Galveston City Council voted unanimously Thursday on a resolution of support for two development boards and their approval of a new tax zone agreement last month for Beachtown, a luxury subdivision on the East End that’s the subject of a lawsuit.
But the council stopped short of validating key terms of the amended agreement by removing language from the resolution about reimbursements paid to the developer.
Critics of the new agreement and the boards’ actions in reaching it urged the council to debate the issue publicly and either defer or vote against the resolution.
Elizabeth Beeton, one of three residents who brought a lawsuit over the deal, argued the council needed a better idea of how much the city owed the developer. The plan was a bad deal for taxpayers because the oversight authorities had not audited the spending and the costs had exceeded what the project plan originally called for, she said.
The latest agreement had been an attempt to render moot the lawsuit against the 2014 agreement, but it did not solve the problems with the project plan, Beeton said.
“Approving the amended development agreement would weaken the city’s legal position, but it does not solve the city’s legal problems with making expenditures that are not authorized by the project plan,” Beeton said.
But Beachtown developer Tofigh Shirazi said he had kept his part of the deal and the city, as a partner in the project, should as well.
The plan had followed the common procedures for tax increment reinvestment zones, which set up a concept for development and basic guidelines, not line item expenditures, said Jeanne McDonald, an attorney representing Shirazi.
The project plan is not a contract between the city and the developer, it’s a vision, McDonald said. It was an incentive to build infrastructure, not an obligation to build, she said. That idea has not changed in the most recent agreement, she said.
“It’s a no-lose position for the city,” McDonald said.
A tax increment reinvestment zone is an economic tool used by cities to spur development in an area. In the zones, developers typically pay for public improvements and are reimbursed with interest from increased tax revenue in the zone or proceeds from government-issued bonds. Galveston has several.
The city in 2002 created Tax Increment Reinvestment Zone No. 13 as a financing vehicle for the Beachtown development and the Galveston Island Redevelopment Authority to oversee the project.
But the agreement has drawn controversy for years. In 2012, the authority sent Zone 13 a notice of default of the 2004 agreement that the developer build certain properties, including 40,000 feet of retail space and a hotel.
Shirazi and his attorneys said the authority’s interpretation of the plan was wrong, arguing the plan was not rigidly binding, but allowed leeway for changes and conditions, such as a hurricane and economic downturn, that might slow progress.
In August 2013, the city council removed members, including Beeton, from the authority that had found Shirazi in default and replaced them in the middle of their terms.
Beeton, Jackie Cole and Jos Wristers’ 2016 lawsuit claims the authority’s agreement with the developer substantially changed over the course of seven closed session meetings from January to July 2014. The public didn’t have the opportunity to contribute input to the changes, and the developer and authority agreed not to seek approval from city council or other elected officials, the plaintiffs claimed.
In January, the redevelopment authority and TIRZ 13 boards voted on a new agreement with the developer, which supersedes the 2014 agreement at the center of the lawsuit.
The new agreement contains most of the language in the 2014 agreement, but the biggest change is the inclusion of an audit that was completed to settle a disagreement over $1.8 million in project costs that had not been reimbursed, authority Chairman Jim Ware said in January.
On Thursday, city council took up the resolution effectively supporting the boards’ authority to have approved a new agreement. City council was not required to vote on the agreement, according to multiple parties involved.
In comments before the vote, Mayor Jim Yarbrough noted the long-running controversy over the agreement.
“This has been a sticky wicket since 2002; a long time,” Yarbrough said. “We can have disagreements over the value of reinvestment zones as an economic development tool. We’ve been both successful and not successful with these here on the island.”
No one on the current city council was on the board when the deal was first negotiated in the early 2000s, Yarbrough said. But the city learns from each agreement about how to best negotiate investment zones and might “tighten these agreements up” in the future, he said.
The city’s internal accounting department is constantly working to review the expenses, projects and payouts of investment zones, he said.
And while the additional tax benefit the city might receive from development was being captured for public improvements to the zone, the school district and Galveston College were benefiting substantially from new development in Beachtown, Yarbrough said.
“I know it’s a very emotional issue,” Yarbrough said. “We will continue to deal with it and want to see continued progress in that zone, as we do the rest of the island.”
Yarbrough was the only council member to publicly comment on the vote during the meeting, but Councilwoman Terrilyn Tarlton-Shannon said the vote was intended to clarify the authority of the development boards without commenting on the terms of the agreement itself.