The Arizona Commerce Authority announced the formation of the National Semiconductor Economic Roadmap on Tuesday. Tasked with furthering collaboration between private industry, the public sector, and higher education “to future-proof semiconductor manufacturing in the United States,� the Roadmap is a first-of-its-kind endeavor.

Citing the surging global demand for semiconductors and microchips, stakeholders involved in the project — including the ACA, Intel, and Taiwan Semiconductor Manufacturing Company (TSMC) — believe that there must be more attention paid to the semiconductor industry. 

“Today more than ever, we see the strategic importance of a robust U.S. semiconductor industry,� Intel CEO Pat Gelsinger said. “Fostering deeper partnerships with our research institutions, universities, defense institutions, state leaders, and more will be critical to our long-term economic and national security, and we are pleased to join this worthwhile effort.�

TSMC Arizona’s CEO and President Rick Cassidy said there are particular elements essential to a thriving semiconductor sector.

“A thriving semiconductor ecosystem requires solid infrastructure, a comprehensive supply chain, and a steady inflow of talented and dedicated people,â€� he said. 

Both Intel and TSMC recently made historic investments in the state and their semiconductor manufacturing operations.

Arizona’s semiconductor boom

Intel this month officially on a new chip-making operation in Chandler, a $20 billion investment that is the largest single-time investment in Arizona to-date. 

“We want to have Arizona and Intel be the unquestioned leaders for the world’s supply of leading-edge semiconductors,� Gelsinger said.

TSMC is building a $12 billion chip-making factory in north Phoenix. The company as many as six factories at the Arizona site over the next decade.

Several factors have contributed to Arizona’s growing semiconductor manufacturing operations, including its welcoming business environment characterized by favorable tax rates, a lighter regulatory burden than neighboring states like California, and world-class universities. 

Federal policies aimed at encouraging chip-making have also drawn companies to break new ground, though the surging demand for semiconductors already showed the market that more manufacturing capacity was desperately needed.

“Today’s groundbreaking ushers in a new landscape for Arizona semiconductor production, � Gov. Doug Ducey at the Intel groundbreaking ceremony.

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Arizona Gov. Doug Ducey on Tuesday signed into law H.B. 2321, a bill to increase the current cap on the Qualified Facilities Tax Credit program from $70 million annually to $125 million annually.

The bill passed the state Legislature on Monday with broad, bipartisan support. 

In testimony before the state Senate Appropriations Committee last week, the head of the Arizona Commerce Authority called for the expansion of the tax credit program that she says has been central to the state’s ability to attract employers and create jobs over the past decade.

Sandra Watson, the president and CEO of the ACA, told committee members that to H.B. 2321 would enhance the state’s competitiveness. 

“Our goal is to ensure that we continue to increase Arizona’s [economic] momentum,� Watson said. “These changes to the Arizona qualified facilities program will help us do that.�

The Qualified Facilities Tax Credit

Under the Qualified Facilities Tax Credit, which was first implemented in 2012, qualifying companies must make significant investment in the construction of a new facility or an existing one and generate new high-quality jobs for manufacturing, research or the company’s headquarter operations.

To qualify for the tax credit, a majority of the full-time jobs created must pay above-average wages and all new full-time employees must receive health insurance covering at least 65% of the premium.

In 2019, the program’s tax credits represented , which totaled more than $3.5 billion.

Jim Rounds, president of the Rounds Consulting Group, said that for every dollar invested into the program, there has been $2.30 in manufacturing investment, providing Arizona taxpayers with a return-on-investment of $1.30 to state tax revenue.

Increased manufacturing investments in Arizona

Since the 2008 financial crisis, Arizona’s manufacturing sector has grown considerably, with the state establishing itself as an attractive location for manufacturers. 

In the 2010s, manufacturing output in Arizona . In 2019, the , for the first time.

Despite the global pandemic, over the past year Arizona has attracted massive investments from , , , and many other manufacturers for new plants in the state.

Earlier this month, ElectraMeccanica announced that after a year-long review of potential sites, it would establish its American base in Mesa, .

The ACA has already reached the program’s $70 million cap for this year due to increased manufacturing investments in the state, according to Watson. 

Watson stated that the ACA is currently speaking with additional manufacturers who are ready to invest in the state, contingent on the program’s cap being increased to $125 million this year.

Citing a study produced by the Rounds Consulting Group, Watson said “If Arizona is unable to extend the [current] qualified facilities cap, there is an estimated opportunity cost of 20,000 jobs and $187 million in tax revenue in just one year.�

The bill also will extend by 10 years an existing law that aids manufacturers investing more than $500 million in either Maricopa County or Pima County or $50 million elsewhere in the state in offsetting the costs of public infrastructure improvements.

The amendment to H.B. 2321, was introduced by Sen. Sine Kerr, R-Buckeye, onto a bill sponsored by Rep. Ben Toma, R-Peoria.

On Monday, the bill passed the Senate with a vote of 22-6 and the House with a vote of 40-19. 

Business community advocates the Arizona Â鶹´«Ã½Ó³»­ of Commerce & Industry and the Arizona Manufacturers Council support the bill. They argue that the tax credit and the infrastructure improvement law have been essential parts of the state’s overall economic development strategy.

Also registering in support of the bill were major manufacturing companies as well as the Greater Phoenix Economic Council, Greater Phoenix Â鶹´«Ã½Ó³»­ of Commerce and representatives from cities, including Glendale, Phoenix and Chandler.

“We applaud the Arizona Legislature and members from both parties for their swift action to raise the cap of the Qualified Facilities Tax Credit and extend a program that helps manufacturers offset the costs of public infrastructure improvements. These programs have allowed Arizona to quickly become a top destination for business relocation, expansion and job-creating investments,â€� Arizona Â鶹´«Ã½Ó³»­ Interim President and CEO Garrick Taylor said.

“We thank Representative Ben Toma and Senator Sine Kerr for their leadership on this important issue, and we commend Gov. Ducey for quickly signing the bill into law and solidifying Arizona’s globally competitive position,� Taylor said.

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The Arizona Commerce Authority is putting out a call to Â鶹´«Ã½Ó³»­anufacturers hurt by the pandemic. It has a program to help. 

Companies hit hard by disruptions, layoffs, furloughs, loss of business and other setbacks due to Covid-19 are encouraged to apply for emergency assistance through the agency’s . 

Through the partnership, companies can receive subsidized or reduced rates for assistance in areas like rebuilding customer demand, overcoming supply chain disruptions, reassembling their workforce, and identifying new markets. 

“There’s close to 5,000 manufacturers in Arizona and a lot of them need help but most of them don’t know that this kind of help is available to them so they don’t seek outside resources, especially the small companies that need it most,� said David Garafano, executive director of the program.

Many small manufacturers suffering setback 

Garafano said small manufacturers have been hardest hit. The goal is to bring them back to their pre-pandemic levels. 

“In some cases we’ve seen companies that have seen their demand completely dry up. For example, when all of the airlines stopped flying, a lot of the aerospace work in the manufacturing supply chains stopped,â€� he said. “We saw furniture companies where 80 percent of their demand just evaporated. It was gone.â€� 

Among the services MEP can assist companies with are:

• Strategic planning and identification of new markets
• Rebuilding customer demand
• Overcoming supply chain disruptions
• Financial and cash flow management
• Lean manufacturing and continuous improvement
• Staffing, training and workforce development
• Maintaining a safe workplace in a COVID-19 world
• Cybersecurity risk assessment and compliance planning

Bargain rates for top level expertise and analysis 

Through the MEP program, companies pay reduced rates for top level expertise to help them improve their business and operational performance. Customized solutions and hands-on assistance are provided by a network of third party service providers and the program’s team of seasoned manufacturing and professionals.

“The one thing that’s so much fun about the AZ MEP is that we’re just here to help,� said Garafano, who has more than 30 years experience in manufacturing and business in leadership positions with companies such as AT&T, Lucent Technologies, Celiant, Andrew and ON Semiconductor.

This emergency assistance is being made possible through the federal CARES Act. Arizona is receiving $730,000 to help these struggling companies get back on their feet. So far, $350,000 has been approved for 118 companies. 

Why manufacturing is so important to Arizona 

Arizona has seen steady uphill growth in the sector since 2013. One of the biggest benefits of that growth has been higher paying jobs. 

In 2019, there were an average 177,000 manufacturing employees with an average annual compensation of $87,387, according to the National Association of Manufacturers (NAM).  

Manufacturing is also a revenue producer for the state. Manufacturers produced $20.93 billion in manufactured goods exports in 2019. Of that, $9.84 billion was from free trade agreement partners like Mexico and Canada. Small businesses comprised 88 percent of all exporters.

The bulk of manufacturing output in Arizona comes from three sectors: computer and electronics, aerospace and other transportation equipment, and fabricated metal products.

Pandemic changed landscape for manufacturing 

Many sectors have seen dramatic disruptions including Arizona’s most profitable, aerospace and defense. 

So far, companies seeking assistance have needed a variety of services including rebuilding their workforces and finding new uses for their operations and equipment as demand has dried up, Garafano said.  

“Probably one of biggest things we’re doing with these companies is a lot have been hurt financially by the pandemic and they don’t always have a CFO or a higher level finance person, so we’re bringing in CFO people to do analysis on the company and help them understand their cash flow,â€� he said. “They were healthy and the pandemic made them unhealthy, so we can help them build a plan to get healthy again.â€�  

Relief needed to make it through the new year    

Allison Gilbreath, executive director of the Arizona Manufacturers Council, said there is a great need for aid for the industry right now. Not only are many industries flailing but other federal covid relief programs are about to dry up.  

“The manufacturing industry in Arizona was hit hard by the Covid-19 pandemic,� Gilbreath said. “Our members were faced with tough choices in 2020 and most manufacturers anticipate pandemic-related challenges well into 2021.�

For more information or to apply for assistance through the MEP program, go to:

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