Implementing Federal Innovation Programs: A Road Map for States

An surprisingly productive Congress has passed the Infrastructure Investment and Jobs Act (IIJA), CHIPS Act, and Inflation Reduction Act (IRA), which aim to improve America’s infrastructure, boost competitiveness with China, and accelerate new climate technologies. Attention now shifts to implementation. State and community leaders should begin work now to prepare for funding competitions on the horizon.

First, a quick refresher. The IIJA provides $973 billion over five years to support improvements for all modes of transportation, water, power and energy, environmental remediation, and broadband. States will need to compete for some of these funds, including the Digital Equity Programs and $3.5 billion to support carbon capture pilot and demonstration projects. States can also compete to establish clean hydrogen hubs that promote new innovation and technological commercialization.

The CHIPS Act provides nearly $55 billion in grants and loan guarantees to increase domestic semiconductor production. Secretary of Commerce Gina Raimondo says every governor, state legislature, and public university president should draft a “plan of attack” to secure CHIPS funding aimed at boosting semiconductor manufacturing. The legislation also authorizes—but does not appropriate—more than $200 billion in federal research and development (R&D) programs. This includes a $20 billion authorization for a new technology directorate in the National Science Foundation that will award grants to support critical R&D in quantum computing, artificial intelligence, advanced energy, data storage, and robotics. Another $10 billion is available for 20 innovation hubs nationwide. Applicants will have to include institutions of higher education, labor unions, businesses, and community-based organizations in regional partnerships to develop technology, innovation, and manufacturing sectors.

The IRA includes more than $369 billion over the next decade for innovations in sustainable batteries, solar energy, direct air carbon removal, clean hydrogen, and nuclear energy. The bill provides a 10-year extension—and, in some cases, enhancement—of both production and investment tax credits. The 10-year duration provides the market with greater certainty than the previous short-term tax-credit extension that could help attract private investors and new entrepreneurs. Conservative governors are poised to reap the benefits, given recent findings that on just about any metric, the green transition’s physical assets are more often found in red than blue states.

Unlocking the promise of these policies now rests in their implementation, where they confront two fundamental challenges. First is federal capacity to quickly stand up these programs. In some cases, agencies need to staff up with technical expertise. The Department of Commerce, for example, is creating two new offices housed at the National Institute of Standards and Technology, the CHIPS Program Office, and the CHIPS R&D office. Having the right people on staff will be critical in achieving desirable policy outcomes, ensuring fiscal accountability, and avoiding another “Solyndra.”

The main federal implementation risk is the volume of regulations that will need to be cleared. The White House Office of Information and Regulatory Affairs (OIRA) oversees this process, but it could quickly find itself overwhelmed as agencies submit their drafts for interagency clearance. OIRA thus risks becoming a bottleneck.

The second challenge rests in states and communities that must develop consortia and plans to compete for these new funds. Governors, university presidents, and community and business leaders should begin planning now to win these funding competitions.

States can take several steps now to be prepared for these competitions:

1. Designate coordinators who can marshal the resources of state and city agencies. Many programs will require input and commitment of resources from multiple agencies, including education and workforce training.

2. Form consortia with broad representation, including representatives from the business community, research institutions, universities, and economic development leaders. Setting these tables now will help ensure state consortia can quickly respond with the right partners for the right funding opportunities.

3. Develop strategic goals and an integrated plan. The various bills provide enough detail to allow states and communities to develop overarching strategic goals that can help inform applications for specific competitions.

4. States and cities should inventory and map their capabilities and resource strengths now in order to determine their readiness for competitions. This includes existing R&D capabilities in research universities as well as understanding the geological advantages for various clean energy technologies.

5. Engage communities and other stakeholders. The Biden administration will likely give preference to applications that prioritize underserved communities. Involving these communities upfront in the planning process will ensure more authentic buy-in and improve the odds of winning.

6. Explore state incentives. Some competitions will prioritize states with regulatory and financial incentives that accelerate R&D. States should begin this work now, given the time needed to pass new provisions in the upcoming legislative session.

The above recommendations will help states ensure federal money is not wasted at this critical juncture of innovation, job growth, and national security vis-à-vis China. State and local officials would do well to consider them.