Four steps California can take to compete for CHIPS funding

OPINION – Federal agencies are actively considering how to allocate the $280 billion of CHIPS and Science Act funds authorized to increase America’s global competitiveness in semiconductor innovation, manufacturing, and supply chain resilience.

Industry and research institution applicants around the nation are racing to compete for this vital federal funding, with other states investing heavily to support projects within their borders.

That’s why it’s so important that California’s leaders work together immediately to take steps to ensure that Golden State industry and research organizations receive our fair share of federal dollars to grow the Innovation Economy.

The good news is that California starts from a strong position. Our state is first in the nation with more than 64,000 semiconductor jobs, producing worker wages in excess of $41.3 billion. The state also has the most semiconductor facilities in the country. In sum, the semiconductor industry is a significant part of California’s economy and is the state’s top export, valued at $11.2 billion.

The Golden State also leads in innovative chip development. Silicon Valley-based Infinera Corporation, for example, is a leader in developing indium phosphide (InP) compound semiconductors that are critical for national security, including artificial intelligence, quantum computing, and telecommunications.

Rather than offshoring its fabrication, packaging, and technology, Infinera kept its operations in the U.S. and is the only company in the country at its size and scale producing advanced optical compound semiconductors from InP.

But the stark reality is that California cannot rest on its past successes in the face of stiff competition from other states.

For example, Michigan created a strategic fund to support site readiness, along with tax abatements and legislative appropriations. Ohio invested in higher education programs to grow its future semiconductor workforce. Texas is about to pass the Texas CHIPS Act. And New York has expanded the benefits available for tax credits on project salaries and wages, capital expenditures, and R&D costs.

The stark reality is that California cannot rest on its past successes in the face of stiff competition from other states.

So what should California do to increase odds of success and send a message to Washington that we are prepared to spend these federal dollars wisely and generate the greatest impact?
First, the state should make semiconductor design and production more financially attractive. The Legislature should reauthorize the California Competes program, a tax credit or grant available to businesses committed to growing in the state. The Governor’s proposed budget funds the program and wisely gives priority of funding for semiconductor manufacturing, research, and development.  The state can also eliminate the sales tax on purchases of semiconductor equipment. This will help increase the scaling of production and lower costs for companies and institutions that use this equipment to build, test, and deploy semiconductor technology.

Additionally, the state can reduce red tape and bureaucratic delays for project health, safety, and environmental reviews. The Commerce Department has said that it will prioritize projects that are ready to proceed quickly though environmental reviews.

The state can also work with its world-leading educational institutions – the University of California and Cal State systems – to provide matching funds that establish these institutions as semiconductor centers of excellence for applied research grant opportunities.

Federal leaders can also help make California more competitive for funding. Congressional representatives can identify staff on their teams to help coordinate funding requests, assist in shepherding applicants through federal agencies, and bring together local, state, and federal stakeholders to make the most compelling applications possible.

California remains well positioned to offer the highest return on investment for federal funds based on value. We believe that funding received should be in line with our dynamic semiconductor workforce and facilities.

Collaboration between state and federal leaders will serve us well.

Doing so will ensure that Silicon Valley companies have the resources they need to compete globally, continue innovating, and shape the next generation of cutting-edge technologies.

David Heard is CEO of Infinera. Peter Leroe-Muñoz is SVP of Tech Policy for the Silicon Valley Leadership Group.