US Government to Chipmakers: Share Profits if You Want Subsidies | Business and Economics News

The recently released plan requires companies that want subsidies to share future profits with the government and provide childcare services to employees.

The administration of US President Joe Biden has said it will require companies that get funding from its $52 billion semiconductor manufacturing and research program to share excess profits and explain how they plan to provide affordable child care workers.

The U.S. Commerce Department on Tuesday announced plans to begin accepting applications in late June for a $39 billion manufacturing subsidy program. The funding is part of the CHIPS and Science Act, which President Joe Biden signed into law last August. The law also creates a 25% investment tax credit for building chip factories, estimated at $24 billion.

The CHIPS Act plays a central role in the Biden administration’s efforts to bring semiconductor manufacturing back to the United States. Its success is vital to US ambitions to stay ahead of China in global markets.

Semiconductor companies have announced more than 40 new projects, including nearly $200 billion in private investment to boost domestic production, since the law was introduced in August.

Recipients who receive more than $150 million in direct funding “will be required to share with the U.S. government a portion of any cash flow or return that exceeds the applicant’s projections by an agreed threshold,” the department said.

Commerce also expects that “benefit sharing will only be material where the project significantly exceeds its expected cash flow or returns, and will not exceed 75% of direct recipient funding.”

“Not a free handout”

Democratic Sen. Jack Reed praised the profit-sharing plan, saying chip funding is “not a freebie for multi-billion dollar tech companies…There’s no downside for companies that participate because they only have to share a portion of future profits if they do extremely well”.

The rules also require companies to ensure that high-quality, affordable childcare is available at the plant for construction workers and operators. This could include building company nurseries near construction sites or new factories, paying local childcare providers to add capacity at an affordable cost, or directly subsidizing childcare costs. workers, reported the New York Times.

Commerce Secretary Gina Raimondo said businesses must submit a plan that includes an outline of labor needs. Applicants seeking more than $150 million in direct funding must submit “a plan for how they will provide affordable and accessible child care to their workers.”

Republican House Science Committee Chairman Frank Lucas criticized the child custody and income-sharing provisions, saying they exceeded the authority granted by the US Congress. He said the Commerce Department was “focusing less on the urgent need for chip production and more on trying to impose its work agenda on this critical industry.”

Companies that obtain funding are also prohibited from using token funds for dividends or share buybacks, and must provide details of any plans to buy back their own shares over five years. The ministry will examine the “commitments of a candidate to refrain from share buybacks”.

Democratic lawmakers noted that America’s largest semiconductor companies have invested hundreds of billions of dollars in stock buybacks in recent years, with Intel spending more than $100 billion on buybacks since 2005. Intel is also paying a dividend.

It’s not uncommon for states to require specific employment goals as a condition for tax subsidies, but the Biden administration is a significant expansion.

Public incentives

White House economic adviser Heather Boushey said the announcement “is emblematic of the use of public incentives to simultaneously deliver the construction of strategic supply chains for our economic and national security while investing in our care infrastructure”.

The Biden administration has outlined ambitious plans to pay millions of mostly female caretakers better salaries and make child and elder care cheaper in 2021, but it has failed to win backing. majority in Congress.

Applicants must address six program priority areas, including plans to commit to investing in R&D in the U.S. semiconductor industry, such as building national R&D facilities.

Applicants must also “create opportunities for minority, veteran and women-owned businesses; demonstrate climate and environmental responsibility; invest in their communities by addressing barriers to economic inclusion; and commit to using iron, steel, and building materials produced in the United States.”

The Semiconductor Industry Association said it was carefully reviewing the funding notice which “sets out rules of conduct for companies to apply for CHIPS Act manufacturing grants.”

Most direct funding awards should be between 5 and 15% of the project’s capital expenditures. Commerce said it generally expects the total amount of an award, including the loan or loan guarantee, to not exceed 35% of the project’s capital expenditure.

“We will do our own due diligence. We don’t write blank checks to a company that asks for it,” Raimondo said. “We are forcing companies to open their books.”

(The style guide asks that we don’t use US seasons for periods – could we please change “spring” and “autumn” below to months?)

The Initial Funding Opportunity seeks applications for projects involving advanced, current-generation, and mature-node semiconductors. It will post funding opportunities for semiconductor materials and manufacturing equipment facilities in late spring and one for R&D facilities in the fall.

Raimondo also noted that winning companies will be required to enter into agreements limiting their ability to expand semiconductor manufacturing capacity in foreign countries of concern like China for 10 years after securing funding. They may not engage in joint research or licensing efforts with a foreign entity of concern involving sensitive technologies.

“We will be releasing very detailed regulations in the coming weeks that will give businesses a clearer idea of ​​what the red lines are,” Raimondo said.

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