Why won’t California receive any money from the Bipartisan Infrastructure bill?

By Fernando Lozano | Inland Empire Economic Partnership

The United States Department of Energy recently awarded $2.8 billion to 21 companies across the nation to fund projects for the development of lithium batteries and the electric grid. These grants are part of the Bipartisan Infrastructure Act. This investment will total more than $9 billion as recipients will match the federal awards. This program can be truly transformational. The bad news: None of the 21 awards were given to California. Among the awards, three are in Nevada, two in Washington state, and three in Tennessee. Again, none in California.

The Bipartisan Infrastructure bill shows the power of the government to guide technological progress and develop new industries. The communities where the winning proposals are located will, no doubt, benefit. Among the communities that received the awards, the DOE’s news release highlights that many are economically disadvantaged, home to Tribal Nations, and host to minority-serving higher education institutions. Also these awards, the DOE points out, are to communities with strong manufacturing and construction union presence. These awards raise the obvious and ultimately unavoidable question regarding the most efficient use of the funds. If the awards are not distributed according to their most productive use, then what is the cost, in terms of productivity, of pursuing economic justice through industrial policy?

It is hard to think of a state government that is a more willing partner to develop clean technologies than California. It is hard to think of a state with a more qualified workforce around the world than California. In fact, several California-based companies received awards for projects outside the state. Sila Nanotechnologies will build a 600,000-square-foot plant in Washington state, and Lilac Solutions will extract and produce lithium in Nevada. Undoubtedly, the state will benefit from spillovers of these projects, but will not be the direct beneficiary.

We know well, the Salton Sea has the potential to be an abundant source of lithium. Governor Newsom has called the Salton Sea the “Saudi Arabia of Lithium.” Some estimates suggest that the area alone could generate over 600,000 tons of lithium, enough to satisfy domestic demand. While the expected payoff of extracting lithium from the Salton Sea is large, the potential benefits from lithium to the Inland Empire are still some years ahead, as the technologies needed to exploit the resource sustainably are still developing. Yet, this round of awards from the Energy Department contains zero dollars for the Salton Sea.

The next time around, the stakes will be much higher. The CHIPS and Science Act will invest $280 billion to build semiconductors in the United States.

CHIPS is much larger than the lithium battery component of the Infrastructure Plan. As firms anticipate the implementation of the act, some companies have announced new investments in semiconductor manufacturing and development. Micron announced a new $40 billion plant in a place yet to be determined. The firm recently opened a design center in Atlanta. Intel announced a $20 billion plant in Ohio earlier this year. Qualcomm and Global Foundries announced a new expansion of Global Foundries facility in New York. Global Foundries is currently headquartered in Malta, New Yourk, but was founded in California. Qualcomm still has its headquarters in San Diego.

California is well-positioned to take advantage of the CHIPS and Science Act.

Of the $280 billion, $200 billion will be devoted to STEM, R&D, and workforce development. The University of California campuses, Stanford, and USC together are second to none when it comes to research. These universities, together with the California State University system and our community colleges can educate the workforce needed to become world leaders in semiconductor production and design. Yet competition for CHIP funds across states will be fierce. A consortium of 12 Midwest universities has already announced their intention to pursue the funds available aggressively, and these institutions wish to cement semiconductor design and manufacturing in the Midwest. Clearly this is a cause of concern. The fear is not that California cannot compete. Instead we should be worried about the criteria on how the funds from the CHIPS Act will be allocated.

Similar to the lithium battery component of the policy, California already has the workforce, the infrastructure, and the industry clusters necessary to receive a substantial amount of funds from the CHIPS Act if these were allocated according to productivity measures.

The benefits from CHIPS may be smaller if instead they are used to alleviate poverty in disadvantaged communities, to ease long-standing inequalities elsewhere in the United States, or to spend money on purple states for political gain. These might all be laudable goals, but they come at a cost. We should be weary of confounding industrial policy and social policy. If decisions are made based on the former, California is positioned to lead the world in semiconductor design.

Fernando Lozano is Morris B. and Gladys S. Pendleton professor, Department of Economics, Pomona College, chairman of the faculty, Inland Empire Economic Partnership: Economic Council.

The Inland Empire Economic Partnership’s mission is to help create a regional voice for business and quality of life in Riverside and San Bernardino counties. Its membership includes organizations in the private and public sector.