'

January 22, 2016

Brian Maxwell
City Manager
City of Galveston
823 25th Street
Galveston, Texas 77550
Mark Henry
Galveston County Judge
722 21st Street, #200
Galveston, Texas 77550
Frank G. Incaprera
General Manager
Galveston County Navigation District No. 1
2121 Market Street, Suite 211
Galveston, Texas 77550
Dear Sirs:
Please find attached a copy of a 2014 amendment to the original development agreement
among Tofigh Shirazi, the City of Galveston Redevelopment Authority, and the Beachtown Tax
Increment Reinvestment Zone (TIRZ 13). After a series of executive meetings, the RDA
approved this amended agreement, which conflicts significantly with the 2002 Project Plan and
Financing Plan adopted by the thi:ee taxing authorities that contribute tax dollars to the
Beachtown TIRZ. The RDA never notified the elected officials of the taxing entities involved of
the amended agreement. State law and the interlocal agreements in the zone require that any and
all changes to the Project Plan and Financing Plan be made by formal vote of the elected officials
of the city, county and navigation district following public hearings.
In 2011, the RDA advised Mr. Shirazi that his failure to construct the master planned
community to which he committed was causing the taxing entities to incur additional financing
and interest expenses in the millions of dollars because the incomplete project would not
generate sufficient tax revenue to repay the cosfa of the public infrastructure. The RDA asked Mr.
Shirazi to propose an amended project, an amended project schedule and an amended financing
plan for approval by the RDA and the city council. Mr. Shirazi refused to do so even though the
RDA committed to recommend to city council amendments that would ensure completion of the
project but limit the obligation of taxpayers to pay financing costs due to the developer's delay.
Subsequently the RDA notified him that he was in default of his obligations.
Following the notice of default, Mr. Shirazi asked the city council to replace the members
of the RDA with new members, and the council replaced three of the five RDA members midterm. The newly-constituted board immediately began renegotiating the development agreement
with Mr. Shirazi, but it did not give public notice that it was doing so, instead stating on its
executive S(!~~icm agendas t)1at .it__ wa~r<!cet1ing .a11. ''.upda~~ .C?n~~i_s~l!sSi()n_\\lit1t tl!e._ L:':(J_n(! .. 13

January 22, 2016

Page 2

developer." The RDA members signed confidentiality agreements requiring them to obtain Mr.
Shirazi's written permission to reveal any of the proposed changes until after the RDA had
formally approved the revised development agreement as a body.
The amended development agreement relieves Mr. Shirazi of any obligation to build out
the private project provided for in the Project Plan; forgives all of his prior breaches; deletes the
original agreement's provision that in case of conflict, the Project Plan controls over the
development agreement; eliminates the Project Plan's line item caps on his infrastructure
spending; increases his contingency on infrastructure spending from 10% to 25%; increases the
interest rate on the public's debt from 3.25% to 7.3% (increasing its DAILY interest obligation
to Mr. Shirazi from $1,018 to $2,285); agrees to apply all payments by the public first to interest
before any can be applied to principal; and agrees to issue bonds for his benefit. Many of these
changes are in direct conflict with the Project Plan and Financing Plan, yet the RDA has
authority only to implement the Plans, not to renegotiate them.
The elected officials of the county, city and navigation district have the responsibility and
the authority to approve any changes to the Project Plans, a duty they cannot delegate to another
institution. These elected officials should inform the RDA that any changes to the development
agreement that conflict with the Project Plan and Financing Plan are invalid unless and until they
are officially approved by the three taxing entities that support the zone.
Attached is the amended agreement marked to show changes from the original agreement
(new language highlighted; deleted language printed in the margins), along with other relevant
documents. Also attached is a paper that provides more detail on this matter.
This amended development agreement can have a significant impact on the taxpayers of
Galveston, and we trust you will investigate and bring this issue to a vote after public hearings.
Thank you very much for your service to the community. Please let us know if we can provide
more information or otherwise help resolve these issues.
Sincerely,

~uc~vM
Elizabeth Beeton
c:

Jackie Cole

Henry Boening
President
City of Galveston Redevelopment Authority
1011 23 'd Street
Galveston, Texas 77550
-

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------ - - ----- --- ---- ----

A.

Summary of Issues with Amended Development Agreement

B.

Amended and Restated Development Agreement, additions from original Agreement

highlighted, deletions interlineated

C.

2002 Project Plan and Financing Plan

D.

Letter to Developer from RDA Attorney

E.

Confidentiality Agreement signed by RDA members

A. Summary of Issues with Amended Development .

Agreement

Summary of Issues with Amended Development Agreement

1. The Amended Agreement Is Inconsistent with the Project Plan

The RDA has authority to implement projects within Galveston's four TIRZ zones, bnt it
does not have the authority to amend the project plans approved by the taxing authorities that
fund the TIRZes. Yet the revised agreement of June 9, 2014, between Tofigh Shirazi, the RDA
and Galveston's TIRZ 13 board conflicts in at least three significant ways with the Beachtown
Project and Financing Plan. The revised agreement is a de facto amendment to the Project and
Financing Plan.
a. The Amended Agreement nullifies the requirement that the developer build a
private project. The Beachtown Project Plan obligates Shirazi to build 40,000 square feet of
retail space, 306 single family housing units, 200 multi-family housing units, 250 retirement
housing units, and a 150-room hotel, with an estimated completion schedule for build-out.
Project Plan Introduction and Exhibit F; Original Agreement Section 3.01. The Project Plan
projected that Mr. Shirazi would have added over $156 million in taxable value at Beachtown by
2013, yet property values were only $59 million at that date.
In contrast, the Amended Agreement states that the developer will build a "multi-use
development at the sole discretion of the Developer. Components of the Project are not subject to
approval of the Authority, the Zone Board or the City." Section 3.01. The Amended Agreement
also provides, "The Authority and the Zone Board acknowledge and agree that they have no
approval rights over changes to the Project, said Project being within the sole discretion of the
Developer. The Authority and the Zone Board acknowledge and agree that this Amended
Agreement does not in any way bind the Developer to construct the Project ... and that failure to
complete ... the Project will not give rise to a claim ... " New Section 8.14.
Forgiveness of Shirazi's obligation to build the private project - or any component of it is a fundamental alteration of the Project Plan.
b. The new agreement expands the public's obligation to reimburse the developer
for infrastructure beyond that authorized in the Project Plan. The Project Plan obligates the
public to reimburse Shirazi for specific items of infrastructure, namely, 6-inch, 8-inch, and 12inch waterlines of specific lengths; a manhole, two valves, a force main and a lift station; 10inch, 12-inch, and 15-inch sewer lines of specific lengths; ditch excavation; asphalt paving in
specific quantities; stabilization of a road; street signs; sidewalks; asphalt for plazas; 6-inch curb
and gutter of specific lengths; an elevated street; a trench system; wet sand; a pollution
mitigation plan; revegetation; dune and wetland mitigation; landscaping and signage; and soft
costs. Unit prices were provided for each item plus a 10% contingency, all subject to an
adjustment for inflation, for a grand total of $9.3 million, including the contingency. Project and
Financing Plan Article III; Original Agreement Section 3.02, Exhibit A.

Shirazi has already requested reimbursement for $11,894,465 to date, yet the extent to
which he has completed the various line items or exceeded the dollar limits for which he is
eligible to be reimbursed is unknown. He has refused to provide that data to the RDA or the zone
board. Nor has he stated whether he intends to build additional infrastructure.

The Amended Agreement dispenses with the Project Plan's limitations on infrastructure
for which Mr. Shirazi is eligible to be reimbursed: It states that "the remaining public works and
improvements necessary to develop the remaining undeveloped land within the Zone will
constitute TIRZ Improvements [for which Mr. SI,irazi must be reimbursed] provided that such
future improvements fall within the definition of TIRZ Improvements [newly-defined in the
Amended Agreement as six general categories, soft costs and "additional items"] and are like or
similar to [previously-installed improvements]." Amended Agreement Section 3.02.
This is a dramatic departure. from the Project Plan and the Original Agreement. The
Original Agreement attached the Project Plan's detailed list of items for which Mr. Shirazi must
be reimbursed as Exhibit A to the Agreement, and stated, "In the event of any inconsistency
between the Project and Financing Plan and this Agreement, the Project and Financing Plan shall
control." Original Agreement Section 3.02. The Original Agreement also stated that, "The
Authority shall be responsible for paying the Authority Contribution for the completed TIRZ
Improvements, which shall consist of the actual Project Costs of each TIRZ Improvement not
to exceed the estimate of the Project Costs for each TIRZ Improvement ... " (Emphasis
added.) Original Agreement section 4.0l(B).
Tellingly, the quoted language from former sections 3.02 and 4.0l(B) has been
eliminated from the Amended Agreement and a new Exhibit A substituted for the original. The
new exhibit instead lists broad categories of improvements, the original 10% contingency, and
adds an additional 15% contingency. This change eliminates the Project Plan's dollar ceilings on
the cost of individual line items.
Thus the revised agreement relaxes the Project Plan's restrictions on the public
improvements eligible for reimbursement from taxpayer dollars, and adds an additional 15%
contingency to the Project Plan's budget, resulting in an increase in the total project costs .

c. The Amended Agreement commits the public to pay financing charges that
exceed those contemplated by the Project Plan. The Project Plan provided for total finance
charges for this zone of $8.5 million through 2022. Yet interest costs mid-2015 were already
over $7 .5 million and, using the new interest rates adopted in the Amended Agreement, accruing
at the rate of $2,285 per day.
The Original Agreement stipulated that interest on each Developer Advance "shall accrue
at the prime rate of JP Morgan Chase Bank, from the date such advance was made or deemed to
be made by the Developer." Scott Bounds of Olson & Olson, the RDA's attorney, and Chris
Breaux of Whitley Penn, its auditor, confirmed that this was a floating rate benefiting the
taxpayers with the interest rate of 3 .25% in effect for most of the time after the TIRZ was
created. However, the Amended Agreement obligates the public to pay Mr. Shirazi a fixed rate
of interest using the 7.3% rate briefly in effect at the outset of the zone. This change costs the
taxpayers almost $1,300 per day in additional interest. Using the higher interest rate, financing
charges have ballooned from $4.5 million to $7.5 million, and they will likely consume all tax
increment created in this TIRZ until it expires in 2042.
In the Amended Agreement, the RDA and the TIRZ board agree to apply all payments to
interest first before any are applied to principal, another disastrous concession. They also commit

to borrow money to retire debt to Mr. Shirazi as soon as CAD values in Beachtown reach $80
million, a far cry from the $156 value projected in the Project Plan to be reached by 2013.
The only provision in this agreement that could possibly benefit the public is that interest
may cease to accrue in 2032 if the value in the zone has not reached $156 million by then, and
that interest already accrued at that point will be reduced by 10% each year until property values
reach $156 million. Whether that would really reduce the public's total obligations is uncertain,
among other reasons because interest accrued by 2032 will be so high under the new agreement
that it likely will consume all available tax increment for the life of the zone even with annual
discounts to the amount that continues to accrue thereafter. And, if the RDA does issue debt to
Mr. Shirazi when values reach $80 million, interest on the bond debt will continue to accrue
unreduced whether values reach $156 million by 2032 or not.
To summarize, because the Amended Agreement nullifies the Project Plan's requirement
that the developer build the private project, expands the public's obligation to reimburse him for
infrastructure beyond that required in the Project Plan, and commits the public to financing
charges in excess of those provided for in the Project and Financing Plan, the Amended
Agreement violates the Plan.
2. The RDA Does Not Have Authority to Amend the Project Plan or Enter into an
Agreement that Is Inconsistent with the Project Plan.
a. State law provides that an amendment to a project plan by a zone board does not
take effect until it is approved by the governing body of the city that created the zone. The
approval must be by ordinance, and, ifthe amendment increases the total estimated project costs,
there must be a public hearing before the ordinance is adopted. Texas Tax Code Section
311.0ll(e). Galveston's city council has not received notice of the Amended Agreement or
considered approval of it.
The state tax code also provides that actual amounts, including amounts of expenditures,
may not vary materially from estimates in the project plan or financing plan, section 311.0l l(h),
yet the Amended Agreement permits substantial, material variances in developer expenditures,
financing costs, and the value of the private project. These material variances are pennitted under
state law only ifthe Project Plan is amended to revise the estimates.
Section 3 l l.02l(h) of the tax code is confusing as to the time limit for challenging the
validity of an action relating to the implementation of a project plan or financing plan, but it
clearly provides for at least two years.
b. The RDA's approval of the Amended Agreement exceeds its authority from the
city. The RDA derives its authority to contract with the Beachtown developer from a 2003
agreement among the city, the RDA and the Beachtown TIRZ (the "Tri-Party Agreement").
Under the Tri-Party Agreement, the RDA cannot expend funds for any costs not part of the
original Project Plan, Section III(A), and it may not enter into a development agreement that
does not conform to the Project Plan and Financing Plan, Section III(B). The city has no
commitment to collect or remit zone increment to the RDA for obligations incurred by the RDA
that are not authorized under Article III of the Tri-Party Agreement, including the sections just
citerl Sectiqn IV(C) and (E).
3

Although the Amended Agreement purports to obligate the RDA to issue bonds for the
developer's benefit when CAD value in the zone reaches $80 million, the Tri-Party Agreement
prohibits the RDA from issuing bonds without the approval of the city council, Section III(A).
c. The Amended Agreement violates the interlocal agreement between the city and
the county because it increases the total amount of project costs. The Inteilocal Agreement
prohibits the use of county tax increment as a result of any amendment to the Project Plan by the
TIRZ or the city that increases the total amount of project costs, unless the commissioners' court
specifically agrees to participate in the agreement. Section 4.6.3. The Interlocal Agreement also
obligates the city to give all members of the commissioners' court the opportunity to review and
comment on any amendment to the Project Plan before it is submitted to the city council. Section
5.1. Yet the commissioners' court has not been advised of the Amended Agreement or asked to
modify the Project Plan.
3. The Process by Which the Amended Agreement Was Adopted Violated the Open
Meetings Act.
a. There were no references on any agendas to the negotiation of an amended
development agreement until the Amended Agreement had already been approved in
executive session. In January 2014, the RDA began its negotiations with Mr. Shirazi with an
agenda item "to discuss notice to developer regarding development agreement." At the next four
meetings, the only notice was "Update on discussions with Zone 13 developer." All discussions
of the item took place in executive session.
In June 2014, the agenda item read, "Discuss and act upon resolution of issues with TIRZ
13." The minutes of this meeting say that after an executive session, there was a motion and
second "to approve the Amended and Restated Development Agreement with Reinvestment
Zone Thirteen subject to final language . . . being approved by the City Manager and City
Attorney." At the next meeting, the agenda item read, "Discuss and act on the Amended
Development Agreement with Intercontinental United Investors, L.P ." The finalized agreement
was not included in the packet. It was unanimously approved with no discussion. The TIRZ
board considered the revised agreement only once, after the RDA had already approved it.
b. Shirazi required all RDA members to sign egregious confidentiality agreements
as a condition of attending board meetings, executive sessions or negotiations related to his
obligations. The confidentiality agreement specified that no specific terms or conditions of any
amended agreement could be disclosed to the public until a written agreement had already been
approved by all parties. Its requirement that the public receive no notice of the Amended
Agreement until after its terms had been approved in executive session was a violation of the
Open Meetings Act.
"If the terms of settlement considered in Executive Session are acceptable, the RDA and
Zone Board, as applicable, agree that any action taken in open meeting will not mention the
specific terms and conditions discussed but will simply be action to authorize preparation of a
written settlement agreement ... "

"Any other disclosure of the negotiations or the discussions by the RDA, the Zone Board
or :;iy p;uty pound_ by_tl)is agreement, inc_h).\ii.p.g t!ieir r~s]Je\:\i\'..e attofl}~y, pgt _qther ~h~ .the ..
4

Developer must be approved in advance of disclosure in writing by the Developer based upon
specific information provided to the Developer of the entity to whom the disclosure will be
made, the purpose for the disclosure and the expected use of the information by the person or
entity to whom it is disclosed."

B. Amended
and
Restated
Development
Agreement, additions from original Agreement
highlighted, deletions interlineated

A.MENDED AND RESTATED DEVELOPMENT AGREEMENT

Between

REINVESTMENT ZONE NUMBER THIRTEEN,

CITY OF GALVESTON, TEXAS

and

GALVESTON lSLAND
REDEVELOPMENT AUTHORITY

and

INTERCONTINENTAL UNITED INVESTORS, L.P.

AMENDED AND RESTATED DEVELOPMENT AGREEMENT

REINVESTMENT ZONE NUMBER THIRTEEN, CITY OF GALVESTON, TEXAS
(the "Zone"), a tax increment reinvestment zone created by the City of Galveston, Texas (the
"City"), pursuant to Chapter 311 of the Texas Tax Code, as amended, acting by and through its
governing body, the Board of Directors (the "Zone Board"), GALVESTON ISLAND
REDEVELOPMENT AUTHORITY (the "Authority"), a local government corporation created
and organized w1der the provisions of the Texas Transportation Corporation Act, Chapter 431,
Transportation Code, and authorized and approved by the City under Resolution No. 02-071
adopted on August 22, 2002, acting by and through its governing body, the Board of Directors
(the "Authority Board"), and INTERCONTINENTAL UNITED INVESTORS CORP., a Texas
corporation, entered into a Development Agreement effective April 2, 2004 (the "Agreement").
Since that time, INTERCONTINENTAL UNITED INVESTORS, LP . (the "Developer") has
become successor to Intercontinental United Investors Corp. and is now the Developer. The
parties now desire to enter into this Amended and Restated Development Agreement (the
"Amended Agreement") in order to clarify certain provisions and to add and or change
provisions in settlement of certain disputes between the parties. This Amended Agreement is
entered into on this 9th day of June, 2014.
RECITALS
Pursuant to Chapter 311 of the Texas Tax Code and by Ordinance No. 0 1-102 adopted on
December 21, 2001, the City Council of the City created the Zone in the City pursuant to a
preliminary Project Plan and preliminary Reinvestment Zone Financing Plan, and appointed its
Board of Directors.
The City, the Zone and the Authority have entered into that certain Agreement effective
January 1, 2003, and approved by Ordinance No. 03-058 (the ''Tri-Party Agreement"), pursuant
to which the City delegated to the Authority the power and authority to administer the Zone
including, but not limited to, the power to engage in activities relating to the acquisition and
development of land, construct and improve infrastructure in the Zone, enter into development
agreements with developers/builders in the Zone and to issue, sell or deliver its bonds, notes or
other obligations in accordance with and subject to the limitations set f011h in the Tri-Party
Agreement and Project and Financing Plan (as defined below).
The Zone Board adopted a final Project Plan and Reinvestment Zone Financing Plan (as
amended, the "Project and Financing Plan"). The Zone Board submitted the Project and
Financing Plan to the City Council of the City for approval, and on September 26, 2002, the City
Council approved the Project and Financing Plan by Ordinance No. 02-079.
The Texas Tax Code provides that the Zone may enter into agreements as the Zone Board
considers necessary or convenient to implement the Project and Financing Plan and achieve its
purposes.
The Authority Board and Zone Board determined that it was in the best interest of the
Zone and the Authority to contract with the Developer, the developer of the land within the
Zone, in order to provide for the efficient and effective implementation of certain aspects of the

"Completion" shall mean completion of construction of the TIRZ Improvements

substantially in accordance with the Plans and Specifications so that the TIRZ Improvements can
be used and maintained for their intended purpose, as approved by the City and certified by the
engineer engaged by the Developer to make such certification.
"Contract Progress Payment" shall mean a request for payment due to a contractor or
consultant hired by the Developer to complete the TIRZ Improvements evidenced by customary
documentation including the name and address of the contractor, a description of the contract
pursuant to which the payment is requested, the amount of such payment, the original contract
amount, total payments made to date on such contract, an estimate of remaining work to be
completed, the cost of such work, and customary lien and subcontractor releases.
'Countv" shall mean Galveston County, Texas.
"Developer Advances" shall mean any funds advanced by the Developer for Project
Costs pursuant to Secti9n 6.02 of this Agreement, and shall include any interest payable thereon.
"Navigation District" shall mean the Galveston County Navigation District No. 1.
"Parties" or "Partv" shall mean the Zone, the Authority, and the Developer, the parties to
this Agreement.
''Plans and Specifications' shall mean the designs, plans and specifications for each TIRZ
Improvement as defined in Section 3.02, and approved by the TIRZ Board and the Authority
Board in accordance with Section 4.02.
"Pro ject" shall have the meaning provided in Article 3 of this Agreement.
"Project Costs" shall mean the costs to develop the TIRZ Improvements which are
eligible for financing by the Zone and the Authority pursuant to the Act. To the extent permitted
by the Act, such costs include all capital costs and other costs (including engineering, planning
accounting, architectural, legal fees and expenses , survey testing, laboratory costs, land clearing
and grading costs, adve1tising and other bidding costs, amounts due under constrnction contracts,
costs of labor and material) paid or incurred by the Developer in financing, planning, managing,
designing, acquiring, constructing, and installing the TTRZ Improvements and such additional
costs as set out in this Amended Agreement.
"Tax Increment Revenue Fund" shall mean the special fund established by the Authority
and funded with payments made by the City pursuant to the Tri -Party Agreement (which
payments are attributable to incremental ad valorem property taxes paid on the Project and other
properties in the Zone).
(L .
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"TlRZ lmprovemeuts" shal l'mean those categories of public improvement construction
constructed as part of the development of the Project as set out on Exhibit "A," attached hereto
and incorporated herein, which is taken from the Project and Financing Plan.

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1.02 Singular and Plural. Words used herein in the singular, where the context so
permits, also include the plural and vice versa. The definitions of words in the singular herein
also apply to such words when used in the plural where the context so pennits and vice versa.
ARTICLE2
REPRESENTATIONS
2.01 Representation of the Authority.
Developer that as of the date hereof:

The Authority hereby represents to the

(A)
The Authority is duly authorized, created and existing in good standing under the
laws of the State of Texas and is duly qualified and authorized to cany on the governmental
functions and operations as contemplated by this Agreement. Resolution No. 02-071, adopted by
the City Council of the City, to the best of the Authority's knowledge, remains in full force and
effect and has not been amended or supplemented since the date of its adoption and, to the best
knowledge of the Authority, no amendment of or supplement to such resolution is contemplated
by the City Council of the City.
(B)
The Authority has the power, authority and legal right to enter into and perform
this Agreement and the execution, delivery and performance hereof (i) have been duly
authorized, will not violate any applicable judgment, order, law or regulation, and (ii) do not
constitute a default under, or result in the creation of, any lien, charge, encumbrance or security
interest upon any assets of the Authority under any agreement or instrument to which the
Authority is a party or by which the Authority or its assets may be bound or affected.
(C)
The TIRZ Improvements are components of or are consistent 'ivith the Project and
Financing Plan.
(D)
This Agreement has been duly authorized, executed and delivered by the
Authority and, constitutes a legal, valid and binding obligation of the Authority, enforceable in
accordance with its terms except to the extent that (i) the enforceability of such instruments may
be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws of
general application in effect from time to time relating to or affecting the enforcement of
creditors' rights and (ii) certain equitable remedies including specific performance may be
unavailable.

(E)
The execution, delivery and performance of this Agreement by the Authority do
not require the consent or approval of any person which has not been obtained.
(F)
The Authority represents that the statute pursuant to which it was created grants
an exemption to the Authority from the payment of sales and use taxes.
2.02 Representation of the Zone. The Zone hereby represents to the Developer that as
of the date hereof:
(A)
The Zone is duly authorized, created and existing under the laws of the State of
Texas and is duly qualified and authorized to carry on the governmental functions and operations
as contemplated by this Agreement. Ordinance No. 01-102, adopted by the City Council of the
4

City, remains in full force and effect and has not been amended or supplemented since the date
of its adoption and, to the best knowledge of the Zone, no amendment of or supplement to such
ordinance is contemplated by the City Council of the City.
(B)
The Zone has the power, authority and legal right to enter into and perform this
Agreement and the execution, delivery and performance hereof (i) have been duly authorized,
will not violate any applicable judgment, order, law or regulation, and (ii) do not constitute a
default under, or result in the creation of, any lien, charge, encumbrance or security interest upon
any assets of the Zone under any agreement or instrument to which the Zone is a party or by
which the Zone or its assets may be bound or affected.
(C)
The TIRZ Improvements are components of or are consistent with the Project and
Financing Plan.
(D)
This Agreement has been duly authorized, executed and delivered by the Zone
and constitutes a legal, valid and binding obligation of the Zone, enforceable in accordance with
its terms except to the extent that (i) the enforceability of such instruments may be limited by
bankruptcy, reorganization, insolvency, moratorium or other similar laws of general application
in effect from time to time relating to or affecting the enforcement of creditors' rights and (ii)
certain equitable remedies including specific performance may be unavailable.
(E)
The execution, delivery and performance of this Agreement by the Zone do not
require the consent or approval of any person which has not been obtained.
2.03 Representations of the Developer.
Authority and the Zone that as of the date hereof:

The Developer hereby represents to the

(A)
The Developer is duly authorized, created and existing in good standing under the
laws of the State of Texas, and is qualified to do business in the State of Texas.
(B)
The Developer has the power, authority and legal right to enter into and perform
its obligations set forth in this Agreement, and the execution, delivery and performance hereof,
(i) have been duly authorized, will not, to the best of its knowledge, violate any judgment, order,
Jaw or regulation applicable to the Developer or any provisions of the Developer's aiticles of
incorporation, and (ii) do not constitute a default under or result in the creation of, any lien,
charge, encumbrance or security interest upon any assets of the Developer under any agreement
or instrument to which the Developer is a party or by which the Developer or its assets may be
bound or affected.
(C)
The Developer will have sufficient capital to perform its obligations under this
Agreement at the time it needs to have such capital.
(D)
This Agreement has been duly authorized, executed and delivered and constitutes
a legal, valid and binding obligation of the Developer, enforceable in accordance with its te1ms
except to the extent that (i) the enforceability of such instruments may be limited by bankruptcy,
reorganization, insolvency, moratorium or other similar laws of general application in effect
from time to time relating to or affecting the enforcement of creditors' rights and (ii) certain
equitable remedies including specific perfo1mance may be unavailable.

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ARTICLE 3
j '-- THE PROJECT
\

C'f 0~J

The Projec . he projectkhall be and inc des the design, constructio , assembly,
installation and implementatio f a master planned ommunity known as "Beac own" to be
developed by the Developer (the reject"). It is a icipated that the Project will consist of a
__mul.!J-us~development consisting ~retail space, ingle-family housing units, nulti-family
housing un~~d
a hotel, with such changes, deletions and additions as may be made during the
development oft Project at the sole discretion of the Developer. Components of the Project
are not subje
o approval of the Authority, the Zone Board or the City. The Developer
estimates ti?atthe total taxable value in the Zone will be $156,000,000 by 2031; however, this is
a projection and not a guarantee of value.

~_, ..1.

3.02

G.

TIRZ 1mprovements. The Project and the T fRZ Improvements will be developed I\

l.!..5() l'W> ~n phases. To clarify the meaning of the term "TlRZ Improvements" and to avoid future

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disputes, the parties agree that all TIRZ Improvements already constructed/installed and
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approved by the Authority as of the time of this Amended Agreement constitute TIRZ 11Mprulftr"N't
Improvements (the " Installed Improvements"). The parties further agree that the remaining f!AVSV\.d.l'\t -t-1::
public works and improvements necessary to develop the remaining undeveloped land within the tJ.. sd.e~u. le
Zone will constitute TIRZ Improvements provided that such future improvements fall within the tli\i'.t is
definition of TIRZ Improvements and are like or similar to the Installed Improvements in nature W\tAt-tA..tA..lt 4
and type. The Project Costs of the TIRZ Improvements shall also include, without limitation, the iljveet.b 1l
payment of the costs of design, surveys, engineering, laboratory tests, materials, labor, ~ th~
construction, and inspection arising in connection with the TIRZ Improvements, including all l)e...\l2.(op~v
payments arising under any contracts entered into pursuant to this Amended Agreement, all costs
th'\(}.. ~e_
incurred in connection with obtaining governmental approvals, certificates or permits required as Ar.A.WfiTj
a part of any contracts entered in to in accordance with this Agreement, and all related legal fees
and out-of-pocket expenses incurred in connection therewith related to the TIRZ Improvements.
3.03 Add itional Projects. This Agreement does not apply to any projects not
specifically defined herein unless this Agreement is amended to provide for the design and
construction of such additional projects and such additional projects are included in and
consistent with the Project and Financing Plan.
3.04 Operati on and Administration Expenses. The Developer agrees to fund the
operation and administration expenses of the Zone and the operation and administration expenses
of the Authority as such relate to the Zone and this Agreement if the Zone and the Authority do
not have funds on hand sufficient for such purposes. Funds advanced by the Developer to, or on
behalf of, the Zone and the Authority for such purpose shall be included in the Authority
Contribution and shall be considered a Developer Advance (as defined in Secti on 6.02 of this
Agreement).

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ARTICLE 4
DUTIES AND RESPONSIBILITIES OF THE DEVELOPER
4.01

Constructi on Manager.

(A)
Subject to and in consideration of the Authority contribution, the Developer
agrees to construct such TIRZ Improvements as may be necessary to develop the Project in
accordance with the Plans and Specifications and to provide and furnish, or cause to be provided
and furnished, all materials and services as and when required in connection with the
construction of the TIRZ Improvements. The Developer will obtain all necessary permits and
approvals from the City and all other governmental officials and agencies having jurisdiction,
provide supervision of all phases of construction of the TIRZ Improvements, provide periodic
reports of such construction to the Zone Board and Authority Board, upon reasonable request,
and cause the construction to be performed substantially in accordance with the Plans and
Specifications. The Developer will construct some or all of the TIRZ Improvements in the course
of development of the Project.
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(B)
The Authority shall be responsible for paying the Authority Contribution or the
com leted TIRZ Improvements~ which shall consist of the actual Project Costs of th TIRZ
Improvements ,hich were set forth in 2002 dollars to be adjusted annually for inflation until
2022 using the Engineering News Record Construction Index and thereafter ar'4.to be fixed at the
amount of the 2022 dollars, plus 15% of the adjusted amount for contingenc it:s. I
(C)
The Authority has adopted written policies and procedures for the advertising,
bidding and award of construction contracts. Such policies and procedures will establish
requirements for the bid package and contract documents, including requirements for indemnity,
release and insurance. Additionally, the policies and procedures will establish the processes by
which construction contracts shall be administered. The Developer agrees to comply with and
follow these policies and procedures once adopted by the Authority and as amended from time to
time.
4.02 Desie.n of the TlRZ lmprovements. The Developer shall prepare or cause to be
prepared Plans and Specifications for the TIRZ Improvements and make appropriate
recommendations to the Zone and the Authority . Prior to the commencement of construction or
implementation of the TIRZ Improvements, the Plans and Specifications for the TIRZ
Improvements must be approved by the Zone and the Authority, which approval shall not be
unreasonably withheld, conditioned or delayed.
4.03 Construction and Implementation of the TlRZ Improvements . The Developer
shall be responsible for the inspection and supervision of the construction and implementation of
the TIRZ Improvements. Upon completion of the contract for the construction of the TIRZ
Improvements, the Developer shall provide the Authority with a final cost summary of all costs
associated with such contract, a certificate of Completion and evidence that all amounts owing to
contractors and subcontractors have been paid in full evidenced by customary affidavits executed
by such contractors.

4.04 Mai ntenance of tbe TIRZ improvements. Certain TIRZ Improvements, such as
landscaping, irrigation, monument signage, upgraded street lighting, and pedestrian bridges for
beach access, are not the types of public works and improvements that are typically constructed,
operated and maintained by the City. Therefore, the Developer shall maintain, or cause to be
maintained, such TIRZ Improvements. To the extent allowable by the Project and Financing
Plan and the Act, the costs of such maintenance, in an amount not to exceed the estimate of such
costs in the Project and Financing Plan, shall be considered Project Costs and part of the
Authority Contribution.~he City shall operate and maintain other TIRZ Improvements that are
of the type of public im rovements that are typically constructed, operated and maintained by the
,
City.
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Cooperation. Solely with respect to the design, development, acquisition,

construction and installation of the TIRZ Improvements, the Developer agrees that it will
cooperate with the Zone and the Authority and will provide all necessary information to the Zone
and the Authority and its consultants in order to assist the Zone and the Authority in complying
with the Tri-Party Agreement, including without limitation, the completion of its financial audits.
ARTICLE 5
DUTIES AND RESPONSIBlLITIES OF THE AUTHORITY

5.01 Authority Contribution . The Authority shall pay to the Developer the Authority
Contribution for the TIRZ Improvements. In the event the Authority does not have funds
available at the time all or part of the Authority Contribution is payable to the Developer by the
Authority in accordance with this Agreement, the TIRZ Improvements shall be financed and
funded in accordance with Article 6 hereof, and such financing shall not be deemed a default by
the Authority under this Agreement.
ARTICLE 6
PROJECT fJNANCfNG AND FUNDING
Authority Bonds.

The Authority intends to issue its tax increment revenue bonds or notes at the
(A)
earliest feasible date, which bonds will be secured by a pledge of the Tax Increment Revenue
Fund, provided however. at the latest when the total taxable value in the Zone exceeds
$80,000,000, the Authority will exercise diligence to issue bonds within a reasonable time to
reimburse the Developer to the greatest extent possible. The bonds wi ll be issued in the
maximum feasible amount, and the Authority shall determine the maximum maturity, provided
that maturity :-.hal I not extend beyond December 31, 2042. Proceeds of the Authority Bonds
shall be used to repay the Developer Advances (as defined hereinafter) and the balance of the
Authority C 1tn 1ution and interest accrued thereon, as applicable. Any tax incremen1 funds
remaining <'! ler 1~ ymen1 of the debt service on the bonds will be used to make further
reirnbursem nts to I c Developer of its Developer Advances.

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(B)
The Developer wi II provide non-monetary aid and assistance to the Authoriry as
may be reasonably requested by the Authority in order to faci litate the issuance of the Authority
Bonds, such assistance to include provid ing requested documentation, entering into required
agreements and executing certificates or other documentation as may be reasonably required by
the Authority.
6.02

Developer Advances.

(A)
If the Developer, in its so le discretion, elects to commence design or construction
of any of the TlRZ Improvements, the Developer shall advance sufficient fund s as such become
due for all costs comprising the Authority Contributi on (a "Developer Advance' on behalf of the
Authority).

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(B)
The Develop shall be deemed to have advanced Devel per Advances in the
amo unt of each Contract Pr grcss Payment made by the Developer. Inter st on each De eloper
Advance shall accrue from ti e date of such Contract Progress Payment an shall be ca lc lated in
accordance with the terms f this Section. The interest rah: on each Dev loper /\dvan c made
prior 10 .l unt: I. 20 14. shall be the prime rate of JP Morgan Chase Ban i 11n the date Jhat the
[ov...ffc , cll1pl'r Advance was ma~and will remain at that rate until such advance plus interest is paid
1
Ae evY\e '- in fu ll. The Authority may apply payments to those Developer Advances with the highest
-\-o \Qe.
interest rate first. provided however. that al l payments shall be applied first to intc1Tst before any
~J.. E.
can be appli ed to principal. Interest shall be computed as simple interest and shall not compound.
l:;>-1..{ -jiAe
I~1terest. shall be calculated on tl:e basis of a year of ?60. days an? the actu ~ I days ~lapsed
) I e~ (mcludmg the first day but excludmg the last day) occurring 111 the penod for which such mterest
11 ~
~is payable, unless such calculation would result in a usurious rate, in which case interest shall be
calculated on the per annum basis of a year of 365 or 366 days, as applicable, and the actual days
elapsed (including the first day but excluding the last day). Interest on each De\ eloper Advance
made on or after June L 2014 shall clrnnge daily with each change in the JP '.\!organ Chase bank
prime rate. In the e\ent th at the JP Morgan Chase Bank index ceases to exist. then the in tcre~t
rate sha ll be the .. Bank prime loan", Daily" interest rate as published by the Bcard of Go\Crnors
of the f ederal Reserve System. \\hich is currt:ntl:;. based on the aYerage majorit) prime rate (the
rate posted by majority of the top 25 insured L1 . S. chartered hanks) on short term loans to
~u s iness or its equi\alent. Interest shall be computed as simple interest and shall not compound.
All imerest shal l cease to accrue commencing on .January I. 2032, i.e. resulting in the De\Cloper
foregoing the accrua l of inte1est du ring the last ren tl 0) years of the life of the Zone. Cessation
of the accrual of interest shall not impair the De\ eloper' s right to be paid the fu ll am ount of the
Devel oper Ad\ ances pl us all interest that accrued before such date. subject to the fol lowing
limita1ion: if the total taxable value of the real propcrt) in the Zone taxable b> the City is not at
least $ 156.000,000 by December 31. 203 1. the amount of accrued but unpaid interest sha ll be
red uced b) ten per cent (I 0%) on Januury 1, 2032 and each January I thereafter unti l the earl ier
o f .lanuar) I of the year in which the total taxable value in the /one equa ls or exceeds
$ 156.000.000 or Januar) I, 204 1.The date to achie\ e the S 156.000.000 of total taxable value
sha ll be adju~ted (i.e. delayed) in the C\ent of stonn s on Galveston Island that ad,ersely impacts
the growth rate of taxable value of the BeachfO\\ n development. To be granted a delay. the rate
of growth of the taxable value in the Zone must arop h) at least fifty per cent (50'o) based on the
record s of the Count:;. Appraisa l District. The decrease in rate '' ill be determined b.) using the
average of the rate of grovv1h in taxable value for three years prior to the storm and comparing it

Dt op

to the rate of growth of taxable value for the year after the storm. For example, if a storm occurs
on Galveston Island 20 11 and the growth of taxable value in the Zone was 10% in 2008 , 10% in
2009 and 10% in 20 10 but only 4% in 20 11 , the three year average growth rate is 10% and the
201 1 is 4%, which is less than half the average rate (or 5%), so the date would be delayed. The
date to reach the $156,000,000 will be extended for two (2) years if the storm event reduces the
annual growth rate by 50% or more. Provided fmther, the Authority Board may in its sole
discretion add a second two-year extension to the date to achieve the $156,000,000 of total
taxable value if a storm adversely impacts the growth rate in the taxable value in the Zone for
more than two years.
(C)
Each Developer Advance shall be evidenced by a certificate substantially in the
form attached as Exhibit "B".
(D)
Except as provided in Section 6.02 above, the Authority shall begin repaying the
Developer Advances, and shall continue such repayment until repaid in full, on the earliest date
that funds are available from any of the following sources:
( 1)
(2)

proceeds from the sale of the Authority Bonds; or

the Available Tax Increment.

(E)
The Authority hereby irrevocably pledges the Available Tax Increment to the
payment of its obligations to the Developer pursuant to the terms of this Agreement. The lien
on, and pledge of and rights in and to the Available Tax Increment attributable to the Project
established, made, and granted herein shall constitute a first and senior lien thereon, subject only
to the rights of any of the holders of bonds, notes or other obligations that have been heretofore
or are hereafter issued by the City, the County, and the Navigation District that are payable from
and secured by a general levy of ad valorem taxes throughout the taxing jurisdiction of the City,
the County, and the Navigation District, and the rights of any of the holders of bonds and notes
that are hereafter issued or incurred by the Authority and which are secured by a pledge of the
Tax Increment Revenue Fund, the proceeds of which are used to fully pay the Authority
Contribution, and the rights of any of the holders of notes that are hereafter issued or incurred by
the Authority and which are secured by a pledge of the Tax Increment Revenue Fund, the
proceeds of which are used to fund the annual operating and administration budget of the
Authority. The obligation of the Authority to repay the Developer Advances as set forth in this
Agreement from the Available Tax Increment shal l be absolute and unconditional until such time
as the Developer Advances incurred pursuant to this Agreement have been fully repaid or
provision for payment thereof shall have been made in accordance with their terms. The
Developer Advances constitute a special obli gation of the Authority payable solely from the
Available Tax. Increment as and to the extent provided in this Agreement. The Developer
Advances do not give rise to a charge against the general credit or taxing powers of the
A uthority, the City, the County, the Navigation District or any other taxing unit and is not
payable except as provided in this Agreement. The Developer, its successors and assigns, shall
not have the right to demand payment thereof out of any funds of the Authority other than the
Available Tax Increment.

10

Filed: 6/30/2016 3:18:00 PM

JOHN D. KINARD - District Clerk
Galveston County, Texas
Envelope No. 11427162
By: Shailja Dixit
6/30/2016 3:20:51 PM

CAUSE NO. 16-CV-0701

JACKIE COLE, JOS WRISTERS, AND

ELIZABETH BEETON,
Plaintiffs,
VS.
GALVESTON ISLAND
REDEVELOPMENT AUTHORITY,
Defendant.

IN THE DISTRICT COURT OF

GALVESTON COUNTY, TEXAS

10TH JUDICIAL DISTRICT

THE ORIGINAL ANSWER OF

THE GALVESTON ISLAND REDEVELOPMENT AUTHORITY
1.

The Galveston Island Redevelopment Authority (the RDA), a local

government corporation created by the City of Galveston, Texas, under Chapter 431 of
the Texas Transportation Code, files its Answer to Plaintiffs Original Petition for
Declaratory Judgment.
2.

The RDA, acting pursuant to Rule 92 of the Texas Rules of Civil

Procedure, denies, generally, all matters pleaded by the Plaintiffs.

3.

The RDA is a governmental unit and all its operations are governmental,

not proprietary, functions. Tex. Trans. Code Ann. 431.108 (West 2015). As such, the
RDA is immune from suit and from damages, except to the extent such immunity is
waived by the Texas Constitution or the Texas Legislature.
4.

The Plaintiffs have failed to allege facts showing a waiver of the RDAs

immunity from suit under the Declaratory Judgment Act.

5.

Alternatively, the Plaintiffs have failed to allege facts showing a justiciable

issue under the Declaratory Judgment Act. Tex. Civ. Prac. & Rem. Code Ann. Ch. 37,
including 37.003(c), 37.004, 37.006 and 37.008 (West 2015).
6.

The Texas Open Meetings Act does not require that the RDA to keep a

certified agenda or make a recording of any closed meeting for a private consultation
with its lawyers, as permitted under Section 551.071 of the Texas Government Code.
Tex. Govt Code Ann. 557.103 (West 2015).
7.

The conduct of the RDA had a reasonable basis in law.

8.

The RDA is entitled to recover its costs of litigation and reasonable

attorneys fees incurred in defense of this action under authority of Section 551.142 of
the Texas Government Code.
PRAYER
9.

Defendant RDA respectfully requests that the Court: a) enter a take nothing

judgment in its favor and against the Plaintiffs; b) award the RDA its costs and
attorneys fees; and c) grant the RDA any and other relief, at law or in equity, to which it
may be justly entitled.

16-CV-0701; Cole, et al. v. Galveston Island RDA

RDAs Original Answer

Page 2

Respectfully submitted,
OLSON & OLSON, L.L.P.

By:

/s/ John J. Hightower

John J. Hightower
State Bar No. 09614200
jhightower@olsonllp.com
Allison S. Poole
State Bar No. 24099785
apoole@olsonllp.com
Wortham Tower, Suite 600
2727 Allen Parkway
Houston, Texas 77019
Telephone: (713) 533-3800
Facsimile: (713) 533-3888
ATTORNEYS FOR THE GALVESTON ISLAND
REDEVELOPMENT AUTHORITY

16-CV-0701; Cole, et al. v. Galveston Island RDA

RDAs Original Answer

Page 3

CERTIFICATE OF SERVICE
I hereby certify that on the 30th day of June, 2016, a true and correct copy of the
foregoing was sent as indicated to all counsel of record in accordance with Tex. R. Civ. P.
21 and 21a, as follows:

Timothy A. Beeton
SIMPSON & BEETON
2200 Market Street, Suite 801
Galveston, Texas 77550
tbeeton@simpsonbeeton.com

Via electronic service and facsimile

/s/ John J. Hightower

John J. Hightower

16-CV-0701; Cole, et al. v. Galveston Island RDA

RDAs Original Answer

Page 4