$500M for new tech hubs program included in federal spending bill

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A law to promote domestic semiconductor production approved earlier this year created the regional development program, but didn’t fund it. The proposed spending would enable its launch.

Congressional budget negotiators on Tuesday included an initial $500 million, in a proposed government funding package totaling roughly $1.7 trillion, to try to spur new research and industrial development around semiconductors and other related technology in parts of the country that haven’t seen their tech sectors boom.

The funding is for planning grants for regional “technology and innovation hubs” under a new federal program created earlier this year. It marks a significant step that could eventually help reshape communities that lacked the roaring tech sectors places like Seattle and California’s Bay Area have had in recent years.

The $280 billion CHIPS and Science Act, which President Biden signed in August, included about $52 billion of subsidies to boost the nation’s production of semiconductors, a critical component in goods ranging from computers to cars. Part of the law called for, but did not fund, a $10 billion five-year program to create at least 20 of the hubs.

While Congress would still have to provide the bulk of the program's funding in future years, the initial $500 million is a “milestone” and “sufficient to begin program design and initial activities,” Mark Muro, a senior fellow at Brookings Metro who is tracking the initiative, said in an email.

What could make the program transformative is that the semiconductor law barred the money for the hubs from going to places that are now leading technology centers. Instead, it called on the Commerce Department to “ensure geographic and demographic diversity” by creating at least three hubs in each of the Economic Development Administration's six regions. EDA is the agency within Commerce managing the program.

At least a third of the hubs are supposed to “significantly benefit” small and rural communities, which the law defines as areas with no more than 250,000 people. 

Democratic Senate Majority Leader Charles Schumer on the Senate floor Tuesday described the proposed funding for the program as "the first major downpayment" toward building the tech hubs.

“This means real dollars to create the Silicon Valleys, the Silicon Forests, the Silicon Heartlands and Prairies of tomorrow," he said.

A study earlier this month by the Economic Innovation Group, a Washington think tank, identified Greenville, South Carolina; Provo, Utah; Tucson, Arizona; Toledo, Ohio; and Greensboro, North Carolina as prime examples of places around the country that have the brainpower and other assets needed to take advantage of the program.

Federal funding for the hubs alone will not be enough to remake communities, but it could spur important investments from the private sector, as well as from local organizations and universities, according to Kenan Fikri, research director for the Economic Innovation Group.

It’s “one slice of a funding puzzle,” he said. “But a really key slice.”

Congress has to approve the massive “omnibus” spending package that includes the initial funding for the hubs program by Friday to avert a government shutdown.

Schumer has voiced optimism that lawmakers can meet that deadline. He said the spending agreement, which was finalized in the overnight hours going into Tuesday, opens the door for a vote before Friday. “But we hope to do it much sooner than that," he added, noting the possibility of stormy weather on the East Coast later in the week.

But passage of the omnibus is still uncertain. In recent days, some conservatives have opposed the measure, saying Republicans should wait until after they take control of the House on Jan. 3, before negotiating government spending for the rest of the fiscal year, which ends Sept. 30.

“Republicans will soon be in the majority and in the driver's seat to fight for our priorities,” the House’s top Republican, Rep. Kevin McCarthy of California, who is campaigning to replace Democratic Rep. Nancy Pelosi as speaker, said on Twitter last week. Other Republicans said over the weekend they oppose passing the bill unless it includes steps to address the surge of refugees and migrants entering the U.S. at the southwestern border.

Despite the political maneuvering, the semiconductor law won bipartisan support when it was passed by Congress. 

According to a Brookings Metro study, creating the hubs would reverse a trend in which 90% of the increase in jobs in industries involving innovation between 2005 and 2017, occurred in only five “superstar” metropolitan areas—Boston, San Francisco, San Jose, Seattle and San Diego.

One-third of innovation jobs were consolidated in only 16 of the nation’s roughly 3,000 counties—and more than half the jobs are in only 41 counties. On the other hand, the share of those jobs went down in 343 metropolitan areas.

“In recent years, there has been kind of a laissez-faire approach. And with that has come tremendous regional divides,” Muro said in an interview.

The effort to spread semiconductor innovation around the country illustrates a broader change, in which the Biden administration and Congress are taking a “place-based approach” to improve the economy by focusing on areas that have been left behind.

Muro wrote in a blog post last week that the American Rescue Plan Act, last year’s infrastructure law, Democrats’ sweeping climate, health care and tax package, along with the CHIPS law, together included programs that added up to nearly $80 billion aimed at driving industrial development in economically-lagging areas.

“If we don't experiment with [a place-based] approach, we're simply going to receive more of what we already have,” Muro said, “which is an extremely imbalanced economy in which a shortlist of places do very well, while most places go sideways, or fall into actual distress.”

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