Inside the Commerce Department’s plan for a string of new tech hubs

Last year’s Chips and Science Act spawned new programs across the government. Among them is a $500 million Commerce Department initiative known as Tech Hubs. Now Commerce’s Economic Development Administration is asking the public how the Tech Hubs program might work. For details, the Federal Drive with Tom Temin spoke with Alejandra Castillo, assistant secretary of commerce for Economic Development.

Interview transcript:

Tom Temin Before we get to the details, what exactly does the Commerce Department envision a Tech Hub being?

Alejandra Castillo Right now, we’re looking at Tech Hubs as an opportunity to have communities and places across the country build and evolve innovation centers to accelerate a region’s evolution into a global leader in an industry of the future. So think about it, this is an opportunity for us to look at communities, their assets, the industries that are in those regions, and think about what are the different ingredients that would need to be in place in order to create a productive tech hubs. And I want to also say, Tech Hubs is an opportunity for the U.S. to look at economic development, alongside national security as well. So there’s a lot in the legislation, and I invite your listeners to look at the legislation to see those areas that we’re looking at with regards to the industries.

Tom Temin A lot of times people look to Silicon Valley, which is actually no longer silicon, but it’s a valley where there is a tech hub, you might say, one of the original Tech Hubs of the modern economic era. And the one thing that really spawned it was the closeness of very large, successful and high end computer science and electrical engineering programs, academically. Is that a requirement, do you think, for the next set of Tech Hubs?

Alejandra Castillo I’ll draw you back to the legislation to the statute, because the statute actually requires there are five particular must have ingredients and then 13 additional ingredients that could also come into play. You’re absolutely right. You look at Silicon Valley industries that really were at the forefront. You may also want to look at Austin, Texas, you may also want to look at the research triangle. But there were other ingredients, like a university, community colleges, the workforce development as well, component to it. Unions were participating in this as well. So when I mentioned the different ingredients that come in to producing a Tech Hub or creating the Tech Hubs of the future, there are many actors and players. And that’s exactly why this RFI, this request for information is so important, because there is no particular recipe, so to speak. We are asking the public, tell us what’s happening in your communities. How do you see your region being competitive for Tech Hubs? Give us some guidance and some other elements that we may not be privy to as we think about the creation and the design of Tech Hubs.

Tom Temin Because some Tech Hubs, I guess you can call them Tech Hubs, the type of idea you’re talking about have occurred, somehow spontaneously in, let’s call the ashes of old industries. I’m thinking of Pittsburgh, Pennsylvania. Very much a high tech town, built over what used to be steel mills. And I don’t know what the secret ingredient there was, but I think workforce and academia are two big elements.

Alejandra Castillo Correct. And like that, I travel this country extensively like that. You have so many different places where there has been a legacy industry. I think about Wichita, Kansas with aerospace. We just made very big investments under the American Rescue Plan in 21 different regions across the country, which were based of true assets in different industries. That was the Build Back Better Regional Challenge. Tech Hub is different. Tech Hub is more on the regional side. We’re looking at no particular city or particular boundaries. We’re looking at regions that have an array of assets that can actually be, in some ways, futuristic, if you will. Because these are industries that are still in a phase that with a certain level of infusion of resources and capital, they can get to that next level of growth and scalability. And again, there are many notions of what a Tech Hub is. From the [Economic Developmental Administration (EDA)] perspective, a Tech Hub is not a building. A Tech Hub is a region that comes into play to really spur that economic vitality and activity.

Tom Temin We’re speaking with Alejandra Castillo, she’s assistant secretary of commerce for Economic Development. And there are areas of the country that once had hubs, maybe not Tech Hubs, but maybe it was textiles, maybe it was shoe manufacturing. All of these industries that are pretty much gone for the most part. And yet, you have an area and you still have people, but you don’t have those Tech Hub, maybe ingredients. There’s no famous engineering school nearby. Is it the sense of commerce? Your sense that investments can be made for where there is only the willingness and the workforce. But yet, somehow, spawn the other ingredients needed to have a really vibrant hub that has sustainability.

Alejandra Castillo Tom, I know that this conversation today will focus on Tech Hubs, but I also want to make sure that I’m introducing another program that also EDA is building out, and that’s Recompete. The Recompete program, we received $200 million, in that program I’m bringing it to bear, because that program is to focus in areas that are highly distressed. And it’s important to note we’re working on Tech Hubs where there may be some ingredients, some assets, some elements that can actually spring up a technology of the future. But then those areas that are highly distressed, we need to bring them along. And that’s what Recompete is. So what these two particular programs that came out of the Chips and Science Act, EDA is now able to be much more holistic in the investments that we make, because we try to meet communities where they are. It would be irrational to think that a community that has been distressed for 30, 40 years is all of a sudden going to become a Tech Hub. We want to make sure that we’re guiding along, shepherding along with these very targeted investments, to make sure that communities are putting in those ingredients.

Tom Temin I see that distinction. So getting back to the Tech Hubs then, who are you reaching out to with this RFI? What types of people, organizations are in the best position to respond?

Alejandra Castillo We have sent out this RFI very, very broadly. Both to private sector as well as to public entities, whether it’s the mayors, the governors, obviously our congressional members, to universities, to community colleges, to unions, to nonprofit organizations, to philanthropy as well. The investments that the government will make are just a portion. We’re going to need, not just a very broad array of stakeholders to be involved in the design, but also in the investment side as well. Hence why I mentioned, not just the government and the private sector, but also philanthropic entities that will come in to make the investments even more robust.

Tom Temin So it could be philanthropic entities and also investing for profit entities?

Alejandra Castillo Correct. Again, the Tech Hubs, as we have analyzed it through history, have been made possible because of a very eclectic group of individuals coming in with a very strategic mission to propel a particular industry. And that’s what you’ve seen in so many places across the country that have been very successful.

Tom Temin Right, Because a $500 million program for commerce, that’s like a 10th of some of the single investments made in startups that produced nothing, frankly, for a few years.

Alejandra Castillo Well, I also want to put it into context. The CHIPS and Science Act actually authorized Tech Hub at $10 billion. Under the omnibus bill, we received $500 million, a bit of a small down payment on it. So it is our interest to make sure that as we move forward with the Tech Hub design, the Tech Hub designation, the Tech Hub planning grants that we’re actually looking at those places that are well-suited to be successful, so that we have a very positive showing to get the remaining dollars and be able to invest more broadly across the country.

Tom Temin And let’s say these nonprofits and these nongovernmental organizations, if you will, the domestic ones and private investors come together and agree and kind of synchronize, here’s a good potential Tech Hub. What is it that the government will buy with the government investment?

Alejandra Castillo So let me just hone in on one very special element there. The statute requires consortia, so these entities will have to come together. That’s really the secret sauce of the EDA programs. It’s the coalitions, It’s the partnerships that must come together with a shared vision of what Tech Hubs is. Once that is done, the proposals will come in. We will be releasing the notice of funding opportunity sometime later in the spring, to make sure that not only are we letting individuals know what type of investments we’re looking at. And that’s why the request for information is so important, because this is how we, as the government, will be able to actually put in place elements that are much more attuned to regional economic development efforts.

Tom Temin But the federal funding will mostly be for purposes of planning and consortia development, and not necessarily the investments in the elements of the Tech Hub, itself.

Alejandra Castillo That’s correct. There’ll be a phased approach of a designations, phased approach with regards to planning grants that will be provided. And then the award, which will range at a much higher level, will be done afterwards when these planning grants have been executed.

Tom Temin And how do you know when you’re finished? Going back to the original Silicon Valley, that turned out to have funded, not just a industry, but a region of a couple of million people that is self-sustaining now. And it has moved, as I mentioned earlier, from silicon to mainly software now. But the ecosystem of development, of funding, of venture capital and so forth seems to be self-sustaining for the foreseeable future. How do you know when a Tech Hub has made it?

Alejandra Castillo Well, I think you just made the case, it’s that self-sustainability. When the region, in itself, becomes there enough of the critical mass to propel it and to make it self-sustaining. Where the government may not need to make those big investments any longer. But maybe the private sector, universities, nonprofit philanthropy are all coming together to continue to evolve and sustain that growth. That’s one of many elements. I also have to say that, it’s about having a very inclusive economy. And an economy that, not only is good for those who are enmeshed in the industry, but also for the surrounding areas where workers are part of that industry, where we have a much more integrated and inclusive element of the entire society. Some people may argue that Silicon Valley has been fantastic, but there have been communities that have also been left behind. Under the Biden administration, our commitment is to make sure that it’s from the bottom up, middle out and that we don’t leave communities behind. So that’s another element of, well, knowing whether it’s been successful.

Tom Temin And just from a program standpoint, the RFI is out. When does it close? And what is the immediate next step, once you have your comments and information gathered?

Alejandra Castillo So the RFI was issued a few weeks ago. It’s a 30 day window, I believe it closes March 16. We’re looking at folks from all walks of life. Please send us your best ideas, your concepts. We’re going to be reviewing that very carefully and taking much note as we continue to develop and design the program.

Tom Temin And again, the funding opportunities, those will come later this year, later the spring, toward summer?

Alejandra Castillo Towards summer, we will be issuing a Notice a Funding Opportunity, NOFO. So be on the lookout for that as well.

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