US states are accelerating an arms race of tax breaks and sweeteners as they aggressively court foreign investors drawn to America by clean energy and Joe Biden’s chip subsidies.
Representatives from more than 50 states and territories gathered in Washington this week to sell their corner of the United States to foreign companies at the SelectUSA summit, run by the Commerce Department to promote foreign investment. Organizers said voter turnout was a record, with the largest showing by US governors to date.
“The event has never been bigger than this,” said Aaron Brickman of the Rocky Mountain Institute, who initiated the SelectUSA event. Brickman said the conference was overloaded with hundreds of billions of federal dollars being offered to companies that want to build in America.
“We’ve never had federal subsidies of any kind and now we have them and they’re huge, they’re a game changer,” Brickman said.
That of the Biden administration Inflation Reduction Act offers $369 billion in green subsidies, while the Chips Act offers $52 billion in funding for U.S. chip makers along with about $24 billion worth of manufacturing tax credits.
The wave of potential clean energy money looking for a home in the US has ignited a statewide war of incentives as governments compete for lucrative investments that would bring jobs to their regions.
“It’s a bit like the nuclear arms race: Everyone is in the incentive game,” said Pat Wilson, the commissioner for Georgia’s economic development department. “Those jobs will be created, but they may not be created in Georgia. They will go to the state that offers the most.”
Georgia offered a $358 million stimulus package to Norwegian battery company Freyr in November for its $2.6 billion gigafactory. The company had considered more than 25 states for its site. Last year, Georgia offered $1.8 billion for Hyundai’s first EV plant in the United States near Savannah, the largest automotive incentive package to date.
While many are performance-based, the race for incentives between states has raised questions from watchdogs and taxpayers questioning their returns and whether they are necessary to secure corporate commitments.
Greg LeRoy, executive director of Good Jobs First, an accountability research group, calls it the “prisoner’s dilemma” of economic development. Because the site selection process tends to be subject to non-disclosure agreements, companies have the upper hand in negotiations and can persuade states to give larger subsidies when they would have chosen the state in the first place.
“States are free to overspend and rip each other’s guts out and compete and run to the bottom and waste billions of dollars.”
While offering state and local incentives is a long-standing practice, more states, including Texas, New York, Idaho and Pennsylvania, are launching targeted industry incentives or expanding their financing packages to land projects seeking a home in the United States due to IRA or Chips Act.
Texas lawmakers introduced their state version of the Chips Act backed by Gov. Greg Abbott earlier this year, while New York state’s Chips program includes $10 billion in economic incentives for environmentally friendly semiconductor projects. environment. Oregon, meanwhile, approved a $210 million package aimed at attracting semiconductor companies to the state.
Idaho launched a semiconductor program in July, conditional on passage of the Chips Act, which will exempt semiconductor companies from sales and use taxes for construction and building materials. Four months later, Pennsylvania rolled out a $50 million semiconductor manufacturing tax credit for companies that invest at least $200 million and promise to create at least 800 permanent jobs.
The Illinois legislature also voted to expand tax credits to cleantech manufacturers earlier this year and passed tax credits for semiconductor manufacturing last year.
In addition, South Carolina is offering VW-backed Scout Motors the largest incentive package in state history as it targets electric vehicle makers.
“We’re seeing states piggyback and design their incentives to maximize the traction that federal programs like the IRA, like the Chips Act were already giving them,” said Tracey Hyatt Bosman, chief executive officer of Biggins Lacy Shapiro & Company. a domestic site selector, who advised a room full of foreign investors on where to place their top business.
At the end of March, the United States received more than $200 billion in cleantech and semiconductor supply chain investments since the IRA and Chips Act were signed into law, including a $28 billion expansion by Taiwan Semiconductor Manufacturing Company in Arizona, the largest foreign direct investment project to date to date.
Some of the largest beneficiaries have historically been conservative states such as Georgia and South Carolina. The two states have respectively attracted the largest and second largest amounts of foreign investment since the grants were enacted.
Wilson, of Georgia, said that while the IRA had “brought more people to our door,” he believed that federal money had only accelerated investment in the United States that was already being planned by businesses.
Ashley Teasdel, South Carolina’s assistant secretary of commerce, said competition to win lucrative investments has been “robust” and federal dollars are “increasingly fueling” the business.
Kevin Stitt, the governor of Oklahoma, was one of only two Republican governors to attend the Washington summit. In an interview with the Financial Times, he acknowledged that businesses were coming to North America because of federal incentives and said he wanted to “bring the world to Oklahoma.”
In March, Stitt signed a $698 million stimulus package to help lure a large project to the state. Four weeks later, Stitt said the state had entered into an agreement with a major company said to be Japanese battery giant Panasonic, which last year chose Kansas over Oklahoma for its second battery factory.
“I’m not shy about saying I want to take business from every other state in America and bring it to Oklahoma. I’ll take business from Texas or Kansas or wherever—that’s my job,” she said.
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