In 2021, Pennsylvania lawmakers created the Local Resource Manufacturing (LRM) tax credit to attract businesses to the Keystone State. Shortly after, Nacero, a fuel-development company, announced its plan to build a natural gas-to-gasoline plant in Luzerne County. At the time, politicians boasted the project would lead to thousands of construction jobs and 450 long-term, high-paying jobs.

Three years later, Nacero has yet to begin construction. Moreover, Nacero never claimed the LRM tax credit.

Nacero wasn’t alone. No company claimed an LRM tax credit despite Harrisburg upping the cap from $26.6 billion to $56.6 billion in 2023. Notably, four different Pennsylvania tax credit programs recorded no applicants in 2023 and 2024.

Clearly, these handouts aren’t working.

Corporate handouts and tax credits don’t correlate with growth. Among the top ten states for corporate giveaways in 2023, five, including Pennsylvania, experienced a net loss in net migration, according to the U.S. Census Bureau.

Pennsylvania continues to decline economically. Every year, the American Legislative Exchange Council (ALEC) rates economic performance by state. From 2019 to 2024, Pennsylvania’s ranking fell nine spots as our corporate welfare spending increased by 38 percent.

And it isn’t just ALEC noticing Pennsylvania’s decline. In January, WalletHub ranked Pennsylvania the eighth worst place to start a business.

The problem isn’t what’s attracting the businesses but rather what’s scaring them away.

With over 164,000 rules, Pennsylvania ranks 14th nationally for the most regulations. It’s not a few complicated rules discouraging growth; instead, death by a thousand cuts from multiple agencies overwhelm job creators.

Last year, FairLife considered building a milk-processing plant in Pennsylvania, about the same time lawmakers passed a $15 million annual milk-processing tax credit. However, Pennsylvania’s notoriously slow permitting process inspired the company to choose New York instead.

Even Nacero struggled with Pennsylvania’s restrictions. Construction leaders testified in October 2023 that the permitting process to replace a $300,000 culvert bridge held up the construction of the $6 billion plant.

But that doesn’t mean government is powerless. On the contrary, Gov. Josh Shapiro and state legislators could spur new manufacturing and other job creation if they focused on a different kind of ribbon-cutting: slashing red tape. Findings published by the Commonwealth Foundation show a 36 percent reduction in our regulatory restrictions could increase annual GDP by $9.2 billion and add 183,497 new jobs.

Such reform isn’t hypothetical. Virginia recently began recognizing occupational licenses from other states. According to Gov. Glenn Youngkin, removing the extra paperwork attracted 600 new workers from out of state.

Cutting red tape creates jobs and lowers government costs—a win for everyone.

Pennsylvania should repeal the LRM and other scarcely used credits to invest in small-business regulatory relief.

The relief needs to be genuine. Last summer, Shapiro signed the Streamlining Permits for Economic Expansion Development (SPEED) program into law. SPEED was supposed to expedite permitting. However, SPEED applies to only 6 percent of permits and requires extra fees for a timely answer. With hundreds of state restrictions—encompassing everything from mining to stuffed animals—built up over decades, SPEED is an insufficient solution.

Shapiro should understand the benefits of regulatory reform. He fast-tracked permitting to rebuild I-95 and requested expedited approval of the Crane Clean Energy Center (i.e., Three Mile Island). But these were one-off situations, and Shapiro could do so much more.

If state leaders are serious about competing with other states, it’s time to get serious about broad regulatory reforms. Reforms include annual legislative approval of regulations with an estimated economic impact of more than $1 million.

Also, lawmakers can set a regulatory reduction commitment, empowering agencies to eliminate redundant, outdated, or harmful regulations to reach a set goal. Virginia and Ohio successfully achieved similar reforms in recent years.

The Nacero plant may not come to fruition despite all the fanfare and handouts. But what’s far more significant are the struggles of the 2,500 new small businesses started in Luzerne County this year.

Small businesses are the backbone of our economy. With tax incentives promised to their competitors and ever-growing regulations, these businesses find themselves squeezed from both ends.

Pennsylvania lawmakers must stop the handouts no one wants and pursue regulatory relief to help all employers, large or small, succeed.

Elizabeth Stelle is Director of Policy Analysis of the Commonwealth Foundation, Pennsylvania’s free-market think tank. X: @ElizabethBryan