Holes in Ohio’s agreement with Intel
Requiring clawbacks is good policy, but protections don’t go far enough
It’s a good thing Ohio has finally inked an agreement with Intel to ensure that the corporation lives up to its promises with its $20 billion investment in two semiconductor fabrication plants in New Albany. But that agreement, signed in late June covering $600 million in public funding, includes serious flaws. It doesn’t cover a significant share of the state’s spending contribution; it extends for years the window for the company to make good on its plans; and it leaves out important protections.
Most importantly, the agreement doesn’t cover about $400 million Ohio is spending on roads and other infrastructure to support Intel, so if the company doesn’t follow through on its plans, there will be no way for the state to recoup those funds. Nor does it cover another $300 million the state is spending to build a water reclamation facility for the company., The Department of Development says that will be covered in a separate agreement. It should be, since the law (see Section 309.11) approving the spending specifically said the agreement had to.
Insufficient coverage of all the state spending to support Intel is the most obvious flaw in the agreement, but it’s not the only one. Though the company has targeted 2025 to start operating the plants, the agreement inexplicably gives the company until the end of 2028 — and possibly even another year after that — to make good on its job, payroll and investment promises. The state money will go to Intel next year, within two years of when it began construction.
When Intel announced its Ohio plans early last year, it was clear the company would make the investment whether or not Congress passed the CHIPS Act, a measure that Intel backed and will pour $52.7 billion into supporting domestic semiconductor production. The act’s passage would only affect additional Ohio investment beyond the two fabrication plants and $20 billion of spending from Intel. But oddly, the agreement suggests that the state could conceivably let Intel keep the state money based on “whether the Grantee received expected CHIPS Act funding.” Asked about this, the development department said: “The reference to CHIPS Act in the agreement is simply an example of a potential market condition that the State could consider should the project experience any issues with the agreed-upon commitments (capital investment, job creation, etc.).” Considering market conditions if a company fails to meet its commitments “is standard practice for the State when providing an incentive,” the department said. But receipt of CHIPS Act money wasn’t a factor in Intel’s decision, so it shouldn’t be a factor in this agreement. It is an unwarranted softening in the state’s clawback policy.
Under the agreement, Intel is to make “a good faith effort to employ individuals who are minority and disadvantaged persons,” reflective of the population in Licking County and contiguous counties, which includes Columbus’s Franklin County. The company is to make annual performance reports beginning in March 2024, including the number of employees working there and the counties where they live. It should go further by also reporting on the race, gender and ethnicity of its employees, as well as what proportion of them were Ohio residents prior to their employment. That would help Ohioans understand who is benefiting from the investment and whether those benefits are being broadly shared.
Laughably, the agreement would fine Intel just $500 a month if it doesn’t file the report, a pittance for a company investing $20 billion. While the agreement itself is a public record (as are certain other documents related to the project), the agreement does not spell out specifically that the annual performance reports will be public records. They should be.
The agreement requires Intel to comply with all applicate federal, state and local laws as well as applicable environmental, zoning, planning and building laws and regulations. But other protections are omitted. An ideal agreement would:
Include a minimum for employee pay and benefits, not just an average, so that all employees are assured of good-paying jobs, as well as health and safety training.
Make sure employees have the freedom to organize unions without management interference or retaliation.
Require regular community meetings to allow residents to voice their concerns about the project.
Require a community benefit agreement that could help ensure education, housing, transportation, environmental and other needs of the area are met, not heightened, as a result of the project.
Ohio’s recent experience with General Motors Corp. underlines the need for strong clawback agreements that allow state and local governments to require repayment of incentives if companies break their promises. After it shut down its Lordstown assembly plant in 2019, GM returned tens of millions of dollars the state had provided.
While Ohioans certainly hope Intel will make good on its plans, that’s not guaranteed, especially given the company’s struggles to catch up with its rivals. A recent Wall Street Journal article entitled “Once Mighty Intel Struggles to Escape ‘Mud Hole’” began: “(CEO) Pat Gelsinger is keenly aware that he must act fast to stop Intel from becoming yet another storied American technology company left in the dust by nimbler competitors.” While the company’s agreement with Ohio provides us with some protection, stronger safeguards are needed.