Biden subsidies stoke arms race among states to woo projects

US states are accelerating an arms race of tax breaks and deal sweeteners as they aggressively court foreign investors drawn to America by Joe Biden’s clean energy and chips subsidies.

Representatives from more than 50 states and territories gathered in Washington this week to sell their corner of the US to overseas companies at the SelectUSA summit, run by the commerce department to promote foreign investment. Organisers said the turnout was a record, with the largest showing of US governors to date.

“The event has never been bigger than this,” said Aaron Brickman of the Rocky Mountain Institute, who started the SelectUSA event. Brickman said the conference had been supercharged by the hundreds of billions of federal dollars on offer to companies wanting to build in America.

“We’ve never had federal subsidies of any kind and now we do and they’re enormous, they’re a game-changer,” said Brickman.

The Biden’s administration’s Inflation Reduction Act offers $369bn in green subsidies, while the Chips Act offers $52bn in funding for US chipmakers along with manufacturing tax credits worth about $24bn.

The wave of potential clean energy money looking for a home in the US has triggered a state-level incentives war as governments compete to win lucrative investments that would bring jobs to their regions.

“It’s a bit like the nuclear arms race — everyone is in the incentives game,” said Pat Wilson, the commissioner for Georgia’s department of economic development. “Those jobs are going to be created, but they may not be created in Georgia — they’re going to go to the state offering the most.”

Georgia offered a $358mn incentive package to Norwegian battery company Freyr in November for its $2.6bn battery gigafactory. The company had considered more than 25 states for its site. Last year, Georgia offered $1.8bn for Hyundai’s first US electric vehicle factory near Savannah, the largest automotive incentive package to date.

While many are performance-based, the incentives race among states has raised questions from watchdogs and taxpayers who question their returns and if they are needed to secure company commitments.

Greg LeRoy, executive director of Good Jobs First, an accountability research group, calls this the “prisoners dilemma” of economic development. Because the site selection process tends to be under non-disclosure agreements, companies have an upper hand in negotiations and can persuade states to give larger subsidies when they were going to select the state all along.

“The states are free to overspend and rip each other’s guts out and compete, race to the bottom, and waste gazillions of dollars.”

While offering state and local incentives is a longstanding practice, more states, including Texas, New York, Idaho and Pennsylvania, are rolling out targeted industry incentives or expanding their funding packages to land projects that are looking for a home in the US because of the IRA or Chips Act.

Texas lawmakers introduced their own state version of the Chips Act backed by governor Greg Abbott earlier this year, while New York state’s Chips program includes $10bn in economic incentives for environmentally friendly semiconductor projects. Oregon, meanwhile, passed a package worth $210mn aimed at luring semiconductor companies to the state.

Idaho launched a semiconductor programme in July, contingent on the passage of the Chips Act, that would exempt semiconductor companies from sales and use tax for construction and building materials. Four months later, Pennsylvania rolled out a $50mn semiconductor manufacturing tax credit for companies investing at least $200mn and promising to create at least 800 permanent jobs.

Illinois’ legislature also voted to expand tax credits to cleantech manufacturers earlier this year and passed semiconductor manufacturing tax credits last year.

In addition, South Carolina is offering VW-backed Scout Motors the largest incentive package in the state’s history as it targets electric vehicle manufacturers.

“We are seeing states piggyback and design their incentives to maximise the traction that federal programs like the IRA, like the Chips Act were already giving them,” said Tracey Hyatt Bosman, managing director at Biggins Lacy Shapiro & Company, a national site selector, who advised a room packed with foreign investors on where to locate their business at the summit.

As of the end of March, the US has received more than $200bn in cleantech and semiconductor supply chain investments since the IRA and Chips Act were signed into law, including a $28bn expansion from Taiwan Semiconductor Manufacturing Company in Arizona, the largest foreign direct investment project to date.

Some of the largest beneficiaries have been historically conservative states such as Georgia and South Carolina. The two states have attracted the largest and second-largest amounts of foreign investment since the subsidies were enacted, respectively.

Wilson, of Georgia, said that while the IRA had “brought more people to our door”, he believed the federal money just accelerated investments in the US that were already being planned by businesses.

Ashley Teasdel, South Carolina’s deputy secretary of commerce, said the competition to win lucrative investments was “robust” and that federal dollars were fuelling “more and more” activity.

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 the federal incentives and said he wanted “to bring the world to Oklahoma”.

In March, Stitt signed a $698mn incentive package into law to help lure a large project into the state. Four weeks later, Stitt said the state had entered an agreement with a big company rumoured to be Japanese battery giant Panasonic, which chose Kansas over Oklahoma last year 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,” he said.