From NYSFocus.com, Julia Rock / July 26:
New York is showering microchip manufacturers with billions in subsidies—on top of massive federal incentives.
While Congress considers legislation to make historic investments in domestic semiconductor research and manufacturing, New York state and local economic development agencies are continuing a decades-long effort to make the capital region the microchip manufacturing center of the United States.
Encouraged by Senate Majority Leader Chuck Schumer, state and local authorities are continuing to pour millions of dollars into an industry that has long been subsidized by taxpayer dollars even as it has offshored jobs.
Last Monday, Sen. Schumer announced that GlobalFoundries, a semiconductor manufacturing firm owned by Mubadala Investment Company, the United Arab Emirates sovereign wealth fund, is building a new chip fabrication plant near its corporate headquarters in Malta, New York, and expanding an existing plant.
The expansion will include $1 billion in investments from the company as well as federal and state subsidies, according to a press release from GlobalFoundries, and will create over a thousand jobs. Details of those subsidies have not yet been released.
“Empire State Development welcomes discussions with any business that is looking to create jobs and invest in New York State and does not confirm or deny whether any potential negotiations are occurring until such time as they are concluded,” said Kristin Devoe, a spokesperson for the state’s economic development agency, in a statement to New York Focus.
The announcement comes amid heightened federal scrutiny on weaknesses in domestic semiconductor supply chains, and follows over two decades of New York taxpayers subsidizing chip plants in a cycle of investments, layoffs, and new tax breaks.
Critics say that continuing to subsidize an industry that has already received billions of taxpayer dollars is a waste of public money, especially because corporate subsidies rarely impact decisions over where companies locate—and because semiconductor manufacturing isn’t much of a job creator.
“The dirty secret about certain industries, including microchip fabrication plants, is that they don’t create very many jobs,” Greg LeRoy, executive director of Good Jobs First, a corporate subsidy watchdog, told New York Focus. “These are very automated, very capital intensive facilities. So the big subsidies go to capital.”
Instead, subsidy critics argue, the government should restore domestic semiconductor supply chains by creating demand for the technology through procurement in areas like green energy and broadband.
But local officials say the subsidies are strategic investments that promote innovation and New York’s competitive edge. Schumer, who is the lead sponsor on the federal legislation which includes the subsidies, called it “the blueprint to make Upstate New York the global innovation and semiconductor hub.” The bill passed the Senate last month.
Schumer’s office declined a request for comment. GlobalFoundries did not respond to a request for comment.
Semiconductor Subsidies in New York
Nearly $10 billion of state and local tax dollars in New York flow to corporations every year, with little information published about how effective that money is at creating job growth.
Few industries have received as much money from these assorted subsidy programs as microchip manufacturers.
Semiconductors, or microchips, are materials used to conduct electricity, found in items ranging from computers and consumer electronics to military technology. Because of the complexity of manufacturing semiconductors, as well as trade restrictions, the chips often create supply chain bottlenecks. In recent months, a global semiconductor shortage has halted the production of goods ranging from cars to gaming consoles.
Of the ten companies that have received the most in New York state and local subsidies in the past two decades, four—International Business Machines (IBM), GlobalFoundries, Cree and Sematech—are companies that manufacture semiconductors, according to data from Good Jobs First.
Collectively, the four companies have received a combined $4.1 billion in subsidies.
Around the turn of the 21st century, New York planned investments in semiconductors as one of seven sectors that would bring jobs to the state. One of the earliest investments in that initiative was the Albany NanoTech Complex at the University of Albany SUNY in 1997. In 2004, a new university was formed specifically dedicated to research in semiconductors, SUNY Polytechnic. Over the years, the state continued to invest in educational programs that would bring expertise to the region.
Alongside those educational investments, economic development authorities in the region and the state began to pour subsidies into chip companies—with limited success.
In 2000, the state began a courtship with IBM that would end up costing it hundreds of millions of dollars. In the 1980s and early 1990s, IBM had been one of the largest private employers in the Hudson Valley and played a central role in the economy. But in 1993, the company began historic layoffs in response to financial troubles, beginning in upstate New York and including 4,000 layoffs at a chip manufacturing plant in East Fishkill.
In an attempt to revive IBM’s role in the local economy, New York economic development authorities awarded the company $659 million in subsidies to build a new facility in East Fishkill and create 1,000 jobs. But in order to keep the jobs, the state had to continue subsidizing the facility. In addition to some smaller property tax abatements, in 2008 the state awarded IBM $140 million to create 1,000 jobs at its manufacturing plant in East Fishkill. When the financial crisis hit, New York paid the company an additional $45 million to avoid layoffs—but the firm laid off 900 workers anyway.
During the same decade, the state was making details with GlobalFoundries. In 2006, New York state awarded GlobalFoundries one of the most generous local incentive deals in United States history––ultimately totaling $1.4 billion, including a $665 million cash grant––to build a facility in Malta and create a required 1,465 jobs, at a cost of $1 million per job. GlobalFoundries didn’t begin construction on the project until 2009. In the first decade of operation, the company created about double that number of jobs, while bringing in an additional $967 million in subsidies. But in 2018, GlobalFoundries laid off 424 employees in Malta as part of a worldwide restructuring.
GlobalFoundries bought the East Fishkill plant from IBM in 2014, and within a few years began shedding jobs. In 2017, GlobalFoundries began cutting East Fishkill’s workforce through voluntary buyouts, followed by layoffs in 2018. Finally, in 2019, GlobalFoundries sold the plant to a different chip company, which would receive up to $40 million in state subsidies if it retained nearly 1,000 jobs and invested in the facility over the next decade.
Soon, that plant shuttered too, and earlier this year the site was approved to become an Amazon warehouse. Amazon received over $14 million in property tax abatements to create at least 500 full-time jobs, and more part-time jobs.
This year, in a “personal call to Samsung top brass,” Schumer made the case for the company to locate a $17 billion facility at an industrial park in Genesee County, New York that was constructed under the supervision of the county economic development authority and has leveraged over $26 million in state and local subsidies.
The site was built without any tenants; the idea was that companies would be drawn to the region by the infrastructure and talent provided by the mega-site. But after nine years since the first investment in the site, without a single tenant, the state and local authorities are piling on incentives to bring talent.
Pat Garofalo, the state and local policy director at the American Economic Liberties Project who has written about the deal, told New York Focus that New York has likely offered Samsung at least $650 million in subsidies. The company has not yet selected a location for the plant.
Supply or Demand?
As the pandemic exposed vulnerabilities and chokepoints in global supply chains, lawmakers in the United States have argued that the semiconductor industry is an economic vulnerability and poses a potential threat to national security. At the same time, lawmakers on both sides of the aisle have cast China’s investments in developing its semiconductor manufacturing capacities as a cause for concern.
In early June, the Senate passed a bill that includes over $50 billion in direct subsidies to companies that manufacture semiconductors domestically, as part of a strategy to compete with China.
Politicians from both parties see direct subsidies as necessary to compete with other countries, especially China, which has invested hundreds of billions of dollars in domestic semiconductor manufacturing. The Semiconductor Industry Association, the trade group that represents chip companies, has argued that the federal subsidies will create hundreds of thousands of jobs.
But the subsidies have been criticized by some experts in industrial policy and semiconductors, who argue that pouring money into companies—with few attached demands—will enrich shareholders without actually increasing the domestic manufacturing capacity of chip companies. The largest U.S. based semiconductor companies spent more on buybacks and dividends last year than on capital investments.
Experts say that government investments in semiconductor manufacturing are necessary in order for enough plants to be built. But more effective than showering companies with subsidies and encouraging them to manufacture chips, some argue, would be to ensure demand for chips by promising to buy them.
“Ultimately the failure of the approach of the US government to date has been that it’s almost been strictly supply side driven,” Hassan Khan, a tech procurement expert, told New York Focus.
The supply side approach often works only as a short term measure, Khan argued. “With supply-side approaches…you might just pump a ton of money into building a factory, and it operates for a few years. But if they can’t ever become economically competitive without tax breaks, either the tax breaks or subsidies continue indefinitely, or they close up shop and leave,” he said.
Shortages are common in the semiconductor industry, because producing chips is a lengthy and expensive process that companies have to plan far in advance. That requires companies to make accurate predictions about future demand—which can be thrown off by events like the pandemic, a major cause of the current shortage.
Progressives say the solution is for the government to ramp up its own purchases of semiconductors, giving manufacturers certainty that there will be a market for their product. Earlier this year, the progressive think tank Data for Progress issued a policy brief laying out options for public sector semiconductor procurement, including public broadband and administrative agency information system upgrades.
Beyond creating a stable source of demand, another advantage of this approach would be a more even distribution of public benefits than the “race to the bottom” of states and localities competing to offer the most generous subsidy packages, said Colin McAuliffe, a co-founder of Data for Progress and the lead author of the policy brief.
“Not every district will get a new semiconductor fabrication plant—but everybody’s district needs hospitals and community health centers that are going to be part of what can help stimulate the semiconductor industry. Everybody’s district is going to need green energy production,” he said.
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