The CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act creates substantial financial incentives for manufacturing semiconductors in the US. Most prominently, the CHIPS for America Fund includes $39 billion to provide financial assistance to build, expand, or modernize domestic US facilities and equipment for semiconductor fabrication, assembly, testing, advanced packaging, production, or R&D.
The legislation and recent documents from the Department of Commerce begin to explain how these incentives will be deployed.
The CHIPS for America Fund will be divided into two parts
- $28 billion in incentives funding will be available for large scale investments to establish domestic production of leading-edge logic and memory chips requiring sophisticated manufacturing processes
- $10 billion in incentives funding will be available for new manufacturing capacity for mature and current-generation chips, new and specialty technologies, and semiconductor industry suppliers. Its focus will be on chips used for defense sectors, automobiles, information and communications technology, and medical devices.
Structure and administration
The incentives may be structured as grants, cooperative agreements, loan subsidies or loan guarantees. It is likely that projects will be funded in increments as milestones are achieved, but clawback terms are also included in the statute. It appears that the amount and funding type of financial assistance to be provided is discretionary. That said, federal investments in any individual project may not exceed $3 billion, except in specified circumstances, and loan and loan guarantee terms are not to exceed 25 years.
Eligible entities will need to submit an application. A new CHIPS Program Office (CPO) to be formed within the National Institute of Standards and Technology (NIST) at the Department of Commerce will implement the incentives program. The CPO will release specific guidance by February 2023, but some criteria and eligibility requirements have been established.
Criteria for evaluating applicants
Increase scale and attract private capital. The goal is to increase the number and scale of US facilities and encourage large-scale investments with long-term impact and economic viability. Applicants will need to commit substantial private capital and are encouraged to explore creative financing structures.
Leverage collaborations to build out semiconductor ecosystems. Collaborations among industry, investors, customers, designers and suppliers are encouraged.
Secure additional financial incentives and support. Applicants will need to show that they will receive state or local incentives. Different types of incentives will count toward this requirement, but there will be a preference for incentive packages with the potential for spill-over benefits, that are performance-based, that have local support, and that maximize regional economic gains and competitiveness, not just benefit a single company.
Establish a secure and resilient semiconductor supply chain. Projects that focus on information security, data tracking and verification and those that address supply chain risks will be prioritized.
Expand the workforce pipeline to match increased domestic capacity workforce needs. The program will be seeking creative recruitment and training efforts and those that are inclusive of populations that have been underrepresented in the industry. Partnerships among employers, training providers, workforce development organizations, labor unions, and others are encouraged. Programs providing paid training, experiential apprenticeships, and wraparound supports such as childcare and transportation are mentioned specifically.
Create inclusive and broadly shared opportunities for businesses. Plans that demonstrate how small and underrepresented businesses will be included in efforts supported by the CHIPS programs will be prioritized.
Financial considerations. Detailed project and company financial data will be reviewed, including plans to ensure the facility remains competitive and viable, an analysis of how the Investment Tax Credit will impact the project, and other considerations.
The legislation also prioritizes projects that are in the economic and national security interest of the United States and includes terms specifying that entities may not engage in significant transactions involving expansion of semiconductor manufacturing in China or other foreign countries of concern.
State and local economic developers will be active in at least three of these areas: securing state and local financial incentives, bolstering the skilled workforce, and creating opportunities for small and underrepresented businesses in their communities.
The CPO is tasked with monitoring the use of funds. There will be several levels of reporting, including annual reports to Congress, a program audit by the Department of Commerce inspector general not later than four years after the first award, and GAO reporting requirements on outcomes.