To Compete With Ohio, Emulate Ohio

(This article first appeared in the Pittsburgh Post-Gazette)

By Elizabeth Stelle

Gov. Josh Shapiro is right: Pennsylvania is losing to Ohio. In the last two years, Pennsylvania witnessed a net loss of 2,425 residents and $90 million in income to Ohio.

To stem this flow of people and investment, his budget address proposed a pricey economic development plan, including $600 million in new subsidies and incentives to entice businesses to set up shop in Pennsylvania.

Ohio indeed spends hundreds of millions on business handouts. However, Pennsylvanians aren’t moving to Ohio for corporate welfare. They are moving west because that’s where the jobs are.

What Ohio is doing

And the jobs are there because Ohio is doing exactly what candidate Shapiro promised: streamlining regulations, reducing taxes, and creating more educational choice.

First, Ohio is already engaged in a multiyear project to reduce state regulations by 30 percent. Shapiro’s budget neglects any proposal to reduce regulatory red tape or enact permitting reform. Pennsylvania maintains more than 166,000 regulatory restrictions, the 12th highest in the nation. Yet, research shows regulation reduction is associated with growth in state GDP and jobs.

Instead of proposing comprehensive regulatory reform, Shapiro launched a permit refund with several exceptions. According to the permit database, 59 permits and licenses take more than a year (assuming days are business days) to complete. And one in five permits are not available online.

In addition, he has decided to fight for the state to stay in the Regional Greenhouse Gas Initiative (RGGI), which would add more economically damaging regulation. RGGI would impose a carbon tax on utilities, amounting to an estimated 30% increase in electricity bills for Pennsylvania residents and increasing business costs. Energy-intensive manufacturers project to lose at least 17,000 jobs.

Shapiro didn’t once reference the cap-and-tax plan during his budget address. If RGGI comes to fruition, generators expect electricity production to shift to other states, including West Virginia and — you guessed it — Ohio.

What Shapiro is not doing

Second, starting this year, Ohio has eliminated the annual minimum and raises the exclusion threshold at $3 million on its Commercial Activity Tax, offering some welcome tax relief to small business. The governor should recommit to lowering tax rates. In 2023, Ohio lowered personal income taxes.

On the campaign trail, Shapiro lauded his plan to accelerate the reduction of the Corporate Net Income Tax (CNIT) to 4 percent by 2025 instead of 4.99 percent by 2031. That proposal, however, was also suspiciously missing from this year’s budget proposal.

Pennsylvania would benefit if Shapiro followed through on his CNIT promise. Lower corporate taxes are a common characteristic of growing states, especially those that attract large amounts of Pennsylvanians. North Carolina, a top destination for Pennsylvanians, boasts the lowest flat CNIT. All the top destination states for Pennsylvanians levy a lower CNIT.

Finally, Ohio passed universal school choice last year, making it an attractive destination for families with school-aged children. Shapiro could do the same here in the commonwealth.

The governor reaffirmed his support for the Lifeline Scholarship Program, also known as the Pennsylvania Award for Student Success (PASS). Yet, this student-first program remains “unfinished business” and needs more than lip service. Until Shapiro uses his bully pulpit to make Lifeline Scholarship/PASS a reality, there is little to no meaningful opportunity to succeed for the roughly 250,000 children assigned to failing Pennsylvania schools.

The governor chooses losing

Candidate Shapiro was right: Pennsylvania must give businesses more certainty regarding the permitting and licensing process, enact smart tax changes, protect Pennsylvanians from surging energy prices, and expand scholarships for our most vulnerable students. Such policies will show the commonwealth is “open for business” and stem decades of out-migration.

Otherwise, Shapiro better get used to, in his words, “losing to friggin’ Ohio.”

Elizabeth Stelle is director of policy analysis of the Commonwealth Foundation: @ElizabethBryan. Her previous article was “Too much regulation raises energy prices too high.”

First Published February 12, 2024, 5:30am