Major changes could take shape in Friendswood this upcoming fiscal year as officials consider allocating new tax dollars for downtown economic development.

While the tax was approved last year, tax collection was delayed until January due to an election lawsuit. The city prevailed in a district court in November, but the case is pending on appeal.

Officials expect to collect $318,000 by the start of the fiscal year on Oct. 1 to kick-start downtown redevelopment efforts, Friendswood Economic Development Coordinator Karen Capps said.

“You want your downtown thriving because it’s a reflection of our community,” Capps said. “You want workers to shop and dine in your community so they don’t go out for those services.”

The city began collecting a new, one-eighth cent sales and use tax in January for economic development in downtown Friendswood after voters approved the ballot measure in May 2016.

Supply and demand

The new sales tax dollars are earmarked for developing South Friendswood Drive—the city’s equivalent to a Main Street­—between FM 2351 and Cowart Creek.

With retail studies showing a demand for more local shopping destinations to keep up with the growing population, officials see an opportunity to turn the area into a pedestrian-friendly retail and business destination that can stir job creation and beautify the area.

“We certainly want more retail and offices because the workers are good neighbors. The [retail shops] will provide employment; the businesses have people who work here and dine here, too,” Capps said.

The median household income in Friendswood was $103,618 in 2016 and is expected to go up by nearly $7,000 by 2021, according to an Esri retail marketplace profile released in January.

The city hopes to capitalize on high disposable incomes to keep tax dollars at home. Sales tax comprised about 22 percent of the city’s 2016-17 general funds, according to budget documents.

The funds are used to pay for city administration, police and fire, public works, libraries and parks. While Baybrook Mall has a Friendswood address, it does not generate sales tax for the city of Friendswod as it is not in city limits.

“I’m spending money on clothing, and I’m taxed on it, but that money goes to Houston, League City, La Marque or Pearland. But it’s not going to Friendswood. It would be nice if we could capture some of that,” Friendswood City Council member Carl Gustafson said. “I can’t buy a button-up shirt, shoes or a seafood dinner in Friendswood. We have to find a way to overcome that.”

According to the study, the city has an untapped sales potential of $630.41 million annually for car, retail, food and drink sales. The study calculated the sales potential, or retail gap, by subtracting current consumer retail sales—the supply—from projected sales—the demand—in 31 industry groups ranging from motor vehicle and parts dealers to music stores.

The retail subsectors with the most retail opportunity were footwear retailers and furniture stores because none exist within city limits and have significant sales projections.

Business Incentives

A requirement of the Type B sales tax that voters approved is the establishment of a corporation to administer the public funds, according to the Texas Comptroller. The seven-member Friendswood Downtown Economic Development Corp.—or FDEDC—was formed last year, and it will submit a proposed budget for the 2017-18 fiscal year at the end of July.

While details were sparse for the FDEDC’s expenditure plans for the upcoming fiscal year starting Oct. 1 as of press time, the taxes can be used for improvements, such as streets, sidewalks, infrastructure, lighting, benches and signage.

“[The FDEDC] has been on a fact-finding mission,” Capps said. “What [the FDEDC] wants to make sure is whatever the improvements they do that it serves the residents and downtown.”

Momentum for downtown development has risen over the years prior to the formation of the FDEDC. The city and Galveston County invested $3 million in 2010 for improved off-site drainage. The city also passed ordinances for more lax height and density restrictions to encourage more mixed-use development.

“There are a lot of challenges to developing those lots,” Gustafson said. “They’re smaller lots, and they were built for horse and buggy and Model Ts, and later, we got into a situation where detention was required. That seriously discouraged any building for a number of years.”

Downtown Friendswood was designated as the Neighborhood Empowerment Zone No. 1 in 2008, which allows property owners to waive a slew of construction, water and sewer fees along with the potential for tax abatement.

Developers investing a minimum of $250,000 in construction are also eligible for a municipal grant worth up to $25,000, according to the city.

By combining the city’s portfolio of incentives with the downtown development sales tax, Friendswood hopes to accelerate the pace of revitalization efforts and start attracting businesses.

“Any downtown in any community serves as the heart of that community, and, in many cases, it is the heart both socially and economically. … Right now, our role is to improve the infrastructure [of downtown Friendswood],” said Ron Cox, FDEDC chairman and former Friendswood city manager.

Nonprofit pitches in

Working in tandem with the FDEDC’s infrastructure improvement efforts is the nonprofit Friends of Downtown Friendswood Association, also known as the FDFA. The nonprofit lobbied to place the one-eighth cent sales tax on the ballot.

The FDFA has focused its efforts on cultural and event programming, like inaugurating the annual Texas Music Fest last year and hosting smaller monthly social and arts programming.

Additionally, the FDFA is funding private beautification efforts. It commissioned the city’s first public art mural along the Sherwin-Williams store on South Friendswood Drive. The nonprofit expects to commission 10 more murals in the next five years.

“We want to help downtown Friendswood be vibrant; we want it to be the heart and soul of our community,” said Sally Branson, a city council member and vice president of the FDFA.

The FDFA is a member of the Texas Downtown Association, a nonprofit coalition representing 300 Texas cities, nonprofits, chambers of commerce and small businesses.

Catherine Sak, executive director of the Texas Downtown Association, said that while each city is unique, two reasons for downtown development prevail on the Gulf Coast. First, urban-to-suburban transplants are seeking more cultural and dining options close to home. Second, cities around Houston realize they are losing out on significant sales tax revenue.

“The shop local movement has really helped push buying local and supporting downtown development as a way to save yourself a trip to the nearest large community and keep those sales tax dollars there to support fire, police and city government,” Sak said.

Uncertainty ahead

Although the city and others are moving forward to develop downtown Friendswood, a group of residents have put a snag in the city’s plans.

Eight Friendswood residents sued the city over the May 2016 election and are advocating for another election to decide the fate of the downtown sales tax. The petition was originally filed last summer, but a trial court dismissed the case in November.

The resident group appealed the case to the First Court of Appeals in late November, and the case is pending.

Residents alleged the ballot language misled voters because it did not explicitly state that a development corporation would be created if voters approved the tax. The second allegation posed on appeal is the election did not comply with state law because a voting precinct was not included in the election ordinance.

“The whole purpose of the election was to get the citizens to sign off on creating this organization, and the citizens weren’t informed about that and only discovered it after the election,” said Meredith Parenti, an appellate attorney representing the residents.

Representing the city is attorney William Helfand of Lewis Brisbois Bisgaard & Smith LLP. The city’s position is the ballot language specified that voters would be approving a Type B sales tax, which legally implies the creation of a development corporation.

“The people who didn’t like this ballot proposition are thinking about every reason they can to reject it,” Helfand said. “Everybody understands that if taxes are collected, there has to be a mechanism for distributing them.”

The city filed a brief in court in June. Residents have until July 13 to respond. The court can hear oral arguments or make a ruling based on the briefs. The timeframe for a ruling is unclear.

“It could be weeks if not months. It’s hard to say,” Helfand said.

Both parties said they are willing to go to the Texas Supreme Court.