How Arizona Is Positioning Itself for $52 Billion to the Chips Industry

Arizona wants to make sure it is in position for a portion of that once-in-a-generation gusher of federal funding, for which the Commerce Department is expected to begin taking applications within days. As a result, Arizona officials have inundated Raimondo to promote the state’s growing chip industry and talked with the CEOs of giant chip companies such as Intel and Taiwan Semiconductor Manufacturing Co.

Arizona, which is vying for subsidies along with Texas, New York and Ohio, may have a head start on the action. The state has been home to semiconductor makers since the 1940s and has 115 chip-related companies, whereas there is one major manufacturer in Ohio.

Arizona has also led the nation in chip investments since 2020, with the announcements of two new chipmaking plants by TSMC and two additional factories from Intel that will cost a combined $60 billion. State leaders had helped persuade the companies to open the facilities by offering big tax breaks and water and other infrastructure grants. They also promised to expand technical and engineering education in the state.

State officials and chip companies also acted as a lobbying bloc in Washington. They helped shape the CHIPS Act to include federal tax credits, subsidies, and research and workforce grants. TSMC expanded its lobbying staff to 19 people from two in two years, and Intel spent more than $7 million in lobbying efforts last year, the most it had spent in two decades. Arizona State University spent $502,000 on lobbying last year, also the most in two decades.

“It has been an intentional and an all-hands-on-deck effort,” said Sandra Watson, president of the Arizona Commerce Authority, a nonprofit economic development organization that has helped lead state efforts to attract chip companies and push for the CHIPS Act.

The Commerce Department is expected to soon begin handing out $39 billion in subsidies to semiconductor makers, later opening the process to companies, universities and others to apply for $13.2 billion in research and workforce development subsidies. The CHIPS Act also provides an investment tax credit for up to 25% of a manufacturer’s capital expenditure costs.

Raimondo has described the process as a “race” among states. “Every governor, every state legislature, every president of public universities in every state ought to be now putting their plan of attack together,” she said in August during a visit to Arizona State University’s tech research and development center. “This is going to be a competitive process.”

The Commerce Department declined to comment.

Arizona’s history with chip manufacturing stretches back to 1949, when the telecom hardware and services provider Motorola opened a lab in Phoenix that later developed transistors. In 1980, Intel built a semiconductor plant in Chandler, a suburb southeast of Phoenix, drawn by the state’s low property taxes, relative proximity to its Silicon Valley headquarters and stable geology. (Earthquakes are rare in Arizona.)

During President Donald Trump’s administration, he pushed an “America First” policy agenda. That opened an opportunity for Doug Ducey, a Republican who was then Arizona’s governor, and other state officials to transform their economy into a tech hub.

In 2017, Ducey and other Arizona officials traveled to Taiwan to meet with executives of TSMC, the world’s biggest maker of leading-edge chips. They promoted the state’s low taxes, its business-friendly regulatory environment and Arizona State University’s engineering school of more than 30,000 students.

Ducey, who was close to Trump, also had calls with Commerce Secretary Wilbur Ross, Defense Secretary Mark Esper and Secretary of State Mike Pompeo on financial incentives to expand domestic production of chips.

“My job is to sell Arizona,” Ducey said. “In this case, it was to sell Arizona to TSMC but also to the administration.”

In 2019, Ducey helped set up calls between the Cabinet secretaries and TSMC’s executives to lock in a deal to open manufacturing plants in Arizona. The state promised tax credits and other financial incentives to help offset costs for the company to move production to the United States from Taiwan.

In May 2020, TSMC announced plans to build a $12 billion factory in Phoenix. Later that year, the city provided TSMC with $200 million in infrastructure incentives, including water lines, sewage and roads. One traffic light would cost the city $500,000.

“TSMC appreciates the support from our dedicated partners on the state, local and federal levels,” said Rick Cassidy, CEO of TSMC Arizona, adding that the CHIPS Act funds will enable the company and its suppliers to expand “for years to come.”

In early 2021, Pat Gelsinger, Intel’s CEO, announced a sweeping strategy to increase U.S. production of chips. States began soliciting the company. Arizona officials highlighted their long relationship with Intel and perks, such as the state’s low property and business taxes.

Intel soon announced a $20 billion expansion in Chandler, with two additional factories that would bring 3,000 new jobs to the state. Chandler also approved $30 million in water and road improvements for the new plants.

“The Arizona government has been a great collaborator,” said Bruce Andrews, Intel’s chief government affairs officer. “By investing in semiconductors early, they created an ecosystem that has had a jobs multiplier effect and massive economic benefits.”

But some of the tax breaks have rankled Arizona residents, who say the moves have hurt funding for public schools. The state ranks 47th in per-student spending.

“We need to bring business to our state, but we need to look at balance,” said Beth Lewis, the executive director of Save Our Schools in Arizona. “Corporations are choosing not to settle in Arizona because of our devastated public education system.”

Arizona pressed ahead with pushing Congress to create legislation for chip subsidies. In March 2021, Kelly joined Sens. John Cornyn, R-Texas, and Mark Warner, D-Va., the authors of legislation that would become the CHIPS Act, in a call with the new Biden administration to push for the White House’s support of funding.

Kelly, an early sponsor of the CHIPS Act, became a chief negotiator on the legislation in Congress. He negotiated the inclusion of a four-year 25% investment tax credit in the bill, including a provision that ensured Intel and TSMC would get the tax credits even though their Arizona factory projects were announced before the bill would go into effect.

Kelly also helped the president of Arizona State University, Michael Crow, lobby for the inclusion of more than $13 billion in grants for research and development and workforce training. And Kelly and state leaders hosted administration officials at events to showcase the state’s semiconductor efforts as part of the White House’s manufacturing strategy.

“We have the potential to lead the nation in microchip production,” Kelly said in a statement. “I was honored to lead this effort, and now I’m working to maximize it for Arizona.”

Ducey, who left office when his term ended in January, pushed for more tech-friendly policies, including an income-tax cut. He also said he would use $100 million that the state had received from federal COVID grants to attract more chip companies and help them apply for funds provided by the CHIPS Act.

In December, TSMC announced a second factory that would bring its total investment in Arizona to $40 billion. Biden and Raimondo traveled to Phoenix to speak at the announcement, with Kelly accompanying them on Air Force One.

Arizona officials continue to pitch semiconductor companies to open factories in the state.

This month, Watson hosted more than 20 chief executives of chip companies at the Super Bowl in Glendale. Katie Hobbs, Arizona’s new governor and a Democrat, and Kelly heralded how the state could benefit from the CHIPS Act.

“There’s a robust pipeline,” Watson said.