Progressive Democrats Call for Stronger CHIPS Subsidy Guardrails to Prevent Wasteful Stock Buyback Spending

Stock buybacks have come under greater scrutiny as large corporations have spent record sums on this financial maneuver to artificially boost the value of their shares — and the value of CEO stock-based pay.

In many of the high-profile labor battles of 2023, unions skewered corporate executives for blowing profits on buybacks while claiming they couldn’t afford to raise worker pay. Analysts have also documented a connection between buybacks and reduced capital investment and innovation, as well as the exacerbation of economic inequality and the racial wealth gap.

In response to public concerns, the Commerce Department announced they would give a leg up in the awarding of CHIPS subsidies to companies that agree to forgo all stock buybacks. But so far, none of the companies in line for these subsidies have publicly committed to suspend existing share repurchase plans (which currently authorize $14.3 billion in buyback spending) or to refrain from adopting new plans during the grant period.

The CHIPS law does forbid subsidy recipients from spending CHIPS funds directly on stock buybacks, but since money is fungible, this is not a strong guardrail.

In a recent letter to Commerce Secretary Gina Raimondo, Senator Elizabeth Warren, Congressional Progressive Caucus Chair Rep. Pramila Jayapal, and several other lawmakers note that the federal agency has the “statutory authority to fully ban CHIPS grant recipients from engaging in stock buybacks as a condition of award.”

Unless the administration asserts this authority, the lawmakers warn, they will “leave the door open for semiconductor companies to take millions or even billions in CHIPS grants, move some money around, and then engage in more stock buybacks.”

Our report found that CEOs with preliminary CHIPS agreements are sitting on company stock holdings worth more than $2.7 billion ($306 million on average). In other words, these executives are positioned to reap huge personal windfalls from share price pops related to continued buyback spending.

President Biden has spoken out repeatedly against wasteful stock buybacks and his economic agenda centers on an industrial policy to create good jobs and long-term prosperity, particularly for communities and workers who’ve been left behind.

Strong buyback restrictions in final CHIPS contracts would help maximize the benefits of these vital investments. Public money should serve the public good — not narrow, private interests.