The CHIPS and Science Act (CHIPS) passed with bipartisan support from Congress and was signed into law by President Biden on August 9, 2022. It made headlines as a major investment by the U.S. government to revitalize America’s leadership in scientific research and technology and counter China’s ascendency in these sectors.
Project Manager and Policy Analyst - Global Economy and Development, Center for Sustainable Development
Hidden among the $52 billion investment to ramp up semiconductor manufacturing and spur research and development for advanced technologies are landmark provisions in place-based policy, which are designed to enable a much wider array of communities across America to participate in, and reap the benefits of, the changing economy. These new initiatives build on increased recognition by policymakers of the challenges associated with growing geographic divergence in economic outcomes.
This Act thus provides a unique opportunity to support rural America, which continues to lag behind the rest of the country since the 2008 recession. Prior to the COVID-19 pandemic, employment and labor rate participation in rural places had not recovered to pre-2008 levels, while metro areas had added significant employment. Although rural employment has fared slightly better than metro areas coming out of the worst of the pandemic’s economic disruption, overall, it remains below pre-2008 levels and far below the urban gains since 2007.
Congressional leaders recognize that rural communities are seeking investment and support for strengthening their economic resilience and prosperity, and the place-based CHIPS programs explicitly prioritize these communities through some of their provisions. We analyzed the extent to which the CHIPS and Science Act holds promise for rural communities.
1. The Recompete Pilot Program
The legislation authorizes a $1 billion pilot program over five years based on the Rebuilding Economies and Creating Opportunities for More People to Excel (RECOMPETE) Act, originally proposed by Representative Derek Kilmer (D-WA), based on an analysis advanced by Tim Bartik. Rep. Kilmer’s original legislation called for 10-year block grants to be awarded to all labor markets and local communities meeting a specified level of distress.1 Based on its formula, the original legislation could have granted approximately $1 billion each to 20 local labor markets, with Cleveland, Ohio and Philadelphia, Pennsylvania receiving $800 million and $1.9 billion respectively. A total of 2,980 areas overall met the threshold of eligibility.
The authorization in the CHIPS Act turns this into a competitive pilot program that would award a total of $1 billion over five years. To ensure that the pilot program protects the integrity of the original concept and proves to be an authentic test of the original legislation’s intent will require adherence to its fundamental principles and rationale. Rep. Kilmer’s legislation emphasized:
- Pre-development investments: Affected areas would be able to access expertise and technical assistance and augment their capacity to develop plans and revitalize their economies.
- Flexibility: Available funds could be used for a wide range of activities, including those aimed at strengthening local capacity, such as staffing, planning and coordination, and technical expertise.
- Local determination: Use of the funds would be decided and managed by local leaders, based on plans and solutions that fit their local situation, assets, and history.
- Adequacy: Funds would be in the form of grants—rather than loans—awarded at a substantial dollar amount that reflect the level of investment necessary to reinvent local economies.2
- Consistency: Grants would be 10 years in length, as long as localities met certain standards of progress, allowing them to plan and implement over the long term.
This concept shares many of the attributes that our Reimagining Federal Rural Policy initiative has emphasized to modernize and increase the effectiveness of federal rural policy. It is also similar in its underlying principles to the Rural Partnership Program included in the original Build Back Better Act passed by the House of Representatives in November 2021, which then stalled.
The rationale for granting the funds directly to severely distressed communities, ensuring flexibility in the use of funds, and delivering a substantial level of funds over multiple years fits with what rural practitioners have been urging federal policymakers to adopt. This modern approach to community economic development places faith in the idea that distressed communities, including rural communities, have the ability and resilience to adapt to changing economic realities if adequate investment, patience, and data-driven expertise is properly matched with local leadership, vision, and will.
A focus on distressed rural areas would enable a more robust test of this concept since it would allow a diversity of sites to receive an adequately proportionate level of investment. Based on the legislation, smaller communities such as New Lexington, Ohio and Bullock County, Alabama would have received $19 million and $30 million, respectively. By spreading proportionately significant grants to smaller communities, the pilot program can impact more places and test its concept more thoroughly.
Given these considerations, a successful Recompete pilot program would entail:
- Full funding: Congress must appropriate the full $1 billion so the pilot is able to rigorously test the underlying fundamentals with sufficient investment among a suitable number of locations.
- Rural guarantee: The original RECOMPETE legislation did not include any special preference for rural communities since any geographic area meeting the definition of a distressed labor market could participate. For the pilot program, we suggest adding a stipulation that explicitly states that at least 10 rural locations are included. This could stretch the use of the available funds to go beyond the current stated minimum of 10 sites overall, leaving substantial funds to apply to other areas. We would also suggest creating a community of practice among this rural cohort, to take advantage of an exceptional opportunity to advance the state of the art in rural development practice.
- Equity and geographic diversity: The pilot would also benefit from intentionally identifying locations across different parts of the U.S. and with different demographic characteristics, given differences in regional economies; race, age, and gender characteristics; geographic features; and types of assets.
- Measurement and evaluation: The pilot program offers an exceptional opportunity to advance knowledge about what is effective in modern community development. Funds should be specifically set aside for evaluation of community-level outcomes by independent third-party experts, with metrics and collection methods designed and integrated—in conjunction with local community members and leaders—into each Recompete plan from the start. This data could support and strengthen a learning agenda integrated into the proposed rural cohort and community of practice.
2. Regional technology and innovation hubs
Alongside Recompete, CHIPS also authorizes $10 billion for the Economic Development Administration (EDA)—in collaboration with the National Institute of Standards and Technology (NIST)—to create 20 new regional technology and innovation hubs throughout the U.S. A key objective of this effort is to more evenly distribute the prosperity and dynamism associated with the innovation economy beyond existing centers of innovation, such as Silicon Valley, Seattle, and Boston. It would help broaden America’s human capital and research capabilities by leveraging the largely untapped talent within the U.S. heartland to spur economic growth and development.
The legislation mandates the inclusion of smaller jurisdictions. At least one-third of the hubs must benefit small or rural communities, defined as a “noncore area, a micropolitan area, or a small metropolitan statistical area (MSA) with a population of not more than 250,000.” In addition, at least one hub must be headquartered in a low population state, defined as a state without an urbanized area with a population greater than 250,000 reported in the decennial census.3
While the intention is there, the implementation will matter a great deal. Rural communities are all too familiar with being included in regional development in a way that is ultimately extractive, rather than constructive in retaining the value of their homegrown social and economic assets. Rural America represents 13 percent of the nation’s workforce and only 5 percent of the computer and math jobs. The legislation, if well executed, could help close that gap.
This will require avoiding incentives that shift rural innovation and talent to the chosen hub locations. New research suggests that higher innovation in metropolitan areas is associated with poor labor market performance in nonmetropolitan areas—the opposite of the intended outcome. EDA must ensure that the new technology and innovation hubs are actually benefiting small or rural communities, prioritizing sites that will specifically invest in rural areas, as well as transparently measuring the improvements in the specific rural areas included in a hub’s regional coverage.
As a first step, the Act also authorizes $50 million in planning grants that must be distributed to at least 60 different eligible groups, reflecting geographic diversity and representation of communities from different populations. One-third of the funding must go to projects that would significantly benefit small or rural communities. EDA is also mandated to consider an applicant’s ability to provide opportunity for economically disadvantaged, minority, underrepresented, and rural populations.
These Strategy Grants could play an important role in addressing the capacity gap between rural areas and small- to mid-sized cities and help enable them to be more assertive in the final award process. EDA would do well to use a more specific definition of “rural” for these planning grants to ensure the inclusion of lower-capacity and more remote locations.
Up to one-half of the total number of grants are also available for areas to develop plans for the Recompete pilot program. At least 10 of the implementation grants to develop new hubs will go to carrying out approved Recompete plans in localities eligible for both programs.
3. Rural STEM education research
CHIPS also includes several smaller programs dedicated to improving STEM education and research in rural communities. The bill authorized $20 million over five years for the National Science Foundation (NSF) to advance innovative approaches to STEM teaching in rural schools and broaden participation of rural students in STEM studies. This includes a pilot program of regional cohorts in rural areas to build a community of practice among rural STEM educators and school administrators.
Another program establishes a prize competition overseen by the National Institute of Standards and Technology to stimulate innovation in technologies to deploy broadband in rural communities. A program to establish Regional Innovation Engines to advance research and development in key technology focus areas will give special consideration to rural-serving institutions of higher education; successful applicants may collaborate with the selected regional technology hubs.
Rural places are a critical link to strengthening American competitiveness and leadership in the innovation and clean energy economies of the future.
Other opportunities include funding for online STEM education for rural communities, an evaluation of federal investments in rural STEM education, NSF grants to increase participation in computer science courses through the Tribal Colleges and Universities Program, and modifying the Established Program to Stimulate Competitive Research (EPSCoR) to build the STEM education and workforce development capacity of rural communities. The CHIPS funding is the largest Congressional investment in EPSCoR history, mandating that 20 percent of NSF funding is designated for the program.
These investments are very welcome, given their underlying intention to increase the readiness for rural residents to participate in the innovation economy. Intentional incentives and complementary partnerships with adjacent investments will be important to help retain that workforce in those rural communities and sustain their value over time.
The CHIPS and Science Act offers an opportunity for distressed rural places to transform their economic identities and prospects. Rural leaders would do well to take notice of the opportunities, advocate for Congressional appropriation, and see themselves as viable candidates. At the same time, as implementation of these programs unfolds, federal policymakers must ensure that rural places are fairly and adequately represented, and that the unique attributes and challenges they face are accounted for in the design and execution of these programs. Rural places are a critical link to strengthening American competitiveness and leadership in the innovation and clean energy economies of the future.
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- To be eligible, local labor markets and tribal governments must have prime-age employment gaps of at least 2.5 percent. Local communities must have prime-age employment gaps of at least 5 percent and a median household income of less than $75,000, or a special need as determined by the Secretary.
- The original RECOMPETE legislation suggested $70,855 per prime-age person in a local labor market, and $53,600 per prime-age person in a local community, multiplied by the size of the prime-age employment gap in the respective applicable area.
- Using the 2010 Census Urbanized Areas list, the eight eligible states are Maine, Montana, New Hampshire, North Dakota, South Dakota, West Virginia, Wyoming, and Vermont.