Last October, President Joe Biden and congressional leaders traveled to Syracuse, N.Y. to tout semiconductor manufacturer Micron Technology’s plans to build the nation’s largest semiconductor fabrication facility in the city.
Director of Applied Research - Brookings Metro
Xavier de Souza Briggs
Senior Fellow - Brookings Metro
Senior Fellow - Brookings Metro
In a speech at a local community college, President Biden underscored the catalytic role of the CHIPS and Science Act in securing Micron’s investment. The act funds $280 billion to support research, technology development, and the modernizing and scaling up of the domestic semiconductor industry. Onshoring semiconductor production has mainly been framed in terms of national economic security, but these major manufacturing and research investments will also matter greatly to the local economies that receive them.
The developments in Syracuse signal a new kind of industrial policy taking shape in regions across the country, which will play host to large manufacturing plants like Micron’s semiconductor facility. Even so, across these regions, long-standing inequities raise the question of whether low-income people, people of color, and women will share in the gains from this advanced industry growth. For well-documented reasons, a rising tide in these regional economies spurred by generous public tax incentives may not lift all boats.
To avoid this dynamic, leaders in New York worked with Micron to structure a “Community Investment Framework” that aims to maximize the impact of the manufacturer’s construction, operational, and philanthropic expenditures on inclusive regional development.
In exchange for generous state-level tax credits, the Framework creates the potential for the state to enforce standards related to Micron’s business practices in areas such as labor, supplier procurement, and environmental sustainability. The Framework also secures commitments from Micron to invest in workforce development, education, and community development. To guide the latter, the Empire State Development and Micron announced the creation of a $500 million Green CHIPS Community Investment Fund, as well as a Community Advisory Committee to ensure that the fund’s ultimate investments are aligned with community needs in four key categories: education, workforce development, housing, and community projects.
On paper, the Community Investment Framework has large ambitions and early commitments, making it an approach that bears watching for two reasons. First, the Framework creates expectations for how Micron targets temporary construction jobs, more “permanent” manufacturing jobs, and local procurement toward more inclusive outcomes. Inclusive local employment and procurement are two economic “linkages” that have proven essential toward making regional development more equitable and inclusive. Still, in and of themselves, they do not guarantee things like accessible and high-quality training, high wages, career pathways, or supplier growth—but they offer tangible entry points for local workers and entrepreneurs.
Second, the Framework brings together Micron, local and state government, and philanthropy—with the prospect of significant federal grant money from the Commerce Department as well—to build the regional capacity that will help Micron meet its local employment and procurement targets.
It will take both approaches—corporate commitments on local linkages and private and public investments to prepare the community for these new opportunities—to ensure that the nation’s emergent industrial strategy translates into inclusive local development benefitting all communities, workers, and entrepreneurs.
Federal incentives are sparking a ‘big build’ for semiconductors
Micron’s Syracuse investment was influenced by August’s passage of the CHIPS and Science Act, which established a 25% investment tax credit, a $39 billion fund to incentivize chipmakers to reestablish production domestically and $13 billion for research and development and workforce development. The legislation responds to both short-term economic challenges and longer-term economic and security priorities. During the pandemic, U.S.-based manufacturers struggled through supply chain bottlenecks and semiconductor shortages revealing the need for greater domestic production capacity to deliver everything from consumer electronics to electric vehicles to industrial equipment. Longer term, semiconductors also have national security significance, given their prominent role in military and general-use technologies, such as artificial intelligence.
Due in part to this more activist federal industrial policy, semiconductor companies are in the beginning stages of a “big build” as they rapidly construct and expand facilities across the nation. Beyond Syracuse, the CHIPS legislation also figured prominently in Intel’s recent investment in the Columbus, Ohio region; Samsung’s potential expansion in the Austin, Texas region; IBM’s expansion in Poughkeepsie, N.Y; and Taiwan Semiconductor Manufacturing Co.’s expansion in the Phoenix, Arizona region. According to Semiconductor Industry Association, over the past two years, semiconductor manufacturers have announced nearly $200 billion in new investments for the next decade.
As Micron and other companies build these semiconductor facilities, they will seek direct subsidies from the Commerce Department’s CHIPS for America Fund (part of the CHIPS and Science Act) to partially offset the costs. Yet, as outlined in its implementation strategy, the Fund’s objectives extend well beyond factory construction projects, with one of its key objectives being to “grow a diverse semiconductor workforce and build strong communities that participate in the prosperity of the industry.”
That objective is highly significant. As semiconductor manufacturers apply for these subsidies, they will not only need to demonstrate that they have sought co-investment in the form of tax incentives from local and state governments, but also that they are making commitments to local workers and suppliers and partnering with government, higher education, and nonprofits on broader community investment strategies to advance inclusive local and regional development.
Creating a framework for smart business incentives and region-wide benefits
As an older industrial region in the heart of America’s manufacturing belt, the Syracuse metro area and broader central New York region is an archetypal place in which to advance the federal government’s vision for inclusive economic innovation.
Micron plans to build its complex at the White Pine Commerce Park in Clay, N.Y., about a 15-minute drive from downtown Syracuse. Initially, the company will spend $20 billion to build its first plant, which it estimates will require about 5,000 workers for construction and initially employ about 3,000 manufacturing workers. Micron has announced that these jobs will pay an average salary of $100,000—nearly double the region’s current per capita personal income (although the company has not announced expected wages for entry-level jobs). By 2045, if Micron implements its Phase 2 expansion, the company expects to employ roughly 9,000 workers at its facilities. An economic impact analysis estimated that by 2055, those jobs will support roughly 9,000 indirect jobs (workers whose employers are supplying key products and services to Micron) and 32,000 induced jobs (workers whose employers are providing local services in response to increased economic demand).
Such growth would mark a significant departure from recent trends in central New York. Regional employment there peaked in 2001, took a major hit during the Great Recession, and today has yet to recover to pre-pandemic levels. But low growth is only one part of the region’s economic challenge; among metro areas with populations of 500,000 to 1 million, Greater Syracuse saw the largest increase in earnings disparities by race between 2009 and 2019, with median incomes growing for white workers but declining for workers of color.
These patterns may explain the fervor with which regional and state leaders courted Micron. This summer, New York Gov. Kathy Hochul and the legislature passed a new version of the state’s Excelsior Jobs Tax Credit program to attract chip manufacturers. Should Micron hit its intended capital investment, job creation, and research and development targets while delivering on its commitments to sustainability, prevailing wages, and worker and community investments, it will be eligible for approximately $6 billion in state and local incentives—the largest such package in New York’s history. These incentives are not provided as an upfront sum; sources close to the agreement have told Brookings that the company must qualify annually for the tax credits, subject to approval from Empire State Development, the state’s economic development agency. In principle, the idea is to enable the manufacturer to plan with the assurance of public co-investment over time while acknowledging that the specific terms of the agreement are contingent on the company meeting the targets mentioned above (for which a globally competitive marketplace offers no guarantees).
Such incentive packages—mostly from state governments but potentially with local subsidies as well—will emerge around every semiconductor investment. The Commerce Department will “prioritize support for projects that include state and local incentive packages” when deciding how to award loans, loan guarantees, and grants from the CHIPS for America Fund.
State and local leaders also deem these incentives necessary, as governments compete with one another for corporate investment. Since some states will use incentives in these competitions, all feel they must. And we should not forget the global scale of the competition. In the semiconductor industry, states like New York are not just bidding against Ohio or Texas, but also against Europe and Asia, which have their own generous subsidies. Of course, it is nearly impossible for government officials to know whether a company needs an incentive to expand or grow jobs, and skeptics of such approaches maintain that incentives are wasteful and regressive because they subsidize companies to do something they would have done anyway. Moreover, observers of business attraction policies have called for greater transparency and accountability in the use of taxpayer-provided subsidies, to mitigate a race-to-the-bottom dynamic between governments and drive measurable benefits for local workers, businesses, and communities.
How incentives are targeted, therefore, matters greatly. Economic development expert Tim Bartik has argued that incentives are best targeted to specific, socially beneficial investments such as job training or research and development, and that subsidies should be reserved for companies that create good jobs at livable wages and build regional supply chains in tradable clusters (which tend to offer more advanced skills and higher wages than jobs in the local service economy). Josh Goodman and Khara Boender at the Pew Charitable Trusts recommend that states establish principles and procedures that allow for robust targeting, monitoring, and evaluation of incentives. And in a 2018 Brookings policy brief, economist Aaron Chatterji—now the White House’s point person on CHIPS implementation—called for focused investments in evidence-backed workforce development programs to help residents get good jobs, and targeted entrepreneurial support to grow local companies, including those that could act as suppliers in manufacturing and other high-value-added sectors. Importantly, the Commerce Department’s strategy paper indicates it will favor “state and local incentive packages with the potential for large spill-over benefits, are based on performance, and maximize regional and local competitiveness as well as economic gains, including supporting a robust semiconductor ecosystem rather than a single company.”
Defining, operationalizing, and enforcing such corporate commitments to the public good has often been pursued in large-scale, urban real estate development (think new sports or concert arenas), where nonprofit groups or local governments have entered into community benefits agreements (CBAs) with developers. These agreements primarily mean to connect low- and moderate-income workers and suppliers to the projects, but sometimes also to secure concessions; for example, to operate small businesses in and around the newly constructed facilities. CBAs are extremely labor-intensive to negotiate and often quite technical; they also pose the standard challenges of governing in local politics. CBAs must mobilize community voices and align local interest groups, elected leaders, and businesses to craft agreements that are at once aspirational and realistic in economic terms, and also seen as reasonably fair and inclusively decided in procedural terms.
CBAs are very new in the arena of domestic manufacturing deals with public investment, which have seen little large-scale federal investment since the space race (other than defense procurement). A landmark multistate CBA announced last year for a electric bus maker’s plants in Alabama and California illustrates what may be achievable in other deals nationwide, especially to promote job quality and ensure access to training and worker protections.
What state and local leaders need to know about institutionalizing inclusive growth
The CHIPS for America Fund offers a unique opportunity to tailor a public benefits framework, whether via CBAs or other mechanisms, to a key growth industry that is now the backbone of our economy. As previewed above, to receive federal subsidies, semiconductor manufacturers must address several Commerce Department “implementation principles” tied to strengthening regional clusters and supply chains, preparing a diverse workforce, and investing in community-level opportunity. Beyond the provision and monitoring of tax breaks, these inputs require high-capacity local and regional partnerships with businesses to establish new and expanded programs and more coherent and functional civic systems.
In Syracuse, the Community Investment Framework that Empire State Development negotiated with Micron (with support from the regional economic development organization CenterState CEO), seeks to address Commerce’s implementation principles through the following elements:
- Strengthening regional innovation clusters through a $10 million venture funding investment from Micron in collaboration with the regional tech ecosystem.
- Building a robust, inclusive network of suppliers through Micron’s pledge that 30% of eligible construction spend and 20% of ongoing eligible operating spend occurs with businesses owned by people from socially and economically disadvantaged groups.
- Preparing a diverse and empowered workforce through Micron’s $10 million investment in the Syracuse STEAM school and other K-12 STEM programs; another $10 million investment from Micron and Onondaga County into a clean room and technical curriculum at Onondaga Community College; Micron’s support for a Workforce Innovation Consortium that builds out the region’s workforce development ecosystem; and Micron’s entry into a project labor agreement with local unions.
- Investing in community-building through funding for child care, early learning, STEM exposure, and quarterly community engagement meetings with residents in Clay, Syracuse, and Onondaga County.
Micron has pledged $250 million to the Green CHIPS Community Investment Fund over 20 years, and the state of New York has pledged another $100 million, with another $150 million to be raised from local, state, and philanthropic sources. By any number of benchmarks—including recent ambitious federal programs (other than CHIPS) that make big bets on inclusive economic growth in regions—these proposed investment levels are significant and promising.
But the $500 million Fund is only part of the potential impact. Should Micron meet its ambitious supply chain pledges, billions in contracts could flow in the years ahead to business owners from historically excluded communities. Should Micron act with urgency to hire regionally and expand the talent pipeline, thousands of local workers could gain access to quality jobs over the next two decades. Ultimately, these outcomes rest on Micron’s good-faith efforts to meet these targets, the state’s willingness to enforce these targets (including by withholding annual tax incentives), and the region’s ability to create and sustain the civic infrastructure needed to make the most out of these targets (more on that below).
Public oversight and accountability will be crucial in this regard. For example, we do not yet know what is in the Micron agreement concerning wage floors and benefits—even if projected annual wages for the planned facility are much higher than the current regional average. The Framework pointed to an 11-member Community Advisory Committee; our hope is such a multi-stakeholder group is not just a pro forma exercise, but that it is both representative of a diverse range of perspectives and empowered to match the Fund’s investments to community needs and opportunities.
That last part is easy to overlook—regional civic capacity will need to surge. This sprawling inclusive development agenda requires coordination across a distributed network of implementing organizations, including local governments, schools, colleges and universities, community-based organizations, economic development groups, and entrepreneurship support organizations. In a piece last year, our team unpacked this key ingredient and framed it as “institutionalizing inclusive growth” at the local level. For example, a regional “system hub” can convene organizations across multiple pillars of the regional system to collaboratively invest in initiatives and transparently measure progress.
Key questions for the future of regional inclusive growth partnerships
Through the CHIPs and Science Act, Congress and the Biden administration established a powerful investment platform with the potential to expand the nation’s productive capacity for decades. Now, the Commerce Department must make a series of decisions about the program’s design and implementation, including a Notice of Funding Opportunity to guide the distribution of the $39 billion to semiconductor companies. A lot rests on the terms in that document—not just what it calls for from applicants, but also how it weighs different elements of their proposals to determine how industry leaders pursue inclusive approaches around workforce, business, and community development. It is a rare moment to catalyze and enable a different form of economic growth, especially for regions that have suffered decline or stagnation as they watched the innovation economy pass them by.
From there, federal leaders must rely on local and state implementers—working in collaboration with industry and community—to ensure that this “big build” actually generates widespread economic benefits in the communities that receive these investments. As such, this new era of industrial policy also needs a rebooted and reinvigorated federalism that operates across all levels of government and the public, private, and nonprofit sectors.
These regional industry-government-community partnerships should be guided by several key questions:
- Transparency: Have local and state governments put in place clear commitments to transparency, public reporting, and independent evaluation of publicly provided incentives?
- Inclusive community investment: In addition to job quality commitments and direct incentives to companies, are there flexible resources to invest in job training, supply chain development, housing, and infrastructure to ensure that growth is both inclusive and sustainable?
- Capacity: In preparation for a capital investment boom, can regions muster an accompanying boom in capacity to ensure inclusive, effective delivery?
It will be some time before we know whether the Syracuse framework delivers as promised. But it is certainly emblematic of a new regional growth model that is also a new model for the innovation economy as a whole—one that uses catalytic federal funding to unlock private capital and deploy it to generate good jobs, contracting opportunities, and investments in people and place.