities and equipment for the fabrication, assembly, testing, packaging, or R&D of semiconductors or semiconductor manufacturing equipment. This can happen through grants, cooperative agreements, loans, and loan guarantees. The CHIPS Act appropriates $39 billion for these purposes, to be distributed through the Department of Commerce.

NDAA also authorizes the Department of Commerce to establish a National Semiconductor Technology Center (NSTC) to conduct research and prototyping of advanced semiconductor technology, and the establishment of a National Advanced Packaging Manufacturing Program (NAPMP) led by NIST (the National Institute of Standards and Technology). It also authorizes NIST to establish up to three Manufacturing USA institutes to advance research and commercialization of semiconductor manufacturing technologies and carry out R&D to advance measurement science, standards, material characterization, instrumentation, testing and manufacturing. The CHIPS and Science Act appropriates $11 billion for these purposes. Both sections of the NDAA authorize and direct investments in semiconductor workforce development.

In addition to appropriating resources to fund provisions of the NDAA, the CHIPS and Science Act creates a new advanced manufacturing investment tax credit equal to 25% of the value of qualified investments in buildings and depreciable property with the primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment, to be administered by the Internal Revenue Service. The credit is available for projects that start construction between January 1, 2023 and December 31, 2026.

The Department of Commerce intends to implement the CHIPS Act through two new offices housed at NIST: the CHIPS Program Office (CPO) and the CHIPS R&D Office. The CPO will be responsible for the implementation of incentive programs and will coordinate all CHIPS related activity in the Department of Commerce and across government agencies. The CHIPS R&D Office will incubate the NSTC and manage R&D activity and the Advanced Packaging and Manufacturing USA programs.

Applicants for funding can be a private entity, non-profit, consortium of private entities, or consortium of non-profit, public and private entities. CHIPS funds, for which both domestic and foreign companies are eligible, must be used for facilities built in the United States. Applicants are encouraged to consider collaborations with suppliers, customers, state and local governments, and other relevant entities.

The Commerce Department’s activity will be bundled into three initiatives, each with different strategic imperatives and time horizons but potentially overlapping stakeholders:

Large-scale Investments in leading-edge logic and memory manufacturing clusters: The Department will invite proposals for the construction or expansion of manufacturing facilities for the fabrication, packaging, assembly and testing of leading-edge logic and memory chips. Funding may be provided through grants, subsidized loans or loan guarantees. Solicitation of proposals will begin within six months of enactment of the CHIPS Act (February 2023). This activity is expected to account for the largest part of CHIPS Act funding - $28 billion.

Expanding manufacturing capacity for mature and current-generation chips, new and specialty technologies, and for suppliers to the industry: The goal here is to increase domestic production across a spectrum, including chips used in defense and in commercial sectors such as automobiles, ICT and medical devices. Industry participants are invited to craft creative proposals. This could include the construction or expansion of facilities for the production of current generation and legacy chips, facilities for the production of new or specialty technologies, facilities that manufacture equipment and materials for semiconductor manufacturing, potentially co-located in regional clusters, and equipment upgrades that provide near-term efficiency improvements in fabs. Funding may be available through grants, loans or loan guarantees. Solicitation of proposals will begin within six months of the CHIPS Act entering into force (February 2023). Approximately $10 billion is expected to be committed in this area.

Initiatives to strengthen U.S. leadership in R&D: R&D initiatives, covering the NSTC (National Semiconductor Technology Center), NAPMP, the manufacturing USA Institutes, and NIST metrology investments, will receive $11 billion in CHIPS Act funding and are expected to operate in coordination with each other, with the incentives program, and with microelectronics R&D programs supported by other U.S. Federal agencies. 

National Semiconductor Technology Center (NSTC): The NSCT will be a public-private entity that includes participation from industry, universities, the Departments of Defense and Energy, and the National Science Foundation (NSF), Funding provided through the CHIPS Act is seen as seed capital for what eventually will be a larger organization driving innovation in semiconductors and microelectronics with financial and programmatic support form universities, investors and other government agencies including those at the state and local levels.

Collaborators and research partners from around the world, and particularly from allied countries, will be welcome. Research is expected to focus on advanced semiconductor design, scaling new manufacturing processes, developing new tools and materials, improving the lab-to-fab flow, and standards and technological roadmaps. The NSTC will also address workforce development and the pipeline of workers needed to support an expanding sector. It is expected to play a key role in coordinating and scaling up programs currently led by industry associations, private companies, state and local governments, and other federal agencies. The CHIPS R&D Office will incubate the NSTC. 

- National Advanced Packaging Manufacturing Program (NAPMP): Fabricated semiconductors are “packaged” in a container that attaches to printed circuit boards that eventually appear in products. Most packaging is labor-intensive, is done in Asia, and will be economically difficult to bring home. The United States can compete, however, in advanced packaging, which is expected to account for 50% of packaging revenue by 2024. Innovations in advanced packaging are increasingly being integrated into the semiconductor process flow, blurring the distinction between silicon and packaging. NAPMP, which will operate under NIST, will foster a network of related entities in the field, and work with network participants to establish a pilot packaging facility to enable the testing and integration of new processes. 

- Manufacturing USA Institute: 16 Manufacturing Institutes currently exist, engaging government, manufacturing and academic organizations, with the goal of training the manufacturing workforce and driving new products to market. NIST will establish up to three new Manufacturing USA Institutes to bring together industry and university partners to focus on semiconductor manufacturing challenges. Virtualization of wafer production processes and the improved of automation process and materials handling will be key topics. 

- Metrology Research: Measuring semiconductors throughout the fabrication process is essential to fabrication, with exacting requirements for materials purity, defect tolerances, materials properties, and in-line processes. NIST plans to expand ongoing metrology research programs in measurement to enable breakthroughs, standards and process capability. 

Taken together, these initiatives are intended to create robust networks for innovation within the U.S. semiconductor ecosystem. Since the current cost of building a fab can exceed $10 billion, the $50 billion available through the CHIPS Act is insufficient by itself to fund large-scale expansions to the system, and development of a small number of new domestic fabs by itself won’t fundamentally impact U.S. competitiveness or supply chain security. Instead, funds available through the Act must leverage private sector and other investments in order to catalyze a larger and deeper semiconductor sector.

In other criteria that will influence awards, CPO will: 

Implement a Congressional-mandated requirement that any company that receives funding be prohibited for ten years from engaging in significant transactions involving the material expansion of semiconductor manufacturing in China. 

Prioritize applicants with proposals designed to increase participation by economically disadvantaged individuals, minority-owned businesses, women-owned businesses, and rural businesses. 

Encourage large-scale investments that can attract associated suppliers and workforce investment, and proposals that leverage private capital. 

Encourage collaborations, including consortium-like proposals, among fabricators and their upstream suppliers, equipment providers, and downstream partners. 

Prioritize projects that include state and local incentives such as workforce investment and long-term tax credits. 

Encourage projects that include workforce development at a scale required to meet demand. This includes programs that enable employers, training providers, workforce development organizations, labor unions, and other stakeholders work together to create more paid training and experiential apprenticeship programs for skills development.

Finally, and this is key for California, the Department of Commerce will prioritize funding for proposals that can move quickly, reduce project risk, and demonstrate local support and/or regional cooperation. It states that states and localities can show this commitment through: 

Expedited processes for environmental, health and safety reviews and permits. 

Liaisons to assist with site selection, supplier discovery, and compliance with local laws. 

A systems integrator that works with ecosystem companies to address shared issues like navigating permits, building infrastructure, finding workers, and coordinating incentive applications. 

Planning and support for other ancillary investments such as housing and community development. 

Where relevant, partnership with other states and localities to develop regional ecosystems and corridors that encompass multiple jurisdictions.7 

The Path Forward for California

California has the opportunity to capture a significant share of CHIPS Act funding, but competition will be intense and other states (Texas, New York, Arizona, Oregon and Ohio among others) are already shaping their own initiatives. Succeeding at a level that meets the state’s potential will require a strategy, a proactive outreach, and a well-organized partnership between the state, local governments, the business and economic development community, universities (including the University of California, CSU, and community colleges), and workforce development agencies.

This imperative is clear from the priority placed by the Department of Commerce, referenced above, on proposals that can move quickly and benefit from integrated public-private strategies that reduce cost and risk and expedite planning and delivery. This is a particular challenge for California, which is a high-cost state with regulatory processes such as CEQA often delay projects, adding to their cost and risk. Because of this it is important that California strategically prioritize the projects it chooses to pursue, develop a public-private framework for pursuing them, and be prepared to address workforce and regulatory barriers that reduce its competitiveness.

Assessing Opportunities

California for many purposes is uncompetitive on cost but can compete on value. 

Fabs: Due to cost and regulatory factors no large fabs have been built in California since the early 1990s; by the late 1990s California, which at one time produced 43% of the world’s computer chips, was producing only 5%. This happened as production shifted heavily toward Asia and to a lesser degree to Europe. In 2008 Intel closed it’s last plant in Silicon Valley.

California can choose to go for large fabs, but due to cost and regulatory factors and the statutory and policy changes needed to address them the state may not be able to move with enough speed and clarity to compete with lower-cost states with fewer legal and regulatory barriers. The well-known threat of CEQA litigation, for example, risks substantial permitting delays. Several elements are ultimately necessary to secure a fab: large shovel-ready tracts of land with entitlements for fab production, adjacent shovel-ready land for suppliers, a reliable supply of water, reliable and competitively priced electricity, a favorable tax and regulatory environment, and a strong pool of skilled and semi-skilled talent. Seismic risk is another factor that in California could affect site selection. No one element by itself is sufficient. In the aggregate, these requirements make competing for large fabs difficult almost everywhere in California. The strongest opportunity for large fabs in California is in the Central Valley, where land and housing costs are lower. 

California may be more competitive, however, for smaller scale fabs (250-300 thousand square feet) and research laboratories whose construction and development entail lower cost and complexity. Small fabs and supply chain producers could locate in the Central Valley or in coastal regions.

Supply Chain: California can be competitive in attracting key parts of the manufacturing supply chain, a space where it is already strong. This can happen in existing technology centers where research is currently concentrated but is also an opportunity for inland areas where land is readily available, housing and other costs are lower, and economic development needs are greatest. Microelectronics should be a focus. As with fabs, success in attracting supply chain investment will require a strong workforce development and training component. 

Research: The University of California Council of Vice Chancellors of Research, which includes the ten UC campuses and the three UC-operated Department of Energy Laboratories, is discussing microelectronics opportunities stemming from the CHIPS Act. Under consideration is the establishment a University of California Institute of Microelectronics (UCIM) to coordinate funding for systemwide microelectronics activities and facilitate links to CSUs, Community Colleges, and K-12. It will also serve as a clearing house to expedite regulatory approvals and remove bottlenecks. As a further step, the university is considering an initiative to coordinate campuses and laboratories at the regional level with a focus on microelectronics education and training at all levels of the pipeline (K-12 through university). The initiative would be developed in partnership with industry and other stakeholders. A third option being explored by UC is the creation of a systemwide alliance with industry, based on matching grants, for research and training in semiconductor equipment and materials manufacturing.

Multiple lab-university and lab-industry discussions are also underway. Participants in these discussions believe that California can play to several strengths including 1) workforce training at all levels (certificate, community college, university, graduate and post-graduate), 2) specialty applications and processes (e.g., harsh environments including space and environmental sensing, and optoelectronics, and 3) robust R&D programs at California’s universities, federal labs, and companies. 

Bridging supply chain and applied research opportunities, California could focus on key innovations that require cooperation and optimization across the computing stack (where California is home to every industry segment) such as memory, logic, analog or specialty technologies. 

Playing to Strengths

Across the state, project priorities should leverage areas where California enjoys a competitive advantage: semiconductor design and equipment manufacturing, R&D, innovation, strong research universities and national laboratories, and the largest and most highly skilled semiconductor workforce in the nation. With that, California has the best and deepest top-to-bottom semiconductor industry research and business infrastructure in the country with all sectors of the industry represented and is home to many of the nation’s leading companies: 

Intel, Qualcomm, Nvidia, Broadcom, AMD and Marvell are based in California 

Other industry leaders including Samsung, Texas Instruments, ARM and TSMC have a presence. 

Synopsis, Cadence Design Systems and Mentor Graphics - lead the world in design automation. 

California is also home to world leaders in manufacturing technology and solutions including KLA-Tencor, Lam Research, Applied Materials, and ASML. 

Leading electronic system companies that produce everything from smartphones to networking equipment and data centers – such as Apple, Alphabet, Microsoft, Meta, Amazon, Cisco and Tesla - have in-house chip design capabilities in California. 

California is home to two of the leading light sources (SLAC at Stanford and Berkeley Lab’s Advanced Light Source (ALS) that explore the time, energy and length dimensions of advanced semiconductor materials. Other advanced research in materials, electronic systems and computing architecture takes place at supercomputers at National Energy Research Supercomputing Center at Berkeley Lab) and the High-Performance Computing Innovation Center at (Lawrence Livermore National Laboratory.

World-class prototyping facilities in California include the Marvell Nanofabrication Laboratory at UC Berkeley, the Stanford Nanofabrication Facility, and Nanofab at UC Santa Barbara and UCLA. 

The state’s semiconductor ecosystem is strong across all sub-sectors including materials science, design, electron design automation, systems, and manufacturing tools in addition to fabs. 

California, which leads on innovation, boasts large numbers of semiconductor startups and entrepreneurship programs such as Activate at Lawrence Berkeley National Laboratory’s Cyclotron Road. The state is home to the only incubator in the world focused on early-stage semiconductor startups – Silicon Catalyst.

As the heart of the nation’s venture capital industry, California is home to risk capital and venture finance companies such as Silicon Valley Bank with a significant focus on semiconductors at all stages.

This means that unlike in other states a strong ecosystem is in already place and doesn’t need to be created. The supporting policy environment for the industry in California however, is weak. This has economic and competitive implications, and is the gap that a state-led initiative needs to fill.

Components of a Strategy 

Workforce: Integration of workforce training programs in the strategy is essential, drawing on existing manufacturing workforce training programs that can be directed to focus on semiconductor manufacturing skills as well as private sector programs. STEM skills, such as the ability to manage software and to work with machines, are increasingly important for modern manufacturing and should be a particular focus. This includes upskill training. Engaging disadvantaged communities in these programs will be essential, as well as mechanisms to facilitate small business participation. Community colleges must play a central role. 

Existing programs can be scaled rapidly. As one example, a partnership between SEMI, the industry association representing the electronics manufacturing and design supply chain, and Ignited Education, Foothill College, and the Krause Center for Innovation, has been awarded a $1 million California Apprenticeship Initiative New and Innovative Grant for the development of a semiconductor pre-apprenticeship and apprenticeship program to expand pathways to careers in the microelectronics industry. 

Regional and Subregional Asset and Gap Analysis: California’s manufacturing assets and gaps should be mapped regionally and sub-regionally to identify strengths as well as gaps where policy or other intervention is needed. 

Cross-Regional Partnerships: Federal criteria for CHIPS awards suggest that favorable consideration will be given to projects that are regional in nature and span multiple jurisdictions. In California this can happen through coastal-inland coalitions that leverage coastal advantages in R&D, IP and human capital with the cheaper land and lower labor costs available in the state’s interior. Possibilities include San Diego-Imperial County, Los Angeles-Inland Empire, and Bay Area-Sacramento-San Joaquin Valley. Whether inland or on the coast, Opportunity Zones should be considered in site selection. 

A clearinghouse to expedite regulatory approvals and remove bottlenecks: While state-led, this should include a structured public-private partnership that leverages the state’s policy resources with the on-the-ground capabilities and expertise in the business, economic development and educational sectors. That should include a quick response team (strike team) to address immediate opportunities and issues. Participants should include officials representing the Governor’s office and key state agencies, business and economic development organizations representing California and its regions, and prominent academics. 

Federal and State Leadership Alignment: Competing states’ Congressional delegations are engaging with leaders at the state and local level to support their CHIPS Act efforts. This happens, for example, through staff provided by Congressional leaders to lend insights and expertise to help state and local officials and their partners navigate the federal bureaucracy. A unified and engaged California’s Congressional delegation will increase the chances of success. 

Examples of current California initiatives that coordinate and leverage activity across the state include the Climate Innovation Program, which directs funding for R&D grants to companies in California, and the ARCHES Hydrogen Hub initiative, which coordinates statewide activity focused on federal funding for hydrogen energy deployment.

Policy Reforms and Initiatives: 

Regulatory changes may be needed to make California competitive for much of this investment, particularly as it relates to manufacturing. Large and small companies will compete on the merits for funding. The critical role of the state will be to show that if an applicant succeeds state programs to support their activity are available and can be included in their project proposal. 

Because CHIPS funding is available now and major reforms will take time, the immediate focus should be on actions that can be delivered in a short period time. In the current economic environment steps that carve out the semiconductor sector will have a limited fiscal impact and may therefore be more achievable than broader reforms. As manufacturing in California is a priority across all sectors, longer term reforms should also be on the table. 

Immediate initiatives should include: 

Elimination of sales tax on the purchase of semiconductor manufacturing equipment, to enable production at scale and support emerging companies that use equipment to design and test their products. 

To keep research and manufacturing in California, tax rebates on headcount as semiconductor headcount as companies hire.

Other targets, connected to economic development in the state more generally, should include: 

Wireless supply chain innovation: The CHIPS+Science Act includes $1.5 billion for promoting and deploying wireless technologies that use open radio access networks (ORAN). Open source interfaces that are standardized and interoperable can support the diverse California companies that build the specialized hardware and software used in broadband networks, reducing supply chain risks. The state can assist the rollout of “lead-ahead” advancements by reducing barriers to infrastructure buildout and unnecessary delays in siting and permitting The Public Utilities Commission should also consider raising the technical assistance grant cap for local projects. 

California Competes Act: Tax credits available through the California Competes Act for companies choosing to locate and grow their businesses in California should be leveraged. $120 million is carved out in California Competes funding to support semiconductor investment. 

Employment Training Panel: The ETP should be customized to address the specific needs of the semiconductor industry. The ETP program cap should also be lifted to enable the participation of more mid-sized companies, and other steps taken to improve the cumbersome application and program set-up process.

Within both California Competes and ETP, consider the creation of a special Mega-Project designation that lets GO-Biz certify projects with statewide significance, expediting processing and the allocation of funds. 

Opportunity Zones: consider conforming California’s treatment of capital gains with the Internal Revenue Code for semiconductor manufacturing investment in Opportunity Zones. California, with New York, is one of only two states that do not to some degree conform with the federal standard, making California’s Opportunity Zones less competitive for investment. 

Community Colleges: introduce a semiconductor training module into community college curricula in regions where semiconductor activity is concentrated and in regions such as the Central Valley if new funding for semiconductor funding is secured.

University of California/California State University Centers of Excellence: The state should consider allocating resources to the UC and CSU systems for a semiconductor center or centers of excellence, with matching funds provided to help anchor federal grants and opportunities for applied research centers described in the Act (e.g., NSTC, Applied Packaging, etc.). The centers would leverage the UC system’s strong base in industry-university collaborative applied research and the CSU’s strength as the country’s largest producer of bachelor’s degrees. 

CSUs could also target funding for minority-serving infrastructure that supports programs in computational engineering, including quantum, and for the placement of students and faculty in those programs at national laboratories.

In both the University of California and CSUs, initiatives could focus on semiconductor entrepreneurship, including incubator services, startup pitches, and cohort development. 

Power and Water: Semiconductor facilities, whether large fabs, small fabs, labs, or R&D, require significant power and water. Subsidies to build specialized infrastructure and/or to reduce utility costs may be needed to make California more competitive for semiconductor manufacturing. 

Regional Technology Hubs: securing sites in California for regional technology hubs, which can focus on semiconductors or other technologies, offers a signature opportunity. Hubs were not part of the CHIPS+Science Act appropriation but are expected to be funded in early 2023 and some funding is already being allocated from existing sources. Success in California will require highly focused public-private partnerships and strategic coordination by GO-Biz.

Goals and Leadership

California’s effort to attract resources under the Act will face pressure at the Federal level to direct investment toward the country’s interior and away from more prosperous coastal centers. This suggests a strategy where the Central Valley and inland California – which face many of the same economic and equity challenges seen elsewhere in the U.S. – play an important role. 

California can play to its strength in research, the depth of its semiconductor workforce, its innovative capacity, and its productivity in translating research and technological advances into products and applications – a key to future U.S. leadership in the sector. California is home to a complete semiconductor ecosystem, an advantage compared to other states. As a metric for the share of CHIPS investment the state should seek to secure, California’s share of the national semiconductor workforce (23%) could be a good target.

Leading states’ Congressional delegations are engaged with leaders at the state and local level to support their CHIPS Act efforts. That commitment includes providing access to staff with the insight and expertise to help state and local partners navigate the federal bureaucracy. While industry and state and local partners will play the leading role, California’s Congressional delegation needs to work closely with businesses and with state and local partners to advance CHIPS Act opportunities for California.

How it Can Happen

As an example of how resources can be aggregated to make regions in the state more competitive, the Greater Sacramento region is already growing its semiconductor manufacturing sector. In September 2022 Soladigm, the U.S. subsidiary of Korea’s SK Hynix, the world’s second largest memory chip maker, announced plans to build its global research and development campus in Rancho Cordova. More than $100 million will be invested in the facility, which will be home to high-wage jobs and more than 1900 professionals. Proximity to a skilled workforce and the ability to expand to accommodate future growth were site selection factors, as was the availability of low-cost, high-uptime power, which was secured with the cooperation of the Sacramento Municipal Utility District (SMUD).

Elsewhere in the region the University of California at Davis, looking to opportunities afforded by the CHIPS Act, is developing a focus on workforce development in rural and underserved communities, recognizing the priority this will receive at the federal level and in the National Science Foundation’s new directorate for translational research created by the CHIPS+Science Act. Resources are particularly focused on the development of its Aggie Square district in Sacramento as a platform for translational research, including industry collaboration and support for startups. 

The university has also invested $22 million in in CNM2, a clean room facility developed in partnership with Lawrence Berkeley National Laboratory and CITRIS (the Center for Information Technology Research in Interest of Society), a UC institute which leverages capabilities at four Northern California campuses – Davis, Berkeley, Merced and Santa Cruz. Parallel with this, in 2021 CITRIS was awarded $5 million by the state to support undergraduate internships as workforce training in a number of fields including semiconductors. With a full spectrum of state-of-the-art micro-nanofabrication equipment, processes and services, CNM2 supports the manufacturing sector by demonstrating the scalability and economic feasibility of processes developed through the university’s multidisciplinary research programs. Its clean room is actively used by industry partners in Greater Sacramento and the Bay Area and focuses on prototyping.

At the K-12 and Community College level, Davis entities and CITRIS are building connections to school districts and organizations in the Davis, Sacramento, and Stockton areas such as the Sacramento City Unified School District and SJCOE (the San Joaquin County Office of Education). That engagement includes mentorship for high school students and summer programs such as workshops and camps that provide opportunities to work in CNM2. This exposes students to the microelectronics sector, prepares students for study in departments at Davis that support the semiconductor sector, and helps build a long-term workforce pipeline. 

Davis faculties are also working with K12 teachers on developing modules on semiconductor technologies, data sciences, and other STEAM fields for K12 students, with representatives attending K12 classroom lectures with those teachers. Industry partners have expressed interest in participating in this outreach. Other initiatives will focus on building strong ties with community college partners such as Sacramento City College. The university estimates that CHIPS Act funding could allow it to engage more than 1000 K-12 students in these programs and train 250-1000 students at the university level each year through microelectronics degree and certificate programs. 

This activity builds on the university’s Department of Electrical and Computer Engineering (ECE). ECE faculty have on-going collaborations with semiconductor companies including Qualcomm, NVIDIA and Texas Instruments. Nine faculty members have pioneered new engineering approaches in fabless semiconductor design, and in the past five years the department has graduated 53 Masters and 35 Ph.D. students who currently work in fabless semiconductor design, mostly in California. ECE could in the future serve as a partner to provide training in fabless semiconductor design for students at nearby regional universities such as Sacramento State, Sonoma State, and Chico State University, as well as regional community colleges.

Similar assets, and the opportunity to leverage them, are available in Southern California. UC San Diego, for example, has invested in a state-of-the-art nanofabrication clean room facility, developed as part of the San Diego Nanotechnology Infrastructure (SDNI) initiative, that is one of 16 nationwide sites of the NSF-supported National Nanotechnology Coordinated Infrastructure (NNCI) program. The facility is also a part of the California Institute for Telecommunications and Information Technology (CALIT2), a California Institute for Science and Innovation that leverages the capabilities at several Southern California campuses - UC San Diego, UC Irvine, and UC Riverside. Like CITRIS, CalIT2 partners closely with industry. 

SDNI plays a significant role in the region’s innovation ecosystem, in part through its workforce training programs in semiconductors. UC San Diego and SDNI have developed Integrated Circuit Education Kits to support workforce development at the college level, dozens of high school science teachers participate in enrichment summer camps each year, and over a thousand high school students are offered the opportunity to gain hands-on experience by working with nanotechnologies on campus.