Hobby named several problems that could undermine Houston’s long-term prosperity if left unchecked — including worsening traffic and shortages of skilled workers. He described rising property taxes, also known as ad valorem taxes, as a challenge that’s less obvious, but just as real.
“At GHP, we value the role of government, and we absolutely understand the need for an adequately funded public sector. But ad valorem taxes are potentially the invisible toxin in our local economy. They can constitute a significant drag on small businesses, whether in the form of higher rent or a tax on equipment or improvements, that generally commence before any revenue is generated.”
Hobby says that in the Houston region, more than a thousand taxing authorities have stakes in property values. He says that when one taxing authority gives up a penny, another one tends to grab it.
“When our Greater Houston Partnership economic development folks sit down with companies thinking about relocating to Houston, those prospects generally enter with the notion that Houston has a low cost of doing business. And this is relatively true. But when they study the matrix of various tax rates, their enthusiasm about the ‘no personal income tax’ column is quickly dampened when they see the ad valorem bottom line.”
The Tax Foundation, a research organization based in Washington, D.C., annually ranks the business tax climate of all fifty states. In the latest study, Texas dropped out of the top ten most business-friendly states, thanks to a rising property tax burden.