Senate approves CHIPS funding bill, teeing it up for House vote

By Briana Reilly / July 27, 2022 at 1:27 PM

Senators signed off on a compromise version of a bipartisan plan today to boost funding of domestic microelectronics production, legislation that a top Pentagon official had previously said was key to addressing semiconductor supply issues.

The 64-33 vote on the highly anticipated language signals a near-end to the framework’s drawn-out path to becoming law, with the House poised to take up the measure as soon as this week.

Included as an amendment to a separate appropriations bill, the so-called “Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America” or “CHIPS-plus” proposal includes tens of billions of dollars to encourage facility and equipment investments, incentives for semiconductor manufacturing such as a four-year, 25% tax credit and $2 billion specifically for Defense Department microelectronics purposes.

The bill has trailed behind the Fiscal Year 2021 National Defense Authorization Act that created chips manufacturing and research programs that have gone unfunded. Though the Senate first passed its version of a semiconductor funding plan last June, the House didn’t follow suit with its own plan until February. Senators then approved the House’s version in March, setting up the legislation for conference committee negotiations and the slimmed-down package that hit the floor this week.

The current package resembles the broader legislation the Senate originally passed last summer, Majority Leader Chuck Schumer (D-NY), who offered the amendment, said Tuesday. Calling the language “one of the most consequential bipartisan achievements of this Congress,” Schumer, who referred to the proposal as the “Chips and Science” bill, added the approach would reverse the “chip crisis and America’s dwindling commitment to science and innovation.”

The Senate had already signaled last week the latest iteration of the legislation had requisite support to pass the chamber, when lawmakers voted 64-34 to move forward on the package. While lawmakers initially planned a cloture vote on the package Monday night, the timeline was pushed to early Tuesday due to area thunderstorms that disrupted members’ travel plans.

Pentagon officials have repeatedly touted the importance of onshoring microelectronics processing. With the microelectronics supply chain centralized in the Asia-Pacific region, Deputy Defense Secretary Kathleen Hicks last month said DOD and other agencies “would be substantially advantaged by such a move.”

“DOD has to be a fast follower in this area,” she said. “We don’t acquire enough chips given the vast amount of chips that are purchased in the United States to really drive that industry. What we need and what that [bill] would help us get is a national security approach, an enclave approach, that helps us go after the kinds of higher-end capabilities that we need with a secure, assured supply chain.”

The Pentagon’s fiscal year 2023 budget request includes $3.3 billion for microelectronics technologies -- investments that Hicks has said will focus on developing “the kinds of more high-processing and specialized chips that we need uniquely.”

There are a number of DOD applications, such as strategic radiation-hardened microelectronics, that have specific military uses and aren’t viable for commercial investment, according to one expert who spoke with the Government Accountability Office for a newly released report covering policy pathways to reduce supply chain risks and stave off future shortages.

“The official stated that it is critical that DOD invest in microelectronics [research and development] to maintain technical superiority of weapons systems,” GAO’s review stated.

Hicks was among the officials and industry executives who participated in a meeting with President Biden this week on the importance of the CHIPS legislation’s passage, during which she highlighted the “dependency that we have on the defense side” on microelectronics access, ranging from the F-35 Joint Strike Fighter to emerging technologies such as quantum, hypersonics, 5G and more.