Will CHIPS Child Care Plans Displace Children Currently Being Served?

On both sides of the aisle, stakeholders are debating the Commerce Department’s recent announcement that companies seeking CHIPS Act funding will be asked to include a plan for employee child care in their application. Largely left out of these debates are the millions of working parents already struggling to find and afford child care. Depending on its implementation, the CHIPS child care guidance has the potential to increase pressure on an already constrained child care market. Unless investments are also made to expand supply, adding more demand risks displacing children already enrolled and making it harder for working parents to find care.

CHIPS Child Care Guidance

The overarching goal of the CHIPS Act is to boost America’s economic competitiveness by increasing domestic production of microprocessors to reduce reliance on the overseas supply chain—not tackling the child care crisis. Commerce Department Secretary Gina Raimondo explained that asking companies to develop child care plans aims to speed up projects amid a worker shortage. The Department’s top priority remains rapidly scaling up semiconductor factory investments.

 

The CHIPS Workforce Development Planning Guide outlines the types of child care investments available for companies. Some options, such as building on-site care, could help expand child care supply by creating new slots for their employee’s children. Other options, including cash assistance and provider sponsorship, focuses on helping employees afford child care without creating new slots. Given the pressure to scale up projects quickly, companies seem likely to choose the latter option since building on-site care takes time and more up-front resources.

The Risk: Amidst Our Existing Child Care Shortage, Companies with Deep Pockets Could Out-Compete Parents

Companies expected to receive federal subsidies to expand domestic manufacturing facilities, like TSMC and Samsung, have significant market power in the advanced chip industry. To quickly meet the child care requirement, companies could contract with existing off-site providers near the new fabrication plants. These multi-billion-dollar companies could also likely afford to offer above-market tuition rates to existing providers or provide substantial cash assistance directly to employees to seek care. Since neither option inherently creates new child care capacity, chips manufacturing employees will be competing for the same slots as other parents living and working in the community. However well-intentioned the policy of requiring companies to provide child care as a condition of receiving CHIPS Act funding, the unintended consequence could be to crowd-out those parents that currently have and need child care services.

Child care providers themselves are small business owners in a fragile market. Three-fourths of child care centers and almost all home-based providers are for-profit. Providers operate on razor thin margins and low wages. About one in three providers are considering shutting down, and more than half (53%) of providers are enrolled in at least one main public benefit program. These providers, mostly women and minorities, would likely benefit from accepting higher tuition rates if offered. Providers that do not have the facility space or interest in expanding their capacity to serve more children could opt to take the higher rates chips companies are willing to pay, which would displace children already enrolled in the process.

Communities Seeking CHIPS Jobs Already Face Child Care Constraints

In Phoenix, Arizona, TSMC announced investments of $40 billion to scale up two chip manufacturing plants over the next few years. These will create an estimated 21,000 construction jobs in the state, plus 4,500 engineering and other technical jobs – not to mention the thousands of additional jobs that could come from supply companies setting up shop nearby. Last year in nearby Chandler, Arizona, Intel announced $20 billion investments in two new chip facilities and is expected to bring more than 3,000 jobs to the state. Local officials have already approved $30 million in infrastructure incentives to aid Intel’s projects and $200 million for water lines, sewage, and roads near TSMC’s factories, creating even more job opportunities.

Without additional child care, the impact on current residents could be significant. Even before this expansion brought on by the chips industry, the child care gap in Arizona – or the percent of children with all available parents in the workforce without access to formal child care – is already 25%. Although the gap is lower in some areas of downtown Phoenix, areas that tend to have more affordable housing face gaps of 31%-47%. With thousands of new jobs being created in the region, new families seeking child care could further increase the child care gap if the supply cannot expand to meet this new demand.

Supply-Side Solutions Can Mitigate Displacement

The CHIPS Act passed with bipartisan support because lawmakers agreed that domestic semiconductor manufacturing is critical to our national security and economy. If steps are taken to increase the supply of child care in chips manufacturing communities, businesses, parents, and child care providers can reap the economic benefits of these investments. Specifically, company child care plans should prioritize creating new slots. There are several avenues to ensure that all children, whether their parents are employees of new chips firms or not, have access to the quality child care they deserve.

BPC recommends the following:

• Congress should expand the Employer Provided Child Care Tax Credit (45F), which would incentivize businesses of all types to expand child care slots. For full recommendations, please see BPC’s report.
• The Department of Commerce should prioritize CHIPS applications with child care plans that create new child care capacity.
• States should collaborate with communities and local governments when developing business incentives designed to attract chip manufacturers to their state, including investments in child care infrastructure and tax incentives designed to expand child care.