Morro Bay City Council
January 13, 2026

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Section 2.03 Calculation of New Minimum Rent.

At the end of the initial five years and of each five-year period thereafter, a new Minimum Rent will be calculated for the following five-year period (each, a "Subsequent Rental Period") as follows:

A. The Minimum Rent will be subject to adjustment by appraisal as of the fifth anniversary of the Commencement Date and every five years thereafter (each, an "Appraisal Adjustment Date"). CITY, at its own cost and expense, will retain an independent qualified appraiser for determination of the fair market value of the Premises. Not more than nine months prior to each Appraisal Adjustment Date, CITY will provide written notice to TENANT of the pending appraisal and the appraiser selected by the CITY to determine the fair market value of the Premises, excluding fixtures and improvements, unless such are expressly included in the description of the leasehold interest created by this Lease. If TENANT does not reject CITY's appraiser in writing and within thirty days after CITY's notice of its determination, then the Minimum Rent for the Subsequent Rental Period will be in the amount determined by CITY as outlined in this Section

2.03. If TENANT rejects CITY's appraiser within 30 days following CITY's notice to TENANT, then within 15 days after such 30-day period, each Party, at its own cost, will select an independent professionally designated appraiser who is a member of the American Institute of Real Estate Appraisers, or the Society of Real Estate Appraisers with a designation of MAI (Member of American Institute), SRPA (Senior Real Estate Analysis), to appraise the fair market value of the Premises. CITY may rely on its original appraisal, or select a new appraiser, at its cost. If a Party does not appoint an appraiser within 15 days after the other Party has given notice of the name of its appraiser, then the single appraiser appointed will be the sole appraiser. Each appraiser will conduct an independent appraisal within 30 days after appointment. If the Parties are unable to agree on the Minimum Rent for the Subsequent Rental Period within 30 days after receiving the appraisal(s), then each Party will select one member of a three-member committee. The two so selected members will select the third member, and this committee will, by majority vote, select one or the other of the appraisals. The Minimum Rent determined on the basis of the selected appraisal will be final and binding and all costs associated with the three-member committee will be paid equally by CITY and TENANT.

B. In the event the appraisal process is not concluded on or before the Appraisal Adjustment Date, the Minimum Rent will be adjusted retroactively to such Appraisal Adjustment Date as set out hereinbelow when said appraisal process is completed.

C. The total Rent payable, including both the Minimum Rent and the Percentage Rent for each year within the applicable previous five-year period, will be averaged to produce the average annual total Rent payable for such previous period.

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D. The new Minimum Rent for the five-year period commencing on each Appraisal Adjustment Date will be eight percent (8%) of the fair market value of the Premises (as established in paragraph A. above.) The new Minimum Rent will be divided by two to determine the semiannual payments and will be paid by TENANT to CITY on the first of each January and July thereafter, or paid monthly at the option of TENANT. This new Minimum Rent will be adjusted each following year in proportion to any increase in the Consumer Price Index as set out in Section 2.02 of this Lease. The Base Index will be adjusted upon each Calculation of new Minimum Rent as set out in this section so the Base Index for CPI adjustment will be the Consumer Price Index for January 1 of the year of the calculation of new Minimum Rent.

Section 2.04 Percentage Rent.

A. In addition to the Minimum Rent, TENANT agrees to pay to CITY, at the time and in the manner hereinafter specified, as additional Rent for each Lease Sites for the use and occupancy of the Premises:
(1) For Lease Site 132W-133W A sum equal to five percent (5%) for food, beverage, retail sales, mooring, ties, slips and all other uses of TENANT'S Gross Sales, excluding fresh/frozen fish and seafood sales from the fish case, as hereinafter defined, less the amount of the Minimum Rent paid for the Lease Site pursuant to this Lease (the "Percentage Rent"). (2) For Lease Site 134-136 a sum equal to three percent (3%) for food and beverage service, restaurant dining and five percent (5%) for retail sales and all other uses of TENANT'S Gross Sales, as hereinafter defined, less the amount of the Minimum Rent paid pursuant to this Lease (the "Percentage Rent").

B. The term "Gross Sales," as used herein, means (subject to the exceptions and authorized deductions as hereinafter set forth), the total selling price and the total gross amount received by TENANT from all rentals, merchandise sold and services rendered in, on or from the Premises by TENANT, its sublessees, licensees, or concessionaires, both for cash and on credit including, but not limited to, rentals of dockage space, leasing and servicing operations and ticket sales, and if on credit whether or not payment be actually made therefore, all charges for services, alterations or repairs made in or upon the Premises; the gross amount received by TENANT for merchandise sold pursuant to orders received in the Premises, though filled elsewhere; and the gross amount received by TENANT from any and all other sources of income derived from the business conducted upon the Premises.

C. Notwithstanding the other provisions of Section 2.04, the term "Gross Sales" does not include the following items, and such items may be deducted from Gross Sales to the extent they have been included therein or have been included in a prior computation of Gross Sales or for which a Percentage Rent has been paid under this Lease to CITY:

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(1) Credits and refunds made to customers for merchandise returned or exchanged; (2) Any sales or excise taxes otherwise includable in Gross Sales as defined in this Section because such taxes are part of the total selling price of merchandise or services rendered in, from, or on the Premises, where TENANT must account for and remit the taxes to the government entity or entities by which they are imposed; and
(3) With respect to credit card sales, fees retained or withheld by the issuer and/or merchant bank pursuant to TENANT'S credit card acceptance agreement, and (4) Rental payments to TENANT from sublessees whose total gross sales are included in gross sales computations.

D. TENANT must keep or cause to be kept full, complete, and accurate records, and books of account in accordance with accepted accounting practices showing the total amount of Gross Sales, as defined herein, made each calendar month in, on or from the Premises. TENANT must keep said records and books of account within San Luis Obispo County and will notify CITY in advance of their location at all times. Furthermore, TENANT must, at the time of sale and in the presence of the customer, cause the full selling price of each piece of merchandise, each rental received and each service rendered in, on or from the Premises to be recorded in a cash register or cash registers that have cumulative totals and are sealed in accordance with standard commercial practices. Said records, books of account and cash register tapes, including any sales tax reports or income tax returns TENANT may be required to furnish any government or governmental agency, and income and bank statements must, at all reasonable times, be open to the inspection of CITY, CITY'S auditor, or other authorized representative or agent of CITY, if necessary. TENANT consents to the release of sales tax information to CITY and on demand will furnish to CITY a copy of the sales tax reports, quarterly reports and any audit reports of sales for confidential internal use of the CITY in determining Gross Sales for TENANT. TENANT consents and authorizes CITY to request such information directly from the State Board of Equalization or other state agency with which sales tax information is filed.

E. By July 31 of each year, TENANT must furnish CITY with a statement, to be certified by TENANT as current, true and accurate, which must set forth the Gross Sales of each department, sublessee, licensee and concession operating in, on or from the Premises for the previous 12 calendar months, ending June 30, just concluded, and the authorized deductions, if any, therefrom; and with it TENANT must pay to CITY the amount of the Percentage Rent, which is due to CITY as shown thereby. If TENANT, at any time, causes an audit of sales of TENANT'S business to be made by a public accountant, then TENANT must furnish CITY with a copy of said audit without cost or expense to CITY. CITY may, once in any twelve-month period, cause an audit of the business of TENANT to be made by a certified public accountant or CITY personnel of CITY'S own selection. TENANT must, upon receiving written notice of CITY'S desire for such

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an audit, deliver and make available all such books, records and cash register tapes to the certified public accountant or CITY personnel selected by CITY. Furthermore, TENANT must promptly, on demand, reimburse CITY for the full cost and expense of said audit, if the audit discloses the questioned statement or statements understated Gross Sales by 5 percent or more but less than ten percent. In the event an audit performed at CITY'S request discloses TENANT understated Gross Sales by less than 5 percent, the cost of such audit will be paid by CITY. In the event any audit or other review of records discloses the amounts reported as Gross Sales were understated by TENANT by 10 percent or more, CITY will not only be entitled to recover from TENANT all costs of audit and review, but will also be entitled to recover from TENANT a penalty equal to two times the Percentage Rent due pursuant to this Lease on such unreported amounts. Whenever any audit discloses that Gross Sales were understated by any amount, TENANT must immediately pay the additional Percentage Rent therein shown to be payable by TENANT to CITY, together with interest at the Default Rate thereon, from the date the Percentage Rent was payable until the date paid.

F. CITY will be entitled at any time within five years after the receipt of any such Percentage Rent payment, to question the sufficiency of the amount thereof or the accuracy of the statement or statements furnished by TENANT to justify the same. For the purpose of enabling CITY to check the accuracy of any such statement or statements, TENANT must, for said period of five years after submission to CITY of any such statement, keep all of TENANT'S records, including sales tax returns, all cash register tapes, income tax returns and income and bank statements and other data which in any way bear upon or are required to establish in detail TENANT'S Gross Sales and any authorized deductions therefrom as shown by any such statements and must, upon request, make the same available to CITY for examination.

Section 2.05 Reimbursements.

If TENANT fails to perform any term or covenant of this Lease, then CITY may, but is not obligated to, perform such term or covenant, and TENANT must reimburse CITY therefore as additional Rent hereunder. As an illustration and not as a limitation, if TENANT fails to procure the insurance required by this Lease, then CITY may, but is not obligated to, obtain such insurance, with the cost of the premiums being due to CITY upon demand as additional Rent.

Section 2.06 Penalty and Interest.
(1) If any Rent is not received within ten days following the date on which the Rent first became due, then TENANT must pay a late penalty of ten percent of the amount of the Rent in addition to the Rent.

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(2) In addition to the penalty, TENANT must pay interest at the rate of one percent per month or fraction thereof or the maximum amount permitted by law as of the date this Lease is signed, whichever is greater (the "Default Rate"), on the amount of the Rent, exclusive of the penalty, from the date on which Rent first became delinquent until paid. The term "Rent" includes any sums advanced by the CITY and any unpaid amounts due from TENANT to the CITY.

Article 3 USE OF PREMISES
Section 3.01 Permitted Uses.

The Premises must, during the term of this Lease, be used for the purpose of operating and conducting thereon and therein the uses permitted by, and in compliance with TENANT’S Conditional Use Permit if applicable, or any other use permits approved by CITY in its governmental capacity, as they may be amended from time to time, and for no other purpose.

For Lease Sites 132W-133W the primary purpose of this lease agreement is to support the commercial fishing industry by providing a fresh fish market and fish unloading service.

TENANT shall operate a fish unloading hoist on Lease Site 132W and maintain open access to the hoist as outlined in Section 13.01 hereof, and TENANT shall at all times make hoist available at reasonable fees to any licensed commercial fish buyer on a first come first served basis, provided that TENANT may establish reasonable hours for TENANT's operation of the hoist and TENANT may refuse service to hoist users if TENANT has commercially reasonable explanation for such refusal, such as unpaid bills or fees to TENANT or illegal or unsafe operation by the users. Should there be a dispute between TENANT and CITY of what constitutes reasonable fees, hours of operation and/or commercially reasonable explanations for refusing service, TENANT agrees that CITY shall be the sole determinant for defining these terms for the purposes outlined in this section.

The economics of a small-scale fresh fish market requires providing prepared food and beverage service, which are also permitted uses of this lease. Additional permitted uses are wholesale fish sales, berthing of vessels, outdoor picnic area in support of TENANT's fish market, food and beverage services and sales of retail goods associated with TENANT's other operations, such as packaged and frozen fish products, T-shirts and apparel or other goods with TENANT's logo or supporting Morro Bay area and the seafood industry.

For Lease Sites 134-136 such uses include restaurant with alcoholic beverage sales, storage and other uses ancillary to food service uses.

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Section 3.02 Unauthorized Use.

TENANT agrees to allow only those uses authorized in Section 3.01, hereinabove and any unauthorized use thereof constitutes a breach of this Lease and may, at the option of CITY, terminate this Lease.

Section 3.03 Operation of Business - Hours of Operation.

Failure to actively and diligently conduct the business authorized herein constitutes a breach of this Lease and may, at the option of CITY, terminate this Lease. (1) TENANT must, during the term of this Lease, conduct business of the nature specified in Section 3.01 of this Lease on the Premises in an efficient and diligent manner and keep the Premises open for the conduct of business continuously and without interruption for at least six hours each day of the year, except one day each week and legal holidays. This provision does not apply if the Premises is closed and the business of TENANT is temporarily shut down for a period not to exceed 14 calendar days in any calendar year to make necessary repairs, maintenance or other construction deemed necessary by TENANT. This provision does not apply if the Premises is closed and the business of TENANT is temporarily shut down as authorized or required by the City Manager or on account of strikes, walkouts, or causes beyond the control of TENANT or for not more than three days out of respect to the memory of an officer, employee, or close relative of any officer or employee of TENANT.
(2) TENANT must operate TENANT'S business on the Premises with due diligence and efficiency and in like manner as comparable businesses operated in CITY or the coastal area of San Luis Obispo County, so as to produce the maximum amount of Gross Sales and gross receipts from services, which may be produced from TENANT'S business; and TENANT at all times must carry on Premises, a stock or merchandise of such size, character, and quality as is reasonable, designed to produce the maximum return to TENANT, when the sale of merchandise is a permitted use under this Lease.

Section 3.04 Competition.

During the term of this Lease, TENANT must not directly nor indirectly acquire or establish any similar or competing business within a radius of five miles from the location of the Premises; provided, however, that TENANT may, with prior written approval from CITY, own or operate more than one business, whether or not competing and similar, along the Embarcadero upon one or more CITY lease sites. The purpose of this section is to prevent and prohibit TENANT from reducing revenue to CITY by diverting business from the operation at the Premises to another

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similar business owned by TENANT within the CITY, but not upon a CITY lease site from which CITY is paid rent based on Gross Sales.

Section 3.05 Environmental Considerations and Hazardous Materials.
(1) TENANT must, at all times, comply with applicable environmental regulations, including, where applicable and practical, government- and industry-adopted environmental best management practices and programs.
(2) TENANT must not transport, use, store, maintain, generate, dispose, release, treat or discharge any "Hazardous Material" (as defined below) upon or about the Premises (such activities being hereafter referred to as "Hazardous Materials Activities"), nor permit TENANT'S employees, agents, or contractors to engage in Hazardous Materials Activities upon or about the Premises, except as allowed by applicable law. The term "Hazardous Material" for purposes hereof means any chemical, substance, material or waste or component thereof which is now or hereafter listed, defined or regulated as a hazardous or toxic chemical, substance, material or waste or component thereof by any federal, state or local governing or regulatory body having jurisdiction, or which would trigger any employee or community "right-to-know" requirements adopted by any such body. All Hazardous Materials Activities at the Premises must be conducted strictly in accordance with all applicable laws and regulations. If TENANT transports, or has transported, any hazardous waste from the Premises, then such transportation must be done only by a contractor duly licensed to haul hazardous waste and only a duly licensed site approved by TENANT'S liability insurer must be used for disposal of that hazardous waste. (3) TENANT must promptly notify CITY of: (i) any enforcement, cleanup or other regulatory action taken or threatened by any governmental or regulatory authority with respect to the presence of any Hazardous Material on the Premises or the migration thereof from or to other property, (ii) any demands or claims made or threatened by any party against TENANT or the Premises relating to any loss or injury resulting from any Hazardous Material on or from the Premises, and (iii) any matters where TENANT is required by applicable law to give a notice to any governmental or regulatory authority respecting any Hazardous Material on the Premises.

CITY has the right (but not the obligation) to inspect the Premises, to take such remedial action on the Premises, as CITY may deem appropriate, and to join and participate, as a party, in any legal proceedings or actions affecting the Premises initiated in connection with any environmental, health or safety law.

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(4) If any Hazardous Material is released, discharged or disposed of by TENANT or its employees, agents or contractors, on or about the Premises in violation of the foregoing provisions, TENANT must immediately notify CITY. CITY may elect either to take such remedial action as CITY deems appropriate, in which event TENANT must reimburse CITY for all costs thereof within ten days after demand, or direct TENANT to perform such remediation. If CITY directs TENANT to perform the remediation, then TENANT must immediately take such remedial action, as CITY directs. TENANT must, properly and in compliance with applicable laws, clean up and remove the Hazardous Material from the Premises and any other affected property at TENANT'S expense. If CITY directs TENANT to perform remediation hereunder and if TENANT fails to comply with the provisions of this Section within five days after written notice by CITY, or such shorter time as may be required by applicable law or in order to minimize any hazard to persons or property, then CITY may (but is not be obligated to) arrange for such compliance directly or as TENANT'S agent through contractors or other parties selected by CITY at TENANT'S expense (without limiting CITY'S other remedies under this Lease or applicable law).

Section 3.06 Tidelands Trust.

In addition to the obligations set forth in this Article, TENANT must use and occupy the Premises in strict compliance with the Tidelands Trust purposes, as established by law or interpretation of the California State Lands Commission.

Section 3.07 Compliance with Law.

TENANT must, at no cost to CITY, comply with all of the requirements of all local, municipal, county, state and federal authorities now in force, or which may hereafter be in force, pertaining to the Premises, and faithfully observe in the use of the Premises all local, municipal and county rules, regulations and ordinances and state and federal statutes, rules, regulations and orders now in force or which may hereafter be in force (collectively, "Legal Requirements"); provided, that TENANT will not be required to comply with any Legal Requirement imposed by CITY that would substantially deprive TENANT of a material benefit under this Lease, unless such Legal Requirement has been imposed or required (i)_ by a county, state or federal authority or (ii) to preserve public health and safety and applied to similar businesses within CITY’S jurisdiction.. The judgment of any court of competent jurisdiction, or the admission of TENANT in any action or proceeding against TENANT, whether CITY be a party thereto or not, that TENANT has violated any such Legal Requirement in the use of the Premises will be conclusive of that fact as between CITY and TENANT.

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Section 3.08 Waste or Nuisance.

TENANT must not commit or permit the commission by others of any waste on the Premises; TENANT must not maintain, commit, or permit the maintenance or commission of any nuisance as defined by law on the Premises; and TENANT must not use or permit the use of the Premises for any unlawful purpose.

Section 3.09 Use by CITY.
(1) Subject to TENANT's rights hereunder to possession of the Premises, CITY may grant licenses to, or otherwise authorize, other persons and entities permitting uses of the Morro Bay Harbor.
(2) CITY also retains and reserves for itself, its successors and assigns, all oil, gas, petroleum and other mineral or hydrocarbon substances in and under the lands leased hereby together with right to prospect and extract all such substances.

Article 4 CONSTRUCTION, ALTERATION AND REPAIRS
Section 4.01 Construction Approval.
(1) TENANT must not make or permit any other person to make any alterations or structural additions or structural modifications to the Premises or to any structure thereon or facility appurtenant thereto if the cost thereof exceeds Ten Thousand Dollars ($10,000), without the prior written consent of CITY. The consent to be obtained pursuant to this Section 4.01(1) must be requested from the Harbor Director, or the City’s designee, for CITY. If the Harbor Director or any future successor to the duties of the City’s Harbor Director, or the City’s designee, gives such consent to proceed, then it is understood such consent is given by CITY only in its capacity as the landlord under this Lease and not as the permit-issuing authority. TENANT remains obligated to obtain any needed building permits and comply with all applicable land use entitlement processes.
(2) Where required by the Morro Bay Municipal Code, California Coastal Act, Corps of Engineers or any other state or federal agency having authority over the proposed project, then all Conditional Use Permits, Concept Plans, Precise Plans, Coastal Development Plans, and any other required plans or permits must be applied for and approved prior to any construction, alteration or repairs.

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Section 4.02 Construction Bond.
(1) Prior to the commencement of any construction the cost of which is greater than the amount of One Hundred Thousand Dollars ($100,000), TENANT must file, with CITY’S City Clerk, a final detailed Civil Engineer's, Registered Architect's or Licensed and Bonded General Contractor's estimate of the cost of construction and installation of improvements on the Premises.

Said estimate must be submitted to CITY’S City Engineer for approval. TENANT must file with the City Clerk a faithful performance bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount satisfactory to CITY, but not in excess of 100% of the final detailed cost estimate, securing the faithful performance of TENANT or its contractor in the completion of said construction.
(2) TENANT must also file with the City Clerk a labor and materials bond, in a form and issued by a corporate surety company satisfactory to CITY, in an amount satisfactory to CITY, but not in excess of 100% of the final detailed cost estimate, securing the payment of all claims for the performance of labor or services on, or the furnishing of materials for, the performance of said construction.
(3) In lieu of the above referenced bonds, TENANT may post cash deposits or may make other mutually satisfactory arrangements to guarantee the completion of construction projects. In the event the contractor bonds the project, CITY may be named as additional indemnitee to comply with these requirements.

Section 4.03 Mechanics' Liens.

At all times during the term of this Lease, TENANT must keep the Premises and all buildings, installations and other improvements now or hereafter located on the Premises free and clear of all liens and claims of liens for labor, services, materials, supplies, or equipment performed on or furnished to the Premises. TENANT further agrees to, at all times, save CITY free and harmless and indemnify and defend CITY against all claims for labor or materials in connection with any improvement, repairs, or alterations on the Premises, and the cost of defending against such claims, including reasonable attorneys' fees. If TENANT fails to pay and discharge or cause the Premises to be released from such liens or claim of liens within 10 days after the filing of such lien or levy, then TENANT must, upon written notification, immediately deposit with CITY a bond conditioned for payment in full of all claims on which said lien or levy has been filed. Such bond must be acknowledged by TENANT as principal and by a company or corporation, licensed by the Insurance Commissioner of the State of California to transact the business of a fidelity and surety insurance company as surety. The beneficiary of any security instrument, which instrument is on record with CITY, must have the right to file a claim for payment from such a bond on behalf

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of TENANT. CITY has the right to post and keep posted on the Premises notices of nonresponsibility and any other notices that may be provided by law or which CITY may deem proper for the protection of CITY and Premises from such liens. TENANT must give CITY notice at least 20 days prior to commencement of any work on the Premises to afford CITY the opportunity to post such notices.

Section 4.04 Ownership of Improvements.

The Parties agree CITY has the option and right to require TENANT to remove all buildings, structures, installations, improvements of any kind or other property belonging to or placed upon the Premises by TENANT at the termination of this Lease, however occurring, providing CITY gives notice, in writing, no later than thirty days prior to the termination of this Lease, of its decision to require such improvements be removed. The Parties agree, if CITY exercises its option, then at the termination of this Lease, however occurring, TENANT will have sixty days thereafter to remove all buildings, structures, facilities, installations, improvements and other property belonging to TENANT from the Premises. If CITY exercises such option and TENANT fails to remove all such improvements and other property within sixty days after the termination of this Lease, then CITY has the right to have any or all such improvements and other property removed at the expense of TENANT. If CITY does not exercise its option to remove (or require the removal of) the improvements and other property, then title to such improvements and other property vests in CITY and TENANT must not remove same.

Article 5 LEASEHOLD MORTGAGES
Tenant must not mortgage, securitize or hypothecate the leasehold interest created by this Lease, in whole or any part, without the prior written approval of CITY, as evidenced by a resolution of the City Council of CITY.

CITY will not approve financing related to or using that leasehold interest created by this Lease as collateral, unless such financing is (i) to install or construct capital improvements on the Premises, (ii) to install or construct CITY-requested public improvements or provide other benefits in the Tidelands Trust area, the latter as approved by the Harbor Director or (iii) to reduce the interest rate of existing, approved debt secured by leasehold interest created by this Lease without redeeming any equity in the leasehold interest.

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Article 6 REPAIRS, MAINTENANCE AND RESTORATION
Section 6.01 Maintenance by TENANT.
(A) At all times during the term of this Lease, TENANT must, at TENANT'S own cost and expense, keep and maintain, in good order and repair and in a safe and “broom clean” condition, all improvements now or hereafter on the Premises, including any public spaces, common areas, rights-of-way, sidewalks and other areas or spaces, even if not on the Premises but utilized as part of TENANT’S business operations. Furthermore, TENANT must, at TENANT'S own cost and expense, maintain at all times during the term of this Lease the whole of the Premises and other areas utilized for TENANT’S business operations as described above in a clean, sanitary, neat and orderly “broom clean” condition. CITY may, at the sole option of CITY, but not obligation,, clean, clear, maintain or repair the Premises, any improvements thereon or areas used by TENANT, as described above, at TENANT'S cost and expense, in the event TENANT fails to clean, clear maintain or make repairs, in accordance with this Section to the satisfaction of CITY, after 15- days' written notice to TENANT from CITY of CITY'S intent to exercise this option. (B) In addition to, and not exclusive of, any other remedies available to CITY under law or equity, the parties agree that in the event TENANT fails to comply with any terms of maintenance or repair requirements under this Section 6.01 or Section 6.04, CITY’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict impacts to environment, CITY sales tax or Rent revenues, health or safety matters, and other relevant factors. Within the (15) days following written notice as described in this section, TENANT will either correct the deficiencies or have a schedule for repairs approved by the Habor Director in writing. It is therefore agreed that the TENANT may be required by CITY to pay to the CITY, in accordance with the following schedule for each and every calendar day of delay beyond fifteen (15) days following written notice from CITY or exceedance of the schedule for repair of such maintenance or repair deficiencies, the following sums due for each day’s delay:
 The sum of one hundred dollars ($100.00) per day for the first sixty (60) days.  The sum of two hundred dollars ($200.00) per day for the following sixty (60) days.  The sum of three hundred dollars ($300.00) per day for the following sixty (60) days.

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(C) If maintenance and repair deficiencies are not corrected within one hundred and eighty days (180), TENANT may be declared in default of this Lease. Nothing in this Section shall limit or waive any legal rights or remedies available to the CITY; the remedies available to CITY in this Section are not exclusive but are cumulative with and in addition to all remedies now or hereafter allowed by law or elsewhere provided in this Lease.

Section 6.02 Wharf and Revetment.

At all times during the term of this Lease, TENANT must, at TENANT'S own cost and expense, repair, maintain, replace and rebuild, as necessary, the improvements, pilings, bulkheads, revetment, piers, posts and any structures or other improvements located in the water portion of the Premises. Further, TENANT must, at TENANT'S own cost and expense, conduct maintenance and structural inspections, evaluations or surveys, by a qualified individual or firm, at reasonable intervals not to exceed ten years, to locate and determine needed maintenance, repairs or replacements of these improvements.

Section 6.03 Legal Requirements.

At all times during the term of this Lease, TENANT, at no cost to CITY, must:
(1) Make all alterations, additions, or repairs to the Premises or the improvements or facilities on the Premises required by any Legal Requirements (as defined in Section 3.07, above);
(2) Observe and comply with all Legal Requirements respecting the Premises or the improvements or facilities located thereon;
(3) Obtain all required permits pursuant to the Morro Bay Municipal Code, Federal law or State law prior to the initiation of any repair or maintenance activity; and (4) Indemnify, defend and hold harmless CITY and the property of CITY, including the Premises, from any and all liability, loss, damages, fines, penalties, claims and actions resulting from TENANT'S failure to comply with and perform the requirements of this section.

Section 6.04 Failure to Repair.

In the event failure to repair results in a hazardous or unsafe condition, CITY has the right and option, but not the obligation, to close and prohibit access to the unsafe portion of the Premises until such repairs are completed and accomplished and the Premises rendered safe for public use.

In addition, if TENANT fails to repair any hazardous or unsafe condition within ten days after written notice thereof from CITY, then CITY has the right, but not the obligation, to perform such repair at TENANT'S expense. TENANT must reimburse CITY for any such repair undertaken by

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CITY, promptly upon CITY'S demand, as additional Rent. Failure by CITY to enforce any of the provisions of this Article does not constitute a waiver of these provisions and CITY may, at any time, enforce all of the provisions of this Article, requiring all necessary repairs, rebuilding or replacement.

Section 6.05 Inspection by CITY.

CITY or CITY'S agents, representatives, or employees may enter the Premises at all reasonable times for the purpose of inspecting the Premises to determine whether TENANT is complying with the terms of this Lease and for the purpose of doing other lawful acts that may be necessary to protect CITY'S interest in the Premises under this Lease or to perform CITY'S duties under this Lease or in its governmental capacity.

Section 6.06 TENANT'S Duty to Restore Premises.
(1) Except as provided in Section 6.07 below, if at any time during this Lease, any improvements now or hereafter on the Premises are destroyed in whole or in part by the elements, or any other cause not the fault of TENANT or CITY, then this Lease will continue in full force and effect and TENANT, at TENANT'S own cost and expense, must repair and restore the damaged or destroyed improvement(s) according to the original plan thereof or according to such modified plans therefor as are approved in writing by CITY. The work of permitting, repair and restoration must be (i) commenced by TENANT within 180 days after the damage or destruction occurs, (ii) pursued with due diligence, and (iii) completed not later than 12 full calendar months after the work is commenced, unless the Parties mutually agree, in writing, to an extension. In all other respects, the work of repair and restoration must be done in accordance with the requirements for construction work on the Premises set forth in Article 4 of this Lease. Any failure by TENANT either to commence or to complete repair and restoration as required by this Section 6.06 constitutes a material default under this Lease.
(2) Any and all insurance proceeds that become payable at any time during the term of this Lease because of damage to or destruction of any improvements on the Premises will be paid to TENANT and applied by TENANT toward the cost of repairing and restoring the damaged or destroyed improvements in the manner required by this Section 6.06, or, if this Lease is terminated, then applied as provided in Section 6.07. Except as set forth in Section 6.08 below, TENANT'S obligation to restore pursuant to this Section exist whether or not funds are available from insurance proceeds.

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Section 6.07 Termination of Lease for Destruction.
(1) Notwithstanding the provisions of Section 6.06 of this Lease, TENANT has the option of terminating this Lease as provided in this Section 6.07 if:
(a) During the last 15 years of the term of this Lease, any improvement now or hereafter on the Premises are so damaged or destroyed by the elements or any cause, not the fault of TENANT or CITY, the improvement cannot be repaired and restored as required by Section 6.06 of this Lease at a cost not exceeding 35 percent of the cost of replacing all improvements if they had been totally destroyed at the time of such damage; or (b) During the last 10 years of the term of this Lease, any improvement now or hereafter on the Premises are so damaged or destroyed by the elements or any cause, not the fault of TENANT or CITY, the improvement cannot be repaired and restored as required by Section 6.06 of this Lease at a cost not exceeding 15 percent) of the cost of replacing all improvements if they had been totally destroyed at the time of such damage. (2) TENANT may exercise its right to terminate pursuant to Section 6.07 by providing written notice to CITY within 180 days following damage or destruction as described herein. Such termination is effective on the last day of the calendar month following the month in which TENANT provides its notice.
(3) If TENANT fails to commence or complete repair and restoration as required by Section 6.06, then CITY has all rights and remedies with respect to TENANT’S default, including, but not limited to, termination of this Lease pursuant to Article 11. (4) If this Lease is terminated as a result of damage or destruction, then any insurance proceeds received with respect to the improvements will be applied or distributed in the following order:
(a) first, to the demolition of the improvements and removal of all demolition debris; then
(b) to any accrued and unpaid Rent as of the effective date of the termination; then
(c) to each Lender under a Leasehold Encumbrance, in order of lien priority, an amount not to exceed the amount due under such Leasehold Encumbrance; then (d) to CITY, an amount equal to the present value, as of the date of termination, of the total Minimum Rent for the remainder of the Term; then

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(e) the remaining proceeds, if any, to TENANT.

Section 6.08 Destruction Due to Risk Not Covered by Insurance.

Notwithstanding anything to the contrary in Section 6.06 of this Lease, TENANT has the right to terminate this Lease, at any time, if the improvements on the Premises are damaged or destroyed by a casualty for which TENANT is not required under this Lease to carry insurance and the cost to repair or restore such improvements exceeds 50 percent of the fair market value of all the improvements on the Premises immediately prior to the damage or destruction.

Article 7 INDEMNITY AND INSURANCE
Section 7.01 Indemnity Agreement.
(1) TENANT hereby agrees to indemnify, defend and hold harmless CITY, and the property of CITY (including the Premises and any improvements now or hereafter on the Premises), and CITY'S officers, officials, employees and volunteers from any and all liability, claims, loss, damages, and expenses, including reasonable attorney’s fees and litigation expenses, resulting from TENANT'S occupation and use of the Premises or any negligent act or omission of the TENANT or any of its officers, subtenants, employees, contractors, invitees or anyone for whom TENANT may be liable, specifically including, without limitation, any liability, claim, loss, damage, or expense arising by reason of:
(a) The death or injury of any person, including TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, or by reason of the damage to or destruction of any property, including property owned by TENANT or by any person who is an employee or agent of TENANT, from any cause whatever while such person or property is in or on the Premises or in any way connected with the Premises or with any of the improvements or personal property on the Premises;
(b) The death or injury of any person, including TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, or by reason of the damage to or destruction of any property, including property owned by TENANT or any person who is an officer, employee, contractor, subtenant, invitee or agent of TENANT, caused or allegedly caused by either (i) the condition of the Premises or any improvement placed on the Premises by TENANT, or (ii) any act or omission on the Premises by TENANT or any person in, on, or about the Premises with or without the permission and consent of TENANT;

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(c) Any work performed on the Premises or materials furnished to the Premises at the insistence or request of TENANT or any person or entity acting for or on behalf of TENANT; (d) TENANT'S failure to perform any provision of this Lease or to comply with any Legal Requirement imposed on TENANT or the Premises. (2) TENANT'S obligations pursuant to this Section to indemnify and hold harmless do not extend to any liability, claim, loss, damage or expense arising from CITY'S active negligence or willful misconduct.

Section 7.02 Liability Insurance.

During the term of this Lease, TENANT must maintain at its cost Commercial General Liability insurance with coverages as described in CITY”S HARBOR DEPARTMENT LEASE MANAGEMENT POLICY, as may be updated or changed from time to time at the sole discretion of the CITY. Such coverages must insure against claims for bodily injury (including death), property damage, contractual liability, personal injury and advertising injury occurring on the Premises or from operations located in any part of the Premises. Such insurance must afford protection in amounts no less than One Million Dollars ($1,000,000) per occurrence for bodily injury, personal injury and property damage; provided, that if insurance with a general aggregate limit is used, then either the general aggregate limit will apply separately to the Premises or the general aggregate limit will be twice the occurrence limit stated in this Section. All liability insurance carried by TENANT hereunder will name CITY, its officers, officials, employees and volunteers as additional insureds, and be primary insurance with respect to such additional insureds. TENANT must include all its subtenants as insureds under TENANT's liability policies or furnish separate certificates and endorsements for each subtenant. All coverages for subtenants must comply with all requirements of this Article Seven.

Section 7.03 Worker's Compensation.

TENANT must maintain at TENANT'S own expense and keep in full force and effect during the term of this Lease, Worker's Compensation Insurance as provided by law. Said insurance must contain a waiver of subrogation rights against CITY. TENANT must also maintain employer's liability insurance with minimum coverage of $1,000,000 per accident for bodily injury or disease.

Section 7.04 Property Insurance.

TENANT must, at its cost, at all times during the term of this Lease keep all improvements and other structures on the Premises, as well as any and all additions, improvements and

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betterments thereto, insured for 100 percent) of their full replacement cost with no co-insurance provision against loss or destruction by the perils covered by "all risk" (excluding earthquake) property damage insurance policies. Any loss coverage under such insurance must be payable to TENANT, CITY, and any Lender under a Leasehold Encumbrance approved pursuant to Article 5 of this Lease, as their interests may appear, and such proceeds must be used and applied in the manner required by Article 6 of this Lease.

Section 7.05 Additional Coverage.

TENANT must also maintain, at its sole expense, the insurance described in this Section 7.05.
(1) If TENANT has (or is required by any Legal Requirement to have) a liquor license and is selling or distributing alcoholic beverages on the Premises, then TENANT must maintain liquor liability coverage in appropriate amounts. TENANT must require any subtenant who has (or is required by any Legal Requirement to have) a liquor license and who is selling or distributing alcoholic beverages on the Premises, to maintain such coverage. (2) TENANT must maintain "all risk" (excluding earthquake) property damage insurance covering TENANT's personal property located at the Premises, in amounts not less than the full replacement value of such personal property. CITY has no interest in the proceeds of such insurance.
(3) TENANT must obtain and maintain any additional insurance coverages CITY may reasonably require. As illustration only and not as a limitation, in appropriate circumstances such additional insurance may include increased general liability limits, business interruption coverage, business automobile liability, boiler and machinery insurance or builder's risk insurance.

TENANT, however, is not required to maintain additional coverages that are in excess of those typically maintained by similarly situated tenants in the Morro Bay area.

Section 7.06 General Requirements.

Except as specifically provided to the contrary, all the insurance required pursuant to this Article Seven is subject to the requirements of this Section 7.06. (1) Maintenance of proper insurance coverage is a material element of this Lease and failure to maintain or renew coverage or to provide evidence of coverage and/or renewal may be treated by the CITY as a material breach of contract. TENANT must forward CITY”S specifications and forms to TENANT’S insurance agent for compliance.

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(2) CITY may, at any time, require TENANT to increase the minimum coverage limits for insurance required by this Lease, but every such increase must be reasonable under the circumstances.
(3) All policies must be issued by insurance companies authorized to issue such insurance in California, with an A.M. Best's rating of no less than A:VII. (4) Any deductibles or self-insured retentions must be declared to and approved by CITY.

At the option of CITY, either: (i) the insurer must reduce or eliminate such deductibles or selfinsured retentions as respects CITY, its officers, officials, employees and volunteers or (ii) TENANT must provide a financial guarantee satisfactory to CITY guaranteeing payment of losses and related investigations, claim administration and defense expenses. (5) Each insurance policy required by this Lease must be endorsed to state coverage will not be cancelled or reduced, except after 30-days' prior written notice by certified mail, return receipt requested, has been given to CITY.
(6) TENANT must furnish CITY with certificates and amendatory endorsements effecting the coverage required by this Lease. The endorsements must be on forms provided by CITY or on other than CITY's forms; provided, that those endorsements or policies conform to the requirements. All certificates and endorsements are to be received and approved by CITY before use of the Premises, and promptly following any renewal or replacement. CITY reserves the right, at any time, to require complete, certified copies of all required insurance policies, including endorsements effecting the coverage required by these specifications. (7) TENANT'S insurance coverage must be primary insurance as respects CITY, its officers, officials, employees, and volunteers. Any insurance or self-insurance maintained by CITY, its officers, officials, employees, or volunteers will be excess of TENANT'S insurance and will not contribute with it.

Section 7.07 No Subrogation.

TENANT agrees, in the event of loss due to any of the perils for which it has agreed to provide insurance, TENANT will look solely to its insurance for recovery. TENANT hereby grants to the CITY, on behalf of any insurer providing insurance to either TENANT or CITY with respect to TENANT'S occupancy of the Premises, a waiver of any rights to subrogation, which any such insurer of TENANT may acquire against CITY by virtue of the payment of any loss under such insurance. Each insurance policy required under this Lease, including those insuring TENANT against claims, expense, or liability for injury to persons or property, must provide the insurer will not acquire by subrogation any right to recovery.

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Section 7.08 TENANT'S Waiver.

TENANT hereby waives any right of recovery against CITY for each claim, expense, liability, or business interruption, or other loss, except where caused by CITY'S active negligence or willful misconduct. TENANT agrees, to the extent TENANT fails to acquire insurance, TENANT will not have any claim against CITY for any loss that results from a risk or peril that would have been included in such insurance.

Section 7.09 Insurance Not a Limit.

The insurance requirements of this Article 7 are independent of, and do not limit or modify, TENANT'S indemnification, defense, hold harmless and other obligations pursuant to this Lease.

Article 8 TAXES AND FEES
Section 8.01 TENANT to Pay Taxes.

TENANT must pay, before delinquency, all taxes and assessments levied upon or assessed to TENANT on the Premises by reason of this Lease or of any equipment, appliances, improvement, or other development of any nature whatsoever, erected, installed, or maintained by TENANT or by reason of the business or other activity of TENANT upon or in connection with the Premises. TENANT must pay all possessory interest taxes applicable to the Premises.

Section 8.02 TENANT to Pay License and Permit Fees.

TENANT must pay any fees imposed by Legal Requirements for licenses or permits for any business or activities including construction by TENANT upon the Premises.

Section 8.03 Utilities.

TENANT must (i) pay, or cause to be paid and (ii) hold harmless CITY and the property of CITY, including the Premises, from all charges for the furnishing of gas, water, electricity, telecommunication service, and for other public utilities to the Premises during the term of this Lease and for the removal of garbage and rubbish from the Premises during the term of this Lease.

Article 9 CONDEMNATION
Section 9.01 Total Condemnation.

If title and possession to all of the Premises is permanently taken for any public or quasipublic use under any statute, or by the right of eminent domain, then this Lease will be considered

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terminated on the date that possession of the Premises is taken; and both CITY and TENANT will thereafter be released from all obligations, including Rent, all of which will be prorated to the date of termination, except those specified in Section 9.02 of this Lease.

Section 9.02 Condemnation Award.

Any compensation or damages awarded or payable because of the permanent taking of all or any portion of the Premises by eminent domain will be allocated between CITY and TENANT as follows:
(1) All compensation or damages awarded or payable for the taking by eminent domain of any land that is part of the Premises will be paid to and be the sole property of CITY free and clear of any claim of TENANT or any person claiming rights to the Premises through or under TENANT.
(2) All compensation or damages awarded or payable which is specifically attributed by the taking party to the "good will" of TENANT'S business will be paid to and be the sole property of TENANT.
(3) All compensation or damages awarded or payable because of any improvements constructed or located on the portion of the Premises taken by eminent domain where only a portion of the Premises is taken by eminent domain, and TENANT is not entitled to or does not terminate this Lease, will be applied in the manner specified in Section 9.04 toward the replacement of such improvements with equivalent new improvements on the remaining portions of the Premises.
(4) All compensation or damages awarded or payable because of any improvements constructed or located on the portion of the Premises taken by eminent domain where this Lease is terminated because of the taking by eminent domain, whether all or only a portion of the Premises is taken by eminent domain, will be allocated between CITY and TENANT as follows:
(a) That percentage of the compensation or damages awarded or payable because of the improvements that equals the percentage of the full term of this Lease that has, at the time of the taking, not expired will belong to and be the sole property of TENANT. (b) That percentage of the compensation or damages awarded or payable because of the improvements that equals the percentage of the full term of this Lease that has, at the time of the taking, expired will belong to and be the sole property of CITY.

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(c) The term "time of taking," as used in this Section, means 12:01 a.m. of the date the agency or entity exercising the eminent domain power, takes title to or the date it takes physical possession of the portion of the Premises, whichever first occurs. (5) Any severance damages awarded or payable because only a portion of the Premises is taken by eminent domain will be the sole and separate property of CITY.

Section 9.03 Termination for Partial Taking.

If, during the term of this Lease, title and possession of only a portion of the Premises is taken for any public or quasi-public use under any statute, or by right of eminent domain, then TENANT may, at TENANT'S option, terminate this Lease by serving written notice of termination on CITY within 90 days after TENANT has been deprived of actual physical possession of the portion of the Premises taken for such public use. This Lease will terminate on the first day of the calendar month following the calendar month in which the notice of termination described in this section is served on CITY. On termination of this Lease, pursuant to this Article, all subleases and subtenancies in or on the Premises or any portion of the Premises created by TENANT under this Lease will also terminate and the Premises must be delivered to CITY free and clear of all such subleases and subtenancies; provided, however, that CITY may, at CITY'S option, by mailing written notice to a subtenant allow any subtenant to attorn to CITY and continue such subtenant's occupancy on the Premises as a TENANT of CITY. On termination of this Lease pursuant to this section, however, both CITY and TENANT will be released from all obligations under this Lease, except those specified in Section 9.02 of this Lease.

Section 9.04 Rent Abatement for Partial Taking.

If, during the term of this Lease, title and possession of only a portion of the Premises is taken under the power of eminent domain by any public or quasi-public agency or entity and TENANT does not terminate this Lease, then this Lease will terminate as to the portion of the Premises taken under eminent domain on the date actual physical possession of the portion taken by eminent domain is taken by the agency or entity exercising the eminent domain power.

Furthermore, the Rent payable under this Lease will, as of that time be reduced in the same proportion of the Premises taken by eminent domain bears to the full value of the Premises at that time; provided however, that TENANT will make a good faith effort to replace any improvements or facilities with equivalent new facilities on the remaining portion of the Premises and do all other acts at TENANT'S own cost and expense required by the eminent domain taking to make the remaining portion of the Premises fit for the use specified in this Lease.

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Section 9.05 Conveyance in Lieu of Eminent Domain.

A voluntary conveyance by CITY, with the consent of TENANT, of title to all or a portion of the Premises to a public or quasi-public agency or entity in lieu of and under threat by such agency or entity to take the same by eminent domain proceedings will be considered a taking of title to all or such portion of the Premises under the power of eminent domain subject to the provisions of this Article.

Section 9.06 Temporary Taking.

If the possession of the Premises or any portion thereof are taken under the power of eminent domain by any public or quasi-public agency or entity for a limited period not extending beyond the term of this Lease, then this Lease will not terminate (except as provided in this Section

9.06) and TENANT must continue to perform all its obligations hereunder, except only to the extent TENANT is prevented from performing such obligations by reason of such taking.

TENANT will be entitled to receive the entire amount of compensation or damages awarded because of such temporary taking. If a temporary taking extends for more than 36 months, then TENANT will have the right to terminate this Lease, and TENANT will be entitled to receive, out of the compensation or damages awarded because of such temporary taking, the amount that is attributable to the period of time up until the effective date of TENANT'S termination of this Lease.

Article 10 ASSIGNMENT AND SUBLEASING
Section 10.01 No Assignment Without CITY'S Consent.

Except as provided in this Article 10, TENANT must not assign or otherwise transfer this Lease, any right or interest in this Lease, or any right or interest in the Premises or any of the improvements that may now or hereafter be constructed or installed on the Premises without the express written consent of CITY first had and obtained. Any assignment or transfer by TENANT without the prior written consent of CITY, as evidenced by a resolution of the City Council, whether it be voluntary or involuntary, by operation of law or otherwise, is void and may, at the option of CITY, terminate this Lease. A consent by CITY to one assignment will not be deemed to be a consent to any subsequent assignment of this Lease by TENANT. CITY will not unreasonably nor arbitrarily withhold its approval to the assignment or transfer of this Lease to an assignee who is financially reliable and qualified to conduct the business for which this Lease was granted. It is mutually agreed TENANT'S qualifications are a part of the consideration for granting of this Lease and said party does hereby agree to maintain active control and supervision of the operation conducted on the Premises.

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Section 10.02 Change of Ownership as Assignment.

For purposes of this Article 10, the following transactions will be deemed to be assignments or transfers:
(1) If TENANT is a partnership or limited liability company:
(a) A change in ownership affected voluntarily, involuntarily, or by operation of law, within a 12-month period, of 25 percent or more of the partners or members or 25 percent or more of the partnership or membership interests; or
(b) The dissolution of the partnership or limited liability company without its immediate reconstitution.
(2) If TENANT is a closely held corporation (i.e., one whose stock is not publicly held and not traded through an exchange or over the counter):
(a) The sale or other transfer, within a 12-month period of more than an aggregate of 25 percent of the voting shares of TENANT (other than to immediate family members by reason of gift or death); or
(b) The dissolution, merger, consolidation, or other reorganization of TENANT.

Section 10.03 Application for Assignment.

A condition of an assignment is TENANT must file with CITY an application to assign its leasehold interest prepared by the prospective assignee. Concurrently with filing the application, TENANT must pay a reasonable fee associated with the cost of processing said application, in cash or certified or cashier's check to enable CITY adequately to investigate the proposed assignee's qualifications, financial reliability and suitability as a permitted assignee. CITY is not be required to account for the use of the sum paid. If the proposed assignee's net worth, financial reliability and qualifications on the date of assignment are not sufficient to reasonably guarantee successful operation of the Premises in compliance with all applicable CITY, County, State and federal requirements, then CITY may withhold approval of the assignment or condition it upon TENANT'S guarantee of such assignee's obligations hereunder for such period as CITY deems advisable. Net worth means the amount by which the total of all assets exceed the total of all liabilities as determined in accordance with general accepted accounting principles as approved by CITY'S auditor, or other authorized representative or agent.

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Section 10.04 Probate Transfer of Assignment.

If TENANT is an individual, nothing herein contained will prevent the transfer of this Lease by trust, will, or by operation of law under the intestacy provisions of the California Probate Code as it may be amended from time to time. Probate sale of the leasehold interest will not be permitted without the consent of the CITY, evidenced by a City Council resolution, first had and obtained.

Section 10.05 No Sublease Without CITY'S Consent.

TENANT must not sublease the whole nor any part of the Premises, or license, permit, or otherwise allow any other person (the employees of TENANT excepted) to occupy or use the Premises, or any portion thereof, without the prior written consent of CITY’s Harbor Director, or any future successor to the duties of the City’s Harbor Director. The process for obtaining that consent will not begin until TENANT has filed an application to sublease and paid a reasonable fee, as determined by CITY, associated with the cost of processing the application. A consent to one subletting, occupation, licensing or use will not be deemed to be a consent to any subsequent subletting, occupation, licensing or use by another person. Any sublease or license without CITY'S written consent is void, and may, at CITY'S option, terminate this Lease. CITY will not unreasonably nor arbitrarily withhold its consent to sublet to one who is qualified and financially reliable. CITY'S consent to any occupation, use, or licensing will be in CITY'S sole and absolute discretion. Notwithstanding any provisions herein to the contrary, the terms "assignment," "subletting," "occupation," or "use," are not to be construed or interpreted to mean or include the temporary, short-term renting or leasing of boat slips, motel, hotel, or apartment accommodations, if any, on the Premises.

Section 10.06 Subtenant Subject to Lease Terms.

Any and all subleases must be expressly made subject to all the terms, covenants, and conditions of this Lease. In no event will the term of any sublease extend beyond the term of this Lease. Subject to Section 10.09, termination of this Lease prior to the expiration of this Lease term also terminates any and all subleases. A breach of the terms of this Lease by a subtenant constitutes a breach on the part of TENANT and subjects both the subtenant and TENANT to all the remedies provided to CITY herein and by law. Failure by any subtenant to report Gross Sales or to pay Percentage Rent due from subtenant constitutes a breach of this Lease. TENANT hereby agrees to and does guarantee payment of such Percentage Rent due by a subtenant under the terms of this lease.

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Section 10.07 Consent to Sublease Agreement.

Prior to any consent by CITY to any sublease hereof, TENANT, CITY and any subtenant must have executed the CITY’S Consent to Sublease Agreement making CITY a third party beneficiary, whereby the subtenant agrees to be bound by all of the terms, covenants and conditions of this Lease. Further, it is agreed by TENANT any default by the subtenant of any of the terms, covenants and conditions of this Lease will be a violations by TENANT of this Lease and all remedies of CITY for such violation, including termination of this Lease, may immediately be enforceable by CITY against TENANT. TENANT must apply any and all monies received from any subtenant first to the payment of obligations of the subtenant to CITY.

Section 10.08 TENANT and Guarantor Remain Liable.

Prior to approval by CITY to any sublease hereof, TENANT must agree to be primarily and jointly and severally liable to CITY for all obligations due CITY by any subtenant, including the payment of rents; and TENANT must agree CITY may proceed directly against TENANT for any obligation owed to CITY by the subtenant. If this Lease is guaranteed, then neither the sublease nor CITY'S approval thereof will release the guarantor from its obligations pursuant to the guaranty.

Section 10.09 Nondisturbance.

On the terms set forth below, CITY may enter into agreements with subtenants establishing, in the event of any termination of this Lease prior to the expiration date, CITY will not terminate or otherwise disturb the rights of the subtenant under such sublease, but will instead honor such sublease as if that sublease had been entered into directly between CITY and such subtenant, conditioned upon such subtenant's agreement to attorn to CITY and full performance of all obligations under the sublease in question ("Non-Disturbance Agreement"). CITY agrees to execute a Non-Disturbance Agreement in connection with a particular sublease; provided, that Tenant provides CITY with a copy of the sublease, and the Non-Disturbance Agreement is customary in form and substance and otherwise reasonably acceptable to CITY.

Article 11 DEFAULT AND TERMINATION
Section 11.01 Abandonment by TENANT.

If TENANT breaches this Lease and abandon all or any part of the Premises prior to the scheduled expiration of the term of this Lease, then CITY may continue this Lease in effect by not terminating TENANT'S right to possession of the Premises, in which event CITY may, at its

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option, enforce all CITY'S rights and remedies under this Lease including the right to recover the Rent specified in this Lease as it becomes due under this Lease.

Section 11.02 Termination for Breach by TENANT.

All covenants and agreements contained in this Lease are declared to be conditions to this Lease and to the term hereby demised to TENANT. If TENANT fails to perform any covenant, condition, or agreement contained in this Lease, except for payment of any Rent or other monetary amount due, and such failure is not cured within 30 days after written notice thereof is served on TENANT, then CITY may terminate this Lease immediately, and in the event of such termination, TENANT will have no further rights hereunder and TENANT must thereupon forthwith remove from the Premises and will have no further right or claim thereto and CITY will immediately thereupon have the right to re-enter and take possession of the Premises, subject only to appropriate legal process.

Section 11.03 Termination for Failure to Pay Rent.

If any payment of Rent is not made as herein provided and such failure to pay is not cured within three days after written notice thereof is served on the TENANT, then CITY will have the option to immediately terminate this Lease; and in the event of such termination, TENANT will have no further right or claim thereto and CITY will immediately thereupon have the right to reenter and take possession of the Premises, subject only to appropriate legal process.

Section 11.04 Lender May Cure Default.

CITY hereby affords the lender under any Leasehold Encumbrance of record with CITY the right to cure any default by TENANT of the covenants, conditions, or agreements hereof, as provided in Article 5 of this Lease.

Section 11.05 Damages for Breach.

If TENANT defaultsin the performance of any covenant, condition or agreement contained in this Lease and the default be incurable or not be cured within the time period set forth hereinabove, then CITY may terminate this Lease and:
(1) Bring an action to recover from TENANT:
(a) The worth at the time of award of the unpaid Rent which had been earned at the time of termination of the Lease;

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(b) The worth at the time of award of the amount by which the unpaid Rent, which would have been earned after termination of the Lease until the time of award exceeds the amount of rental loss that TENANT proves could have been reasonably avoided; (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that TENANT proves could be reasonably avoided; and
(d) Any other amount necessary to compensate CITY for all detriment proximately caused by TENANT'S failure to perform its obligations under this Lease; and (2) Bring an action, in addition to or in lieu of the action described in subparagraph (1) of this Section, to re-enter and regain possession of the Premises in the manner provided by the laws of unlawful detainer of the State of California then in effect.

Section 11.06 Cumulative Remedies.

The remedies available to CITY in this Article are not exclusive, but are cumulative with and in addition to all remedies now or hereafter allowed by law or elsewhere provided in this Lease.

Section 11.07 Waiver of Breach.

The waiver by CITY of any breach by TENANT of any of the provisions of this Lease does not constitute a continuing waiver or a waiver of any subsequent breach by TENANT either of the same or a different provision of this Lease.

Section 11.08 Surrender of Premises.

On expiration or sooner termination of this Lease, TENANT must surrender the Premises, and, subject to Section 4.04, all improvements in or on the Premises, and all facilities in any way appertaining to the Premises, to CITY in good, safe, and clean condition, reasonable wear and tear excepted.

Article 12 MISCELLANEOUS
Section 12.01 Notices.

Any and all notice or demands by or from CITY to TENANT, or TENANT to CITY, must be in writing. They must be served either personally, or by registered or certified mail. Any notice or demand to CITY must be given to:

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Harbor Director
1275 Embarcadero Road
Morro Bay, CA 93442
with a copy to:

City Manager of the City of Morro Bay
City Hall
595 Harbor Street
Morro Bay, CA 93442
Any notice or demand to TENANT must be given at:

Tognazzini’s Restaurant, Inc.
1245 Embarcadero Road
Morro Bay, CA 93442
Such addresses may be changed by written notice by either Party to the other Party.

Section 12.02 Governing Law and Jurisdiction.

This Lease, and all matters relating to this Lease, are governed by the laws of the State of California in force at the time any need for interpretation of this Lease or any decision concerning this Lease arises. CITY and TENANT consent to exclusive personal and subject matter jurisdiction in the Superior Court of the State of California in and for the county where the Premises are located, and each Party waives any claim such court is not a convenient forum. Each Party hereby specifically waives the provisions of California Code of Civil Procedure Section 394, and any successor statute thereto.

Section 12.03 Binding on Successors.

Subject to the provisions herein relating to assignment and subletting, each and all of the terms, conditions, and agreements herein contained will be binding upon and inure to the benefit of the successors and assigns of any and all of the Parties; and all of the Parties hereto are jointly and severally liable hereunder.

Section 12.04 Partial Invalidity.

If any provision of this Lease is held by a court of competent jurisdiction to be either invalid, void, or unenforceable, then the remaining provisions of this Lease will remain in full force and effect unimpaired by the holding.

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Section 12.05 Sole and Only Agreement.

Subject to the provisions of the second paragraph of Section 1.04 (used only if second paragraph of that section is used), (i) this Lease, including all exhibits incorporated by reference, constitutes the sole and only agreement between CITY and TENANT respecting the Premises and the leasing of the Premises to TENANT and (ii) any other agreements or representations respecting the Premises and their leasing to TENANT by CITY, which are not expressly set forth in this Lease, are null and void. The lease terms herein specified correctly set forth the obligations of CITY and TENANT as of the date of this Lease.

Section 12.06 Modification.

This Lease can only be modified, amended or altered pursuant to a written amendment executed by the Mayor and attested to by City Clerk, pursuant to prior City Council approval.

Notwithstanding City Council approval, no amendment will become effective until it is in fact executed by the Mayor and attested to by City Clerk and approved as to form by the City Attorney (or designee). TENANT understands this Lease cannot be modified, amended or altered by oral statements by any person representing CITY, including the Mayor and City Clerk. TENANT specifically agrees not to rely on oral statements, purported oral waivers, or purported oral modifications and agrees not to rely upon purported written modifications unless they meet the requirements of this Section. If the title of any person authorized to act for CITY under this Lease is changed during the term of this Lease, then the person who succeeds to substantially the same responsibilities with respect to CITY will have the authority to act for CITY under this Lease.

Section 12.07 Time of Essence.

Time is expressly declared to be the essence of this Lease.

Section 12.08 Memorandum of Lease for Recording.

CITY and TENANT agree, at the request of either at any time during the term of this Lease, to execute a Memorandum of Lease or "short form" of this Lease, which shall describe the Parties, set forth a description of the Premises, specify the term of this Lease, and incorporate this Lease by reference.

Section 12.09 Force Majeure.

If either Party hereto is delayed or hindered in or prevented from the performance of any act required hereunder by reason of a strike, lock-out, labor trouble, inability to procure materials, failure of power, governmental moratorium, riot, insurrection, war, pandemic or other reason of a

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like nature not the fault of the Party delaying in performing work or doing any act required under the terms of this Lease, then performance and doing of such act will be excused for the period of such delay. The Parties understand and agree, the foregoing will not extend any period of time for the payment of Rent or other sums payable by either Party or any period of time for the written exercise of an option or right by either Party.

Article 13 SPECIAL PROVISIONS PECULIAR TO THE PREMISES
The following provisions apply to the Premises:

Section 13.01 Operation of Fish Hoist and to Keep Clear an Access Corridor to the Hoist.

TENANT shall operate a fish buying and unloading station/service on the premises.

TENANT shall operate a fish hoist for this purpose on Lease Site 132W. In addition, TENANT shall maintain the southerly ten (10) feet of Lease Site 132W open for access to the hoist (the “Access Corridor”), as described on Exhibit A hereto. During times when fish unloading is not occurring, TENANT may place restaurant tables for public use within the Access Corridor, provided such placement is constructed in a safe and orderly manner. The Harbor Director reserves the right to revoke the use of tables in the Access Corridor at any time if deemed unsafe or otherwise inconsistent with harbor operations.

Section 13.02 Restaurant Public Restrooms
TENANT shall, within a timeframe reasonably agreed upon with the CITY following the execution of this Lease, install and maintain directional public restroom signage directing the public to the Dockside Restaurant (Lease Site 134-136) restrooms for public use.

Section 13.03 Exterior Improvements - Bollards Along Exterior Tables on the Eastside of Dockside Too and Encroachment Permit/License Agreement.
(A) TENANT shall obtain and maintain a CITY encroachment permit, or similar agreement acceptable to the CITY, for use of the exterior table area with bollards (highlighted in blue on Exhibit C) which is located outside the boundary Lease Site 132W-133W. As a condition of such use, TENANT will construct improvements at its own cost and expense by installing CITY approved bollards between the exterior tables and the alley. Revenues generated from use of the above area will be included in the percentage rent for Lease Site 132W-133W. The encroachment permit(s) required for use of the above area is revocable and not guaranteed for the life of the

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Lease. TENANT shall obtain the encroachment permit no later than 60 days from the commencement date of this Lease in order to continue use of the above area. (B) TENANT shall obtain and maintain a CITY license agreement, or similar agreement acceptable to the CITY for use of the North T-Pier (highlighted in green on Exhibit C) for storage purposes, which is located outside the boundary of Lease Site 132W-133W. The license agreement required for use of the above area is revocable and not guaranteed for the life of the Lease. Use of the North T-Pier will be subject to access conditions and regular payment of the prorated square footage rate identified by the CITY based on boat storage rates in effect for the applicable period.

TENANT shall obtain the license agreement no later than 60 days from the commencement date of this Lease in order to continue use of the above area.

Section 13.04 Required Initial Wharf and Revetment Repairs TENANT shall provide evidence of the estimated Three Hundred Thousand Dollars ($300,000) in wharf repairs to Lease Site 132W-133W as proposed, with a project completion date of December 31, 2029. TENANT is responsible for continued maintenance and repairs, thereafter, not including the seawall.

Section 13.05 Future Wharf and Revetment Survey and Repairs As set forth under Section 1.02, between fifteen (15) and twenty (20) years after the Commencement Date of this Lease, TENANT shall provide to the CITY a survey and proposed repair plan for the pier, wharf, and any other work necessary to maintain the service life of the wharf at Lease Site 132W-133W. TENANT shall deliver written notice to the CITY of TENANT’s intent to exercise the Option to Extend at least eighteen (18) months prior to Lease expiration, and shall obtain CITY’s approval of the TENANT’s plan prior to Lease expiration. Repairs to be completed prior to lease expiration.

Section 13.06 Fire Suppression System
TENANT acknowledges the CITY currently pays for the maintenance and monthly monitoring fees associated with the fire suppression system serving under TENANT’S Lease Site.

TENANT further agrees that, upon upgrade or replacement of the system, TENANT shall be responsible for the portion of such costs, including ongoing maintenance and monitoring fees, attributable to TENANT’S Lease Sites 132W-133W.

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Section 13.07 Requirement to Cost-Share the City’s Future HarborWalk Project and/or North T-Pier Restrooms.

TENANT shall contribute Forty-Five Thousand Dollars ($45,000) towards the CITY’S anticipated costs for the HarborWalk and/or North T-Pier Restroom projects currently envisioned by the CITY on or near the Premises. Beginning on the commencement date, TENANT shall make monthly payments of One Thousand Dollar ($1,000) until the full $45,000 contribution is satisfied.

The balance of the $45,000 remaining after the original expiration date of June 30,2028 will be subject to CPI adjustments (from June 30, 2028) until fully paid. CITY may construct these projects at any time at the sole discretion of CITY. The funding will be held in a Harbor Improvement Cost-Sharing fund for when the CITY constructs the Harborwalk and/or restrooms, or any other future Harbor capital improvement projects directed by the City COUNCIL.

TTENANT shall be solely responsible for any other sidewalk or entry work TENANT desires to complete on TENANT’S premises in excess of the HarborWalk. Failure by Tenant to may any of the payments provided in this section shall result in immediate termination of the Lease and surrender of the Premises.

Section 13.08 Exterior Improvements - Bollards Along Exterior Tables on the Westside of Dockside Restaurant.
(1) TENANT will construct improvements at its own cost and expense by installing CITY approved bollards along the exterior restaurant tables on the Westside of the Dockside Restaurant, outlined in Exhibit C in yellow.

Section 13.09 Liquidated Damages.

If TENANT is not in strict compliance with Sections 13.01 through. 13.08 of this Lease, it is understood, acknowledged and agreed that the CITY will suffer damage. It is therefore agreed that the TENANT and its sureties shall pay to the CITY the sum of One Hundred Dollars ($100.00) for each and every calendar day of delay beyond the completion date set in this Lease. TENANT expressly understands, acknowledges and agrees that such liquidated damages can and shall be imposed if the TENANT does not make the identified improvements by the completion date. If the CITY accepts work or makes any payment under this Lease after a default by reason of delays, the acceptance of such work and/or payment(s) shall in no respect constitute a waiver or modification of any provisions regarding Improvement deadlines, a completion schedule, or the accrual of liquidated damages. This Section does not exclude recovery of damages under the default provisions of this Lease and is expressly in addition to the City’s ability to seek other legal or equitable damages. To the extent required by Government Code section 4215, TENANT shall

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not be assessed liquidated damages for delay in completion of the work when such delay was caused by the failure of the CITY or owner of a utility to provide for removal or relocation of utility facilities.

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EXECUTED on ________________, 2026, at________________________ County, California.

CITY OF MORRO BAY TENANT -Tognazzini’s Restaurant, Inc. _________________________________
Carla Wixom, MAYOR
By: ________________________________

By: ________________________________
ATTEST:
_________________________________
Dana Swanson, CITY CLERK
APPROVED AS TO FORM:
_______________________________________
Brian Stack, CITY ATTORNEY

City of Morro Bay
01181.0024/656492.1 JWP A-1

EXHIBIT A

COPY OF PARCEL MAP

City of Morro Bay
01181.0024/656492.1 JWP A-2

EXHIBIT B
TOGNAZZINI’S RESTAURANT, INC. PROPOSAL

City of Morro Bay
01181.0024/656492.1 JWP A-3

EXHIBIT C

BOLLARD INSTALLATION AND LICENSE AGREEMENT MAP

City of Morro Bay
01181.0024/656492.1 JWP

L E A S E
by and between
the CITY OF MORRO BAY
("CITY")
and
TOGNAZZINI’S RESTAURANT, INC.
("TENANT")

City of Morro Bay
01181.0024/656492.1 JWP -iTABLE OF CONTENTS
Article 1 FIXED TERM.............................................................................................................2 Section 1.01 Term..............................................................................................2 Section 1.02 Extensions.....................................................................................2 Section 1.03 Hold Over......................................................................................2 Section 1.04 Replacement..................................................................................3 Article 2 RENT..........................................................................................................................3 Section 2.01 Annual Minimum Rent. ................................................................3 Section 2.02 CPI Adjustment to Annual Minimum Rent. .................................4 Section 2.03 Calculation of New Minimum Rent..............................................5 Section 2.04 Percentage Rent. ...........................................................................6 Section 2.05 Reimbursements............................................................................8 Section 2.06 Penalty and Interest.......................................................................8 Article 3 USE OF PREMISES...................................................................................................9 Section 3.01 Permitted Uses. .............................................................................9 Section 3.02 Unauthorized Use........................................................................10 Section 3.03 Operation of Business - Hours of Operation...............................10 Section 3.04 Competition.................................................................................10 Section 3.05 Environmental Considerations and Hazardous Materials...........11 Section 3.06 Tidelands Trust. ..........................................................................12 Section 3.07 Compliance with Law.................................................................12 Section 3.08 Waste or Nuisance. .....................................................................13 Section 3.09 Use by CITY...............................................................................13 Article 4 CONSTRUCTION, ALTERATION AND REPAIRS .............................................13 Section 4.01 Construction Approval................................................................13 Section 4.02 Construction Bond. .....................................................................14

City of Morro Bay
01181.0024/656492.1 JWP -iiSection 4.03 Mechanics' Liens.........................................................................14 Section 4.04 Ownership of Improvements.......................................................15 Article 5 LEASEHOLD MORTGAGES .................................................................................15 Article 6 REPAIRS, MAINTENANCE AND RESTORATION ............................................16 Section 6.01 Maintenance by TENANT..........................................................16 Section 6.02 Seawalls and Revetment. ............................................................17 Section 6.03 Legal Requirements. ...................................................................17 Section 6.04 Failure to Repair. ........................................................................17 Section 6.05 Inspection by CITY.....................................................................18 Section 6.06 TENANT'S Duty to Restore Premises........................................18 Section 6.07 Termination of Lease for Destruction.........................................19 Section 6.08 Destruction Due to Risk Not Covered by Insurance...................20 Article 7 INDEMNITY AND INSURANCE ..........................................................................20 Section 7.01 Indemnity Agreement. ................................................................20 Section 7.02 Liability Insurance. .....................................................................21 Section 7.03 Worker's Compensation..............................................................21 Section 7.04 Property Insurance. .....................................................................21 Section 7.05 Additional Coverage. ..................................................................22 Section 7.06 General Requirements.................................................................22 Section 7.07 No Subrogation. ..........................................................................23 Section 7.08 TENANT'S Waiver.....................................................................24 Section 7.09 Insurance Not a Limit. ................................................................24 Article 8 TAXES AND FEES..................................................................................................24 Section 8.01 TENANT to Pay Taxes...............................................................24 Section 8.02 TENANT to Pay License and Permit Fees. ................................24 Section 8.03 Utilities........................................................................................24

City of Morro Bay
01181.0024/656492.1 JWP -iiiArticle 9 CONDEMNATION..................................................................................................24 Section 9.01 Total Condemnation....................................................................24 Section 9.02 Condemnation Award. ................................................................25 Section 9.03 Termination for Partial Taking. ..................................................26 Section 9.04 Rent Abatement for Partial Taking. ............................................26 Section 9.05 Conveyance in Lieu of Eminent Domain....................................27 Section 9.06 Temporary Taking. .....................................................................27 Article 10 ASSIGNMENT AND SUBLEASING .....................................................................27 Section 10.01 No Assignment Without CITY'S Consent. .................................27 Section 10.02 Change of Ownership as Assignment. ........................................28 Section 10.03 Application for Assignment........................................................28 Section 10.04 Probate Transfer of Assignment. ................................................29 Section 10.05 No Sublease Without CITY'S Consent.......................................29 Section 10.06 Subtenant Subject to Lease Terms..............................................29 Section 10.07 Consent to Sublease Agreement. ................................................30 Section 10.08 TENANT and Guarantor Remain Liable....................................30 Section 10.09 Nondisturbance. ..........................................................................30 Article 11 DEFAULT AND TERMINATION..........................................................................30 Section 11.01 Abandonment by TENANT........................................................30 Section 11.02 Termination for Breach by TENANT.........................................31 Section 11.03 Termination for Failure to Pay Rent. ..........................................31 Section 11.04 Lender May Cure Default. ..........................................................31 Section 11.05 Damages for Breach....................................................................31 Section 11.06 Cumulative Remedies. ................................................................32 Section 11.07 Waiver of Breach. .......................................................................32 Section 11.08 Surrender of Premises. ................................................................32

City of Morro Bay
01181.0024/656492.1 JWP -ivArticle 12 MISCELLANEOUS .................................................................................................32 Section 12.01 Notices. .......................................................................................32 Section 12.02 Governing Law and Jurisdiction.................................................33 Section 12.03 Binding on Successors. ...............................................................33 Section 12.04 Partial Invalidity..........................................................................33 Section 12.05 Sole and Only Agreement...........................................................34 Section 12.06 Modification................................................................................34 Section 12.07 Time of Essence..........................................................................34 Section 12.08 Memorandum of Lease for Recording........................................34 Section 12.09 Force Majeure. ............................................................................34 Article 13 SPECIAL PROVISIONS PECULIAR TO THIS LEASE SITE.................................35 Section 13.01 Operation of Fish Hoist and to Keep Clear an Access Corridor to the Hoist. 35
Section 13.02 Dockside Restaurant Public Restrooms......................................35 Section 13.03 Exterior Improvements - Bollards Along Exterior Tables on the Eastside of Dockside Too and License Agreement. ..............................................35 Section 13.04 Wharf Repair and Revetment Repairs ........................................36 Section 13.05 Wharf Repair and Revetment Repairs ........................................36 Section 13.06 Fire Suppression System.............................................................36 Section 13.07 Requirement to Cost-Share the City’s Future HarborWalk Project and/or North T-Pier Restrooms..............................................................................37 Section 13.08 Exterior Improvements - Bollards Along Exterior Tables on the Westside of Dockside Restaurant. .........................................................................37 Section 13.09 Liquidated Damages. ..................................................................37

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4-22-2025
Honorable City Council,
As an official request and follow-up to our previous leƩer sent to the Harbor department on 7/25/2024 “see aƩachment below,” we would like to propose the conƟnuaƟon of our current leases 132W-133W, and 134-136 with terms unmodified and as wriƩen.

As background; the average net profit of a non-franchised restaurant in California is between 3% and 5%. Anyone who has ever been in the food service industry knows this, and based on this margin there is not much extra to go around. Our current leases provide the City of Morro Bay with 5% of food and beverage sales at Dockside Too and 3% of food and 5% of beverage at Dockside. These percentages alone show that we are equal partners in revenue, even though the City is our landlord. At the end of the day, the City profits the same as we do if not more.

Total revenue we generate for the City is mulƟfaceted and if one looks at percentage alone, they do not get the complete picture. Although the percentage we pay the city has remained fixed, the City receives and will conƟnue to receive regular increases in revenue as our menu prices increase. For example, when we first opened our doors “Fish of the Day,” was $9.95, today it is $20.00. A beer was $3.50 now they are $6.75.

This increase also holds true for sales tax. Sales tax has increased from 6.25% to 8.75% and the City’s share has proporƟonally increased as well.

The City also receives revenue from our water and sewer bills. Ironically, the more business we generate the more water we need to successfully meet the growing demand. Remember, when we make more the city makes more. However, due to our increase in usage we are penalized and pay more per unit of water than others.

AddiƟonally, business license fees are based on number of employees. So, businesses that may make more than us but do not need as many employees pay less for a license. Due to the mechanics of the hospitality industry, we provide more jobs, make less, but pay the City more for our business licenses than others.

Finally, in 2020 we began serving Breakfast. A building endeavor with limited iniƟal success.

However, it provides an addiƟonal revenue stream for the City because the City’s percentage come right off the top regardless if we make a profit or not.

All of these factors add to the bigger picture of the financial contribuƟon Dockside and Dockside Too make to the City. We pay our share and the City does well due to our efforts.

As we move through this process of securing a new or renewed lease, we have already spent nearly $15,000.00. This includes $7500.00 to the city for a lease applicaƟon, $5700.00 for piling and pier survey requesƟng by our harbor director and $1000.00 for an architectural rendering as previously requested by the city. These along with recent improvements and the anƟcipated upgrades at both venues will easily exceed $100,000.00 over the next several years.

As lessees, we believe that we have more than held up our end of the agreement, providing the City with revenue far beyond expectaƟons. In the beginning, other than Crills, this end of the waterfront had suffered from years of failures. In fact, the prior holders of lease sites 134-136 had been noƟfied that when their lease expired, they would be in default. During this Ɵme, we watched 3 different owners of sites 132W-133W fail over a 3-year period. With a liƩle luck and a lot of hard-work we have managed to break that cycle and help re-build and energize this northern porƟon of the Embarcadero.

We encourage the city to conƟnue to be our partner. Realize and embrace the benefits of exisƟng long-term tenants that take care of their property and pay fees on Ɵme. Look at the whole picture and understand the risk and efforts it takes to build not only a business but a desƟnaƟon and a legacy.

We believe that the revenue we provide along with our track record should be more than enough to request the conƟnuaƟon of our exisƟng lease terms for another 20 years. We provide plenty of juice…why try to squeeze out more? We promise to honor and work hard to conƟnue to generate more revenue than any other tenants have ever done at lease sites 134- 136 and 132W-133W.

We eagerly await your response.

Sincerely,
Mark & Marc Tognazzini
Tognazzini’s Dockside Restaurants
Morro Bay, CA 93442

WE ST
�: C :::;:::::,:
,• . ', ��: ;, : c;,::: ;
Crill's Salt Water Taffy portion
NOT INCLUDED in
maintenance or improvements
2 EAST EL EVAT ION
2 2 3

VIEW LOOK ING NOR THEAST
2 2

PROPOSED MOD IFICATONS
)
Crill's Salt Water Taffy portion
NOT INCLUDED in maintenance
or improvements

1. NEW VERTICAL COMPOSITE PANEL SIDING WITH GROOVES AT 8" O.C .. 1X3 VERTICAL BATTENS AT 48" O.C AND HORIZONTAL lx3 BATTENS AT JOINTS, AS NEEDED.

GENERAL PATTERN MATCHES EXISTING SOUTH ELEVATION. RE-PAINT ENTIRE EXTERIOR COLORS TO MATCH EXISTING COLORS.

2. REPLACE LARGE SINGLE-PANE WINDOWS WITH NEW DUAL PANE, 3-PANEL WINDOWS, AS SHOWN.

3. RE-ROOF: STYLE, TEXTURE AND COLOR TO MATCH THAT OF EXISTING ROOFING.

4. TRASH CONTAINMENT STRUCTURE IMPROVEMENT.

5. EXTERIOR LED LIGHTING TO REMAIN.

6. ENERGY-EFFICIENT ROOF VENTILATION TO REMAIN.

7. OUTSIDE TABLES AND UMBRELLAS TO REMAIN.

8. THE BUILDING FOOTPRINT WILL REMAIN THE SAME.

9. NEW HANDRAIL.

WEST

EXISTING SIGN
EAST

Prepared By: ___LT_____ Dept Review: ___ CM___
City Manager Review: __AL______ City Attorney Review: __BS____ Staff Report
TO: Honorable Mayor and City Council DATE: January 7, 2026 FROM: Chris Munson, Harbor Vitality Director
SUBJECT: Trash Receptacle Donation from the Friends of the Morro Bay Harbor Department

RECOMMENDED ACTION
Accept the donated trash receptacles from the Friends of the Morro Bay Harbor Department and authorize the City Manager to execute the Donation Agreement.

ALTERNATIVES
None. The donation offer complies with the City’s Donation Policy as established by Resolution No. 61-19 (Attachment 2).

FISCAL IMPACT
The value of two donated receptacles totals $5,472.07. There is no direct fiscal impact associated with accepting this donation. Replacement of the trash receptacles avoids the need for City-funded capital expenditures.

BACKGROUND
The Friends of the Morro Bay Harbor Department is a local 501(c)(3) Non-Profit organization that supports the Harbor Department through fundraising and donations for training, equipment, public amenities, and services that are not provided through regular City budgets and operations. The organization has offered to donate two trash receptacles to the City to replace existing trash cans that have deteriorated due to age, exposure to coastal conditions, and heavy public use. The replacement of these trash cans will improve functionality, appearance, and waste management within the Harbor area.

Upon acceptance of the donation, the City of Morro Bay will assume responsibility for installation, maintenance, and routine servicing of the trash receptacles. Acceptance of the donation supports the City’s goals of maintaining safe, clean, and attractive public spaces and demonstrates the value of partnerships with community organizations.

AGENDA NO: 6.h
MEETING DATE: January 13, 2026

Figure 1. Model of Donated Receptacles
The City would like to thank the Friends of the Harbor Department for their continued support and improvement of the waterfront.

ATTACHMENTS

1. Friends of the Morro Bay Harbor Department Acceptance Agreement

2. Resolution No. 61-19 Donations and Grant Management Policies

DONATION AGREEMENT

BY THE FRIENDS OF THE MORRO BAY HARBOR

DEPARTMENT TO THE CITY OF MORRO BAY
THIS AGREEMENT is made and entered into this 23 day of September, 2025, and is effective as of the 13th day of January, 2026 (“Agreement”), by and between the CITY OF MORRO BAY, a municipal corporation of the State of California (hereinafter GRANTEE and “City”), and FRIENDS OF THE MORRO BAY HARBOR DEPARTMENT, a California nonprofit corporation, (hereinafter GRANTOR).

WITNESSETH
WHEREAS, GRANTEE is committed to maintaining public spaces and services that serve the community, protect natural resources, and support a vibrant visitor economy; and WHEREAS, the Trash Receptacles support the City’s provision of clean, safe and wellmaintained public spaces for residents and visitors; and WHEREAS, the donation meets objectives as outlined in the City’s adopted Donation Policy (Resolution No. 61-19);
WHEREAS, GRANTOR is a not-for-profit community group established to help improve Harbor Safety and Services in Morro Bay; and
WHEREAS, GRANTOR desires to assist GRANTEE by purchasing and donating the Trash Receptacles; and
NOW, THEREFORE, THE PARTIES AGREE, as follows:

1. Subject to the terms of this Agreement, on or before January 13, 2026, GRANTOR agrees to donate to GRANTEE Trash receptacles for use by the City, with consideration to GRANTOR that GRANTEE’S use of the GRANTEE’S discretion furthers GRANTOR’S established goal of improving public cleanliness in Morro Bay.

2. GRANTOR agrees that the Trash receptacles donated shall be the sole and separate property of City. GRANTEE agrees to assume ownership of the Trash Receptacles and to release GRANTOR from liability for any damages or claims arising out of GRANTEE’s use of the Trash receptacles and unrelated to any breach of this Agreement by GRANTOR.

3. Neither GRANTOR nor GRANTEE may assign any rights or obligations created by this Agreement to any other person without the prior written approval of the other party.

4. The terms and conditions of this Agreement can only be amended in writing approved and signed by GRANTOR and GRANTEE.

5. MISCELLANEOUS PROVISIONS
A. The Caption
The captions of the various sections, paragraphs, and subparagraphs of the Agreement are for convenience only and shall not be considered nor referred to for resolving questions of the interpretation.

B. No Third-Party Beneficiary
This Agreement shall not be construed or deemed to be an Agreement for the benefit of any third party or parties, and no third party shall have any claim or right of action hereunder for any cause whatsoever.

C. Severability Clause
In case any one or more of the provisions contained herein shall, for any reason, be held invalid, illegal, or unenforceable in any respect, it shall not affect the validity of the other provisions which shall remain in full force and effect.

D. No Pledging of GRANTEE'S Credit
Under no circumstances shall GRANTOR have the authority or power to pledge the credit of GRANTEE or incur any obligation in the name of GRANTEE.

E. Venue
This Agreement shall be interpreted, construed and governed both as to validity and to performance of the parties in accordance with the laws of the State of California. Legal actions concerning any dispute, claim or matter arising out of or in relation to this Agreement shall be instituted in the Superior Court of the County of San Luis Obispo, State of California, or any other appropriate court in such county, and GRANTOR covenants and agrees to submit to the personal jurisdiction of such court in the event of such action. In the event of litigation in a U.S. District Court, venue shall lie exclusively in the Central District of California, in the County of San Luis Obispo, State of California.

F. Non-liability of GRANTOR Officers and Employees
No officer or employee of GRANTOR shall be personally liable to the GRANTEE, or any successor in interest, in the event of any default or breach by GRANTOR or for any amount which may become due to GRANTOR or to its successor, or for breach of any obligation of the terms of this Agreement.

G. Interpretation
The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against either party by reason of the authorship of this Agreement or any other rule of construction which might otherwise apply.
///
///

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first herein above set forth.

City of Morro Bay Friends of the Morro Bay Harbor Department Andrea Lueker, Interim City Manager Cal Myers, President APPROVED AS TO FORM:

Brian Stack, City Attorney
ATTEST:

Dana Swanson, City Clerk

AGENDA NO: 7.a
MEETING DATE: January 13, 2026
Prepared By: __EV/AS_____ Dept Review: __AS_____
City Manager Review: __AL_____ City Attorney Review: __BS____ Staff Report
TO: Honorable Mayor and City Council DATE: January 5, 2026 FROM: Airlin Singewald, Community Development Director
SUBJECT: Short-Term Rental Ordinance Implementation – Quarterly Update; and Introduction of Ordinance No. 674, amending Title 1 (General Provisions) of the Morro Bay Municipal Code to incorporate higher administrative fines for short-term rental (STR) violations that pose a threat to health or safety, pursuant to California Senate Bill 60 (SB 60)

RECOMMENDED ACTION

1. Receive and file a quarterly update on the Community Development Department’s progress in implementing the City’s Short-Term Rental Ordinance and provide staff direction in accordance with the options outlined below; and

2. Introduce for first reading by title only and with further reading waived, Ordinance No. 674:
“An Ordinance of the City Council of the City of Morro Bay, California, amending Chapter

1.03 of Title 1 (General Provisions) of the Morro Bay Municipal Code,” amending the City’s Administrative Citation Program to incorporate higher administrative fines for short-term rental (STR) violations that pose a threat to health or safety, pursuant to California Senate Bill 60 (SB 60).

ALTERNATIVES
City Council could vote not to introduce an ordinance establishing higher administrative fines for STR violations that pose a threat to health and safety. This decision would maintain the fine structure outlined in MBMC 1.03 as currently written.

FISCAL IMPACT
The City’s cost to implement the STR ordinance is partially offset through the collection of the Vacation Rental Monitoring and Administrative Fee (inspection fee), which is applied annually to all existing permitted STRs. With the recent fee study update, this fee increased from $709 to $764 per year.

The City’s efforts in 2025 to enforce the STR ordinance resulted in the closure of approximately 50 STRs that regularly paid the annual inspection fee in previous years. As a result, if these are not replaced by new STRs, the City will experience a decline in annual STR permit fee revenue.

As of December 31, 2025 (50% through FY 25-26), the City received $40,577 in STR permit revenue or 34% of budgeted revenue. At the same time last year, the City had received $65,005 in STR permit revenue.

In FY 24-25, STRs generated $697,973 in TOT revenue for the City Budget, about $10,000 less than the previous year. As discussed in this staff report, the number of STRs in the City has declined since implementation of the annual renewal process, as STR permits are abandoned or expire without being replaced with new STRs. This will result in a corresponding reduction in TOT revenue to the City.

The proposed increase in administrative citations for some STR violations may increase revenue to help offset the City’s costs to enforce the STR ordinance. However, the purpose of administrative fines is not to generate revenue, but rather to discourage violations and achieve compliance with health and safety requirements. Furthermore, the small increase in revenue that may result from higher citation amounts will not offset the projected decline in STR permit and TOT revenue due to decreased STR activity.

BACKGROUND
This is the fourth and final quarterly update of the 2025 STR permit audit. Previous updates occurred on March 11, 2025, June 24, 2025, and October 14, 2025. In 2026, staff will provide updates to Council on an as-needed basis or as directed by the Council.

The City’s STR Ordinance took effect in September 2021. In 2025, City staff developed and initiated a new permitting process to implement the STR Ordinance. During the 2025 audit year, staff focused on requiring grandfathered STRs to obtain a renewal permit to verify compliance with the STR ordinance. The City did not issue any permits for new STRs during this timeframe.

This item also introduces an ordinance to increase citations for STR violations involving health and safety concerns, per Council direction on October 7, 2025. If introduced, staff will bring this ordinance back for adoption on January 27, 2026. This is appropriately timed since staff has completed the 2025 audit and will now shift more resources to proactive code enforcement efforts.

The City has invested substantial time and resources to bring existing STRs into full compliance with the ordinance, and the Code Enforcement Division will take decisive action to shut down any STR that seeks to circumvent regulations that others have diligently followed.

DISCUSSION
2025 Audit Results
At the end of 2025, the City had 146 grandfathered STRs on record, including 112 full home rentals (subject to the cap and buffer requirements). This includes 112 issued STR permits, 30 STR permits in process, and 4 STR permits not started (they have until January 31 to apply before they are abandoned). This represents all of the known permitted STRs in the city.

Grandfathered STRs December 31, 2025 January 1, 2025
Full Home Residential STRs (subject to cap and buffer) 112 173 Commercial STRs 30 9
Home shares 4 11
Total 146 193
At the beginning of the 2025 audit, City records showed 193 permitted STRs, including 173 fullhome rentals that were “grandfathered” out of the “cap and buffer” requirements of the City’s September 2021 STR Ordinance. Since the grandfathered STRs were legally established prior to the City’s new STR regulations, they are allowed to continue operating without meeting the 175’ buffer requirement (requires 175 feet of separation between parcels with full home STRs), as long as they keep their business license and TOT accounts current and comply with all other provisions

of the City’s STR ordinance. The remaining 23 permitted STRs were either home shares or commercially zoned STRs, which are not subject to the “cap and buffer” requirements, regardless of grandfathered status.

In 2025, City staff required all grandfathered STRs to obtain an STR “renewal permit.” As part of the permitting process, City staff physically inspected each property and reviewed property insurance, ownership and title history, online listing descriptions, TOT filings, and house rules to verify compliance with the City’s STR regulations. At the same time, the City sent “sunset” letters to STRs with expired business licenses or TOT accounts. During this process, many STRs were voluntarily abandoned or expired. The City also denied several STR renewal permits for noncompliance with the STR ordinance. Reasons for denial included transfers of ownership, ADU rentals, insufficient TOT payments, and unpermitted structures.

During the October 7, 2025 quarterly STR update, a comment was made to suggest that the grandfathered STRs are in addition to the permitted STRs. It’s important to clarify that the grandfathered STRs and permitted STRs are one in the same. The City’s permitting efforts over the past year have focused solely on requiring the grandfathered STRs to obtain the required STR renewal permits. While the Council directed staff to resume issuing new STR permits for commercially zoned properties, the City hasn’t received any applications for new commercially zoned STRs.

At the conclusion of the audit, the City has record of 112 full home residential STRs, leaving capacity for 63 additional full home rentals. There are currently 187 properties on the waitlist.

However, the vast majority of these properties are “buffered out” meaning they cannot get off the waitlist because they are within 175 feet of an existing grandfathered STR. Staff estimates that a maximum of 20 to 25 waitlisted properties would be eligible for a new STR permit. The rest would be buffered out.

Next Steps - Options
While the 2025 STR permit audit is complete, City staff still have a lot of work ahead to enforce the STR ordinance. Staff is still processing 30 STR permits from last year and will soon initiate STR permit renewals for 2026. Property inspections won’t be required again until 2029. However, during this time, staff will focus more resources on ensuring ongoing compliance and proactive code enforcement to close unpermitted STRs.

Now the audit is complete showing capacity for 63 new full home residential STR permits, the City Council should consider the following options and decide how to proceed:

1. Staff recommended: Authorize issuance of a limited number (e.g., 5) new full home residential STR permits in calendar year 2026. This is a cautious approach that increases TOT revenue for the City, honors properties that have diligently waited for an STR permit, and minimizes the diversion of limited staff resources from other priority work efforts that could be caused by immediately opening up the entire 175 cap and the variety of buffer assessments that would need to be conducted and continually updated as new permits issued. In addition, incrementally opening up the cap may allow for increased fairness in the phasing out of old STR locations and phasing in of new STR locations by limiting the number of situations where those higher on the waitlist not currently buffered are able to buffer out those earlier on the waitlist who are currently buffered out but would have otherwise become eligible through natural attrition. Staff also recommends the Council authorize issuing new home share STR permits with no limit, per the current ordinance.

2. Authorize the issuance of new full home STR permits up to the 175 cap. This is not recommended while staff is still working to process renewal permits and enforce the STR ordinance.

3. Direct staff to pause issuance of new STR permits and return with an urgency ordinance lowering the cap to a specified number. Staff does not recommend this option for the following reasons: (a) lowering the cap isn’t necessary to reduce the number of STRs, since the number will continue to decrease by attrition due to the buffer requirement; (b) not issuing new full home residential STR permits is a missed opportunity to slow the decline in TOT revenue; and (c) staff has limited capacity to prepare a new urgency ordinance and follow-up ordinance.

SB 60 – Increased Fines for STR Violations Posing a Threat to Health and Safety This item is also introducing an ordinance to increase the maximum citation amounts for STR violations involving health and safety concerns, per previous Council direction. If introduced, staff will present the ordinance for City Council adoption on January 27, 2026.

The City currently imposes administrative fines for STR Ordinance violations in accordance with Municipal Code Section 1.03.050. This section establishes the maximum fines for ordinance violations as follows:
 A fine not exceeding $100 for a first violation.
 A fine not exceeding $200 for a second violation of the same ordinance within one year from the first violation.
 A fine not exceeding $500 for each additional violation within one year from the first violation.

These maximum fines are set by State law (Government Code Section 36900). However, California Senate Bill 60 (SB 60), effective in 2021, allows jurisdictions to impose significantly higher administrative fines for STR violations that pose a threat to health or safety. Under this law, local governments can impose fines as follows:
 $1,500 for a first violation.
 $3,000 for a second violation within one year of the first.  $5,000 for additional violations within one year.

These increased fines can only be imposed for violations that pose a threat to health or safety.

For example, while they cannot be imposed on first-time failures to register or pay a business license fee, the City’s STR permit process is not just a registration or license fee system and instead includes a robust set of regulations that establish density limitations, permitting requirements and operational standards with the declared purpose to minimize the deleterious health and safety effects of unregulated STRs on adjacent residents and neighborhoods.

Therefore, the proposed ordinance provides that operating without a valid STR permit is grounds for imposing the increased fines.

The Council directed staff to bring an ordinance enacting this higher fine structure for future consideration during the October 14, 2025 quarterly update. Ordinance 674 is included with this staff report as Attachment 1, and proposes to incorporate the provisions of SB 60 into Title 1 of the Municipal Code. Ordinance 674 also outlines a hardship waiver process by directing the appellant to MBMC 1.03.070, Hearing Request. This is in line with what other jurisdictions that have implemented SB 60 have done to satisfy this requirement.

CONCLUSION
In conclusion, while the 2025 audit is complete, the City still has significant work ahead to continue processing renewal permits while shifting more resources towards proactive code enforcement.

Increased citation amounts will improve the City’s leverage to achieve compliance but should not be viewed as a revenue source.

Now that the audit has concluded, the City is at a critical juncture and must determine the next steps for implementing or amending the ordinance. The main question is whether to authorize up to 63 new full home residential STRs or enact an urgency ordinance with a moratorium on new permits, while staff develops a permanent ordinance amendment to reduce the cap.

In making this decision, the Council should consider the following factors: (1) fiscal implications; (2) the likelihood that the buffer requirement will function as a de facto cap, resulting in a gradual reduction through attrition; and (3) staff resources to prepare an urgency and permanent ordinance (permanent ordinance would be subject to Coastal Commission review and certification) and competing priorities.

The staff recommendation is to meter out new STR permits at a rate of 5 per year, while continuing to monitor progress in permitting, compliance, and enforcement. This is a cautious approach that will slow the decline in TOT and permit revenue, honor the waitlist, and preserve staff resources to continue working on other Council-directed long range planning projects. The limiting effect of the buffer requirement and metering of STR permits (to be re-evaluated annually) provide a strong safeguard against future proliferation of STRs
Staff also recommends authorizing the issuance of new home share STR permits, as they are not limited by the ordinance and involve minimal neighborhood compatibility concerns due to the requirement for the operator to live on site.

ATTACHMENTS

1. Ordinance 674, amending Title 1 of the MBMC

2. Map of Permitted and Waitlisted STRs with 175’ Buffer

_____________________________________________________________________________________________ ORDINANCE NO. 674

AN ORDINANCE OF THE CITY COUNCIL

OF THE CITY OF MORRO BAY, CALIFORNIA,
AMENDING TITLE 1 (GENERAL PROVISIONS) OF THE MORRO BAY

MUNICIPAL CODE TO INCREASE THE DOLLAR AMOUNTS OF

ADMINISTRATIVE CITATIONS IMPOSED ON SHORT-TERM RENTALS
(STRs) THAT POSE A THREAT TO HEALTH AND SAFETY, IN
ACCORDANCE WITH STATE SENATE BILL 60, AND FINDING THE ACTION

NOT SUBJECT TO CEQA

THE CITY COUNCIL
City of Morro Bay, California
WHEREAS, the City of Morro Bay, California (“City”) is a municipal corporation, duly organized under the California Constitution and laws of the State of California; and WHEREAS, Title 1 of the Morro Bay Municipal Code currently sets forth the Administrative Citation Program applicable within the City in Chapter 1.03; and WHEREAS, California Government Code Section 36900 establishes the maximum fines allowed to be imposed by a local jurisdiction’s administrative citation program; and
WHEREAS, the City enacted an ordinance regulating the operation of short-term vacation rentals (STRs) within City limits in September 2021; and WHEREAS, the STR Ordinance, in MBMC 17.30.220(K)(4), states that violations of the ordinance may be punishable through administrative fines, in accordance with Chapter 1.03 of the Morro Bay Municipal Code, as may be set by City Council resolution; and
WHEREAS, California Senate Bill 60 (“SB 60”) allows jurisdictions to impose significantly higher administrative fines for STR violations that pose a threat to health or safety; and
WHEREAS, SB 60 requires the jurisdiction imposing higher fines to also provide a hardship waiver or fine reduction process; and
WHEREAS, the City has reviewed the provisions of SB 60 and wishes to incorporate them into Title 1 of the Morro Bay Municipal Code; and WHEREAS, any and all other legal prerequisites relating to adoption of this Ordinance have occurred.

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MORRO BAY, CALIFORNIA FINDS AND ORDAINS AS FOLLOWS:

SECTION 1. Recitals. The City Council hereby declares and adopts the foregoing recitals and findings as true and correct and they are incorporated herein.

_____________________________________________________________________________________________ SECTION 2. Municipal Code Amendments. The City Council desires to adopt the proposed Ordinance, amending Title 1 (General Provisions), Chapter 1.03 (Administrative Citation Program) of the Morro Bay Municipal Code to read as follows:

Chapter 1.03 ADMINISTRATIVE CITATION PROGRAM

1.03.050 Administrative Fines.

A. The amounts of the fines for violations imposed pursuant to this chapter shall be set forth in the schedule of fines established by resolution of the city council, or where no fine is specified therein, by:

1. A fine not exceeding one hundred dollars for a first violation;

2. A fine not exceeding two hundred dollars for a second violation of the same ordinance or permit within one year from the date of the first violation;

3. A fine not exceeding five hundred dollars for each additional violation of the same ordinance or permit within one year from the date of the first violation.

B. The schedule of fines shall specify any increased fines for repeat violations of the same or similar provision by the same person within thirty-six months from the date of an administrative citation.

C. The schedule of fines shall specify the amount of any late payment charges imposed for the payment of a fine after its due date.

D. Pursuant to Government Code Section 36900(d), the amount of fines for violations of Chapter 17.30.220, Short-Term Vacation Rentals (IP), that pose a threat to public health or safety shall be one thousand five hundred dollars ($1,500.00) for a first violation, three thousand dollars ($3,000.00) for a second violation within one (1) year of the prior violation, and five thousand dollars ($5,000.00) for each additional violation within one (1) year of the first violation. Violations that pose a threat to public health or safety include but are not limited to the operation of a short-term rental without a valid short-term vacation rental permit, material false representation on any short-term vacation rental application or self-inspection form, or a material violation of any operational requirements under Section 17.30.220(L). A permittee seeking a hardship waiver as set forth in Government Code Section 36900(e) shall utilize the appeal procedures set forth in Chapter 1.03.070, Hearing Request.

SECTION 3. Compliance with the California Environmental Quality Act (CEQA). This ordinance is not subject to CEQA (Public Resources Code Section 21000 et seq.) pursuant to CEQA Guidelines (California Code of Regulations, Title 14, Section 15000 et seq.) Section 15060(c)(2) [activity will not result in a direct or reasonably foreseeable indirect physical change in the environment]. Additionally or alternatively, this ordinance is exempt from CEQA under CEQA Guidelines Sections 15061(b)(3) [it can be seen with certainty that there is no possibility the activity in question may have a significant effect on the environment], 15307 [Class 7, categorical exemption for regulatory activity to assure the protection of natural resources], and 15308 [Class 8, categorical exemption for regulatory activity to assure the protection of the environment].

SECTION 4. Severability. If any section, subsection, sentence, clause, phrase, or portion of this ordinance is, for any reason, held to be invalid or unconstitutional by the decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions

_____________________________________________________________________________________________ of this ordinance. The City Council hereby declares that it would have adopted this ordinance and each section, subsection, sentence, clause, phrase, or portion thereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses, phrases, or portions thereof may be declared invalid or unconstitutional.

SECTION 5. Effective Date. This ordinance shall be in full force and effect thirty (30) days after its passage.

SECTION 6. Certification. The City Clerk shall certify as to the passage and adoption of this ordinance, and the City Clerk shall cause the same to be posted and codified in the manner required by law.

INTRODUCED at a regular meeting of the City Council held on the 13th day of January 2026, by motion of Council Member _____________ and seconded by Council Member _____________.

PASSED AND ADOPTED on the ____ day of _______, 2026, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

RECUSE:
____________________________
CARLA WIXOM, Mayor
ATTEST:
________________________________
DANA SWANSON, City Clerk
APPROVED AS TO FORM:
_________________________________
BRIAN STACK, City Attorney

_____________________________________________________________________________________________

STATE OF CALIFORNIA )

COUNTY OF SAN LUIS OBISPO )

CITY OF MORRO BAY )
I, Dana Swanson, City Clerk for the City of Morro Bay, California, do hereby certify that the foregoing Ordinance No. 674 was duly passed and adopted by the City Council of the City of Morro Bay at the regular meeting thereof, held on the ______ day of _______ 2026, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN
RECUSED:

IN WITNESS WHEREOF I have hereunto set my hand and affixed the official seal of the City of Morro Bay, California, this day of , 2026.
______________________________
DANA SWANSON, City Clerk

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Marengo Dr.

Madera Ave.

Luisita St.

Hill
Rd.

Sunset Ave.

Butte Ave.

Panorama Dr.

Cabrillo Pl.

Radcliff Ave.

Koa Ave.

Prescott
Dr.

Nevis
St.

Selby
St.

Pico St.

Downing St.

Atascadero
Rd.

Cuesta Ave.

Beachcomber
Dr.

Kings Ave.

Coral
Ave.

South St.

San Jacinto St.

Elena St.

Sequoia St.

San Joaquin St.

Kennedy Way
Sandalwood Ave.

Clarabelle Dr.

Napa Ave.

Ironwood Ave.

Surf St.

Ridgeway St.

Gilbert St.

Main St.

Tide Ave.

Tide Ave.

Bernardo Ave.

Tuscan Ave.

La Loma St.

Oak
St.

Fig
St.

Cypress
Ave.

Formosa St.

Pecho St.

S at et Park Rd.

Indigo
Cir.

Sienna St.

Orton
St.

Nassau St.

Java St.

Ma
S
in
t.

Conejo
St.

Paula St.

Mindoro St.

Kern Ave.

Greenwood Ave.

Hillview St.

Walnut St.

Elena St.

Mor
B
ro
a
B
y
lvd.

Norwich Ave.

Norwich Ave.

Avalon St.

San Juan St.

Highway
41 Beachcomber Dr.

Damar St.

Hill St.

Whidbey St.

Laurel Ave.

Seaview Ave.

Marina St.

Bonita St.

Bella Vista Dr.

Capri St.

Carmel St.

Acacia St.

Dunbar
St.

Rockview St.

Casita
S
s
t.

Elm Ave.

Hatteras St.

Pacific St.

Whidbey
St.

Marina St.

Anchor St.

Olive St.

Morro
Bay
Blvd.

Vashon
St.

Bali St.

Easter St.

Orcas St.

Ironwood
Ct.

Andros St.

Terra St.

Tahiti St.

Allesandro St.

Palm
Ave.

Alta Ct.

Driftwood St.

Morro Bay Blvd.

Marina St.

Center Ct.

Harbor St.

Olive St.

Sierra Ct.

Pelican
Dr.

Dunes St.

Vista St.

Trinidad
St.

Market Ave.

Monterey Ave.

Shasta Ave.

El Morro
Trailer Ct.

Surf St.

Morro
Bay
Blvd.

Embarcadero Rd.

Beach St.

Monterey
Alley
Island St.

Sicily St.

Mindoro
Way
Orcas
Way
Coral St.

Bay Ave.

Piney Ln.

Reno Ct.

Vashon St.

Yerba Buena St.

Rennel St.

Dana Way.

Sunset
Ct.

Sunset Rd.

Agave Dr.

Piney Way
Toro Ln.

Java St.

Jamaica St.

Ironwood Place
Kodiak St.

Sicily St.

Orcas St.

Panay St.

Tahiti St.

Rennel St.

Trinidad St.

Atascadero
Rd.

Oahu St.

Luzon St.

Fresno Ave.

Beachcomber Dr.

Estero Ave.

Verdon St.

Mindoro St.

Morro
Bay
Blvd.

Morro Bay Alley
Front St.

Nevis St.

Panay St.

Park St.

Teresa Rd.

Island St.

Azure St.

Preston Ln.

Morro Ave.

Whidbey
Way.

West Ave.

Scott St.

Crest St.

Berwick Dr.

Barlow Ln.

Fairview Ave.

Arcadia Ave.

Tulare Ave.

Arbutus Ave.

Allesandro
St.

Balboa St.

Fir Ave.

Las Tunas St.

Morro Cove Rd.

Hwy 1 Ramp
Cerrito Pl.

Zanzibar St.

Coral Ave.

Maple Ave.

Elm Ave.

Blanca St.

Zanzibar St.

Surf Alley
Dogwood Ave.

Dawson St.

Mobile Home Park
Cedar Ave.

Sequoia Ct.

Birch Ave.

Luzon St.

Hemlock Ave.

Mimosa St.

Hwy 1 Ramp
Kodiak St.

Highway 41 Rd.

Alder Ave.

Bolton Dr.

Las Vegas St.

Scott St.

Sunset Ave.

Hillcrest Dr.

Nutmeg Ave.

Hemlock Ave.

Anchor St.

Mesa St.

Highway 41
Brad el y Ave.

Ponderosa St.

Juniper Ave.

Bayview Ave.

Hwy 1 Ramp
La Jolla St.

Hwy 1 Ramp
Bayshore Dr.

Hwy 1 Ramp
Embarcadero
Rd.

Hwy 1 Ramp
Indigo Cir.

Hwy 1 Ramp
Atascadero Rd.

Hwy 1 Ramp Hwy 1 Ramp
South Bay Blvd.

Quintana Rd.

State Park Rd.

Emerald Cir.

Oceanside Rd.

Quintana Rd.

Highway 1
Coleman Dr.

Little Morro Creek Rd.

Black Hill Rd.

Park View Rd.

City of Morro Bay
Current Vacation Rental Status
December 2025
0 3,000
Feet
¯
W:\GIS\CityofMorroBay\Planning\Projects\Vacation Rentals\B-VacationRentals-2025-v4.mxd LEGEND
Vacation Rental Status (As of December 31, 2025)
!( IN PROCESS (30)
!( ISSUED (112)
!( NOT STARTED (4)
!( CLOSED/DENIED (184)
!( WAIT LIST (187)
175-foot Buffer of Active STRs
Last updated on December 31, 2025.

Permit status changes daily.

Prepared By: _DS/BS____ Dept Review: ____
City Manager Review: _AL___City Attorney Review: ___BS___ Staff Report
TO: Honorable Mayor and City Council DATE: January 6, 2026 FROM: Brian J. Stack, City Attorney
Dana Swanson, City Clerk
SUBJECT: Ordinance No. 675 Establishing Local Campaign Finance Contribution Limits

RECOMMENDED ACTION
Introduce for first reading by title only, with further reading waived, Ordinance No. 675, “An Ordinance of the City Council of the City of Morro Bay, California, adding Chapter 2.50 to the Morro Bay Municipal Code Relating to Campaign Contribution Limits.”

ALTERNATIVES
Do not take action to establish local campaign finance contribution limits.

FISCAL IMPACT
Should the Council establish local campaign contribution limits, administration and enforcement of any local campaign contribution rules would become the responsibility of the City and involve additional staff time monitoring campaign statements to ensure contribution limits are adhered to.

Should violations occur, the Fair Political Practices Commission (“FPPC”) would play no role in enforcement absent a separate agreement with the City. Costs for enforcement will vary depending on the enforcement procedures established, including whether the City contracts with the FPPC for enforcement services.

BACKGROUND
At its regular meeting on December 10, 2024, the Council requested a future discussion item regarding campaign contribution limits. Prior to 2021, there were no campaign contribution limits on local political races unless the jurisdiction established their own limits. Like Morro Bay, many local jurisdictions did not have local contribution limits. In January 2021, AB 571 became effective which established default limits on contributions to candidates for local office. Local jurisdictions could still establish their own limits, but if they did not the state limits would apply by default.

State campaign contribution limits for City elected offices currently apply by default under AB 571 because the City has not established local campaign contribution limits. The default campaign contribution limit is updated biennially for inflation. For 2025-2026, the limit for local candidates is $5,900 per donor, per election. This limit does not apply to a candidate’s contribution of personal funds to their controlled committee because of First Amendment related concerns. There is a $100,000 cap on personal loans from a candidate to their controlled committee, unless the local AGENDA NO: 7.b
MEETING DATE: January 13, 2026

2 jurisdiction establishes their own contribution limits.

At its regular meeting on October 14, 2025, staff brought a discussion item and presented alternatives for Council consideration and was directed to return with an ordinance establishing $500 campaign contribution limit for candidate-controlled committees with options for enforcement.

The October 14, 2025 staff report provides the legal analysis and additional background information.

DISCUSSION
If adopted as presented, Ordinance 675 would establish the following local campaign regulations:
 Limit campaign contributions to a candidate, or candidate-controlled committee, to $500 per donor per election. This limit does not apply to the contribution of a candidate’s personal funds or loans made from a candidate to their own controlled committee.  Contributions either in the aggregate or on their face that exceed the established limit shall be deemed not to have been accepted if returned within 14 days of receipt so long as the committee did not make use of the contribution.
 Existing city penalties and enforcement mechanisms (specifically administrative citations, criminal prosecution, and civil actions) would be available in the event violations occur that are not remedied by the candidate within 14 days.

Considerations
 Establishing local campaign contribution limits of less than $1,000 would simplify reporting requirements for campaigns as there would be no need for treasurers to prepare, or the City to accept 24-hour contribution reports for contributions of $1,000 or more in the 90 days leading up to an election.
 A local campaign contribution limit of $500 or less would avoid mandatory disclosure and recusal requirements related to business and land use permitting under Government Code section 84308.
 No cap is being proposed on loans made from a candidate to their own controlled committee.

This would mean the state cap of $100,000 and prohibition on charging interest would no longer apply to candidate loans. The existing state cap is well in excess of the historical amount of candidate loans made in City campaigns. The effective removal of the state cap and prohibition on charging interest is not expected to undermine the purposes of the local ordinance (such as appearance of pay-to-play). Candidate loans and any interest charged would still be identified under existing state reporting requirements.  The administration and enforcement of any local campaign contribution rules would become the responsibility of the City and involve additional staff time depending on level of campaign statement monitoring and enforcement desired to ensure contribution limits are adhered to.

Should violations occur, the Fair Political Practices Commission (“FPPC”) would play no role in enforcement absent a separate agreement with the City. Costs for enforcement will vary depending on the enforcement procedures established, including whether the City contracts with the FPPC for enforcement services. Existing city penalties and enforcement mechanisms would be available for enforcement. This includes administrative fines beginning at $100 per violation up to $500 for repeat violations, criminal prosecution as an infraction or misdemeanor, and civil actions for injunctive relief and civil penalties. The ordinance could attempt to impose additional or unique civil penalties (such as multipliers for excess contribution amounts) or other remedies, but those would likely require additional resources and in some cases new processes to be established. The local campaign contribution limits

3 and regulations being proposed are straightforward, provide a reasonable grace period and would likely be self-enforcing given existing reporting requirements that would remain unaffected by the local ordinance.
 Alternatively, should the City choose not to establish local campaign contribution limits, the $5,900 State limit as established by AB 571 would continue to apply and any violations of State regulations would be administered by the FPPC.

Should the Council move forward with the ordinance presented, it will come back for adoption at the January 27th meeting and take effect 30 days thereafter. Following adoption, staff will notify treasurers for current active committees, update election materials for the 2026 election to inform candidates that local contribution limits have been established and provide reminders to committee treasurers prior to each filing deadline. Staff would evaluate resource needs during the 2026 election and would return to the Council if additional resources or enforcement mechanisms prove necessary, such as contracting with FPPC for enforcement services or additional civil penalties.

CONCLUSION/RECOMMENDATION
Introduce for first reading by title only, with further reading waived, Ordinance No.675, “An Ordinance of the City Council of the City of Morro Bay, California, adding Chapter 2.50 to the Morro Bay Municipal Code Relating to Campaign Contribution Limits.”

ATTACHMENT(S)

1. Proposed Ordinance No. 675

ORDINANCE NO. 675

AN ORDINANCE OF THE CITY COUNCIL

OF THE CITY OF MORRO BAY, CALIFORNIA
ADDING CHAPTER 2.50 TO THE MORRO BAY MUNICIPAL CODE

RELATING TO CAMPAIGN CONTRIBUTION LIMITS

T H E C I T Y C O U N C I L
City of Morro Bay, California
WHEREAS, the California’s Political Reform Act (the “ACT”) requires disclosure of campaign contributions and expenditures in connection with state and local elections and authorizes local agencies to enact campaign regulations that do not prevent compliance with the Act itself; and
WHEREAS, effective January 1, 2021, Assembly Bill No. 571 (“AB 571) imposed a default campaign contribution limit upon cities and counties; and WHEREAS, the current State default contribution limit for the City’s election in 2026 would be $5,900 per donor, which is significantly in excess of the size of most contributions that have traditionally been made in City campaigns; and
WHEREAS, the City Council hereby finds and declares it is in the public’s and City’s interest to limit the amount of contributions per donor that may be made to candidates and committees controlled by candidates for City elective offices and that a lower, reasonable contribution limit of $500 per donor will still be adequate for candidates to raise sufficient funds to get their message out to the electorate; and
WHEREAS, California Government Code Section 85702.5 permits cities to act, either by ordinance or resolution, to establish their own campaign contribution limits that differ from those described in Government Code Sections 85301 and 83124; and WHEREAS, in adopting this Ordinance, it is the City Council’s intent to ensure a fair election process by setting local campaign contribution limits; and WHEREAS, all legal prerequisites relating to the adoption of this ordinance have occurred.

NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF MORRO BAY CALIFORNIA, DOES ORDAIN AS FOLLOWS:

SECTION 1. Recitals. The recitals set forth above are true and correct and are hereby adopted as findings in support of this Ordinance as if fully set forth herein.

SECTION 2. Severability. If any section, subsection, sentence, clause or phrase of this Ordinance is for any reason held invalid by a court of competent jurisdiction, such a decision shall not affect the validity of the remaining portions of this Ordinance. The City Council declares that it would have passed this Ordinance and each section, subsection, sentence, clause, or phrase thereof, irrespective of the fact that one or more sections, subsections, sentences, clauses, or phrases, be declared invalid.

SECTION 3. Potential Conflicts. All ordinances and parts of ordinances in conflict with those sections amended or added herein are hereby expressly superseded by this ordinance.

SECTION 4. Effective Date. This Ordinance shall not become effective and in full force and effect until 12:01 a.m. on the thirty-first day after its final passage.

SECTION 5. Addition of Campaign Contribution Limits. A new Morro Bay Municipal Code Chapter 2.50, “Campaign Contribution Limits,” is hereby added to the Morro Bay Municipal Code to read as follows:

2.50.010 – Purpose and Intent
A. It is the purpose and intent of this chapter:

1. To promote integrity, honesty, fairness, and transparency in municipal election campaigns

2. To prevent corruption, or the appearance of corruption, which results from the real or imagined influence of large contributions on the conduct or actions of candidates elected to office.

3. To place realistic and enforceable limits on the amounts persons may contribute in municipal election campaigns.

4. To provide full and fair enforcement of all provisions of this chapter.

B. By enacting this chapter, the city council does not intend to deprive or restrict any citizen of the exercise of rights guaranteed under the United States Constitution and the California Constitution.

C. The city council takes specific notice of the findings and declarations made in the Political Reform Act and finds and declares them applicable to Morro Bay and a basis for enacting this chapter.

D. It is the intent of this chapter to impose limits on the amount of money that may be contributed to a candidate or controlled committee to achieve the purposes specified in this section. This chapter is not intended, and shall not be construed, to establish any reporting, filing, or procedural requirement in addition to, or different from, the Political Reform Act or the regulations adopted by the Fair Political Practices Commission (FPPC).

2.50.020 – Definitions
The terms used in this chapter shall have the same definitions as specified in the Political Reform Act and FPPC regulations. In those cases where definitions in the Political Reform Act or FPPC regulations contain a specific reference to any state election, candidate, or electoral criteria, the definition shall be modified to reflect the municipal equivalent, or, in the absence of a municipal equivalent, to delete the specific reference.

2.50.030 – Limits on Campaign Contributions to Candidates A. Acceptance or Solicitation by Candidates or Controlled Committees. No candidate or controlled committee shall solicit or accept any contribution from any person which would cause the total amount contributed by such person, with respect to any single election, to the candidate or any controlled committee connected with that candidate, to exceed the sum of five hundred dollars ($500.00).

B. Not Applicable to Personal Funds or Loans. The limits imposed by this section shall not apply to the contribution of a candidate’s personal funds or loans made from a candidate to their own controlled committee made in accordance with state law.

C. Return of Excessive Contributions. Contributions which either in the aggregate or on their face exceed the contribution limit under this section shall be deemed not to have been accepted if returned within 14 days of receipt so long as the candidate or controlled committee did not make use of the contribution prior to returning it.

D. Penalties and Enforcement.

1. Violations of this chapter may be punishable as infractions or misdemeanors pursuant to Chapter 1.16 of the Morro Bay Municipal Code.

2. Violations of this chapter may be punishable through administrative fines imposed by the city clerk as the designated enforcement officer in accordance with Chapter

1.03 of the Morro Bay Municipal Code.

3. In addition to other remedies provided by this chapter or by other law, any violation of this chapter may be remedied by a civil action brought by the city attorney, including but not limited to administrative or judicial proceedings, civil or criminal code enforcement proceedings, and suits for injunctive relief

4. The remedies provided by this chapter are cumulative and in addition to any other remedies available at law or in equity.

SECTION 6. Certification. The City Clerk shall certify as to the passage and adoption of this ordinance, and the City Clerk shall cause the same to be posted and codified in the manner required by law.

INTRODUCED at a regular meeting of the City Council of Morro Bay, held on the _____ day of __________ 2026 by motion of Councilmember _________ and seconded by Councilmember _______.

PASSED AND ADOPTED on the _______ day of __________ 2026, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

RECUSE:

____________________________
CARLA WIXOM, Mayor
ATTEST:
______________________________
DANA SWANSON, City Clerk
APPROVED AS TO FORM:
_____________________________________
BRIAN J. STACK, City Attorney

STATE OF CALIFORNIA )

COUNTY OF SAN LUIS OBISPO )

CITY OF MORRO BAY )
I, Dana Swanson, CITY CLERK FOR THE CITY OF MORRO BAY, HEREBY CERTIFY the foregoing Ordinance Number 675 was duly adopted by the City Council of the City Council of the City Morro Bay at a regular meeting of said Council on the _________ of _____________ 2026 and that it was so adopted on by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

RECUSE:

IN WITNESS WHEREOF I have hereunto set my hand and affixed the official seal of the City of Morro Bay, California, this ______ day of _______________, 2026.

DANA SWANSON, City Clerk

Prepared By: ___AL_____ Dept Review: ______
City Manager Review: ___AL_____ City Attorney Review: __BS____ Staff Report
TO: Honorable Mayor and City Council DATE: January 5, 2026 FROM: Andrea Lueker, Interim City Manager
SUBJECT: San Luis Obispo Council of Governments (SLOCOG) Draft Transportation Expenditure Plan

RECOMMENDED ACTION
Receive a presentation from SLOCOG on its draft Transportation Expenditure Plan and provide input and comment regarding the plan.

ALTERNATIVES
None.

FISCAL IMPACT
There is no fiscal impact related to the recommendation.

BACKGROUND/DISCUSSION
The San Luis Obispo Council of Governments (SLOCOG) has developed a Draft Transportation Expenditure Plan and Implementation Guidelines associated with a potential half-cent countywide transportation sales tax measure targeted for the November 2026 ballot. The Plan is intended to address a region-wide transportation funding shortfall, respond to public feedback collected through polling, workshops, and focus groups, and establish an equitable distribution of new transportation revenues.

As part of SLOCOG’s public outreach and review process, the agency is presenting the Draft Plan to all seven cities and the County Board of Supervisors to gather input prior to final Board consideration in early 2026. SLOCOG staff will provide an overview of the Draft Plan at the January 13, 2026 City Council Meeting and is seeking comments from the City Council.

The draft expenditure plan is projected to generate approximately $35 million annually (2024 estimate), escalating each year. These revenues would be distributed across four primary categories:
 55% - Local Road Repairs, Safety, and Improvements (allocated to each jurisdiction based on population)
 40% - Regional Corridor Improvements (allocated to four subregions by population share)  4% - Senior/Disabled/Veterans’ Mobility Improvements
 1% - Administrative Costs (maximum)
AGENDA NO: 8.a
MEETING DATE: January 13, 2026

The plan emphasizes transparency, local control, subregional equity, and accountability through safeguards such as a Citizens’ Oversight Committee, maintenance-of-effort requirements, regular audits, and multi-year implementation plans. SLOCOG is seeking feedback from all jurisdictions regarding the distribution methodology, project categories, funding priorities, and implementation policies.

Under the Draft Plan, the City of Morro Bay would receive an estimated $773,207 annually from the Local Road Repair category (55% share), as shown in Table 1. Additional funds are guaranteed to fund improvements in North Coast communities’ regional projects through the Regional Corridor Improvements category (44%).

Following presentations to all city councils and the County Board of Supervisors beginning in December 2025 through January 2026, SLOCOG will compile jurisdictional comments and present a refined plan to the SLOCOG Board on February 4, 2026.

Staff has attached both the Draft Transportation Expenditure Plan document as well as the December 10, 2026 SLOCOG Staff report for further review and information.

ATTACHMENTS

1. SLOCOG Draft Transportation Expenditure Plan document

2. SLOCOG Staff Report-December 10, 2025 – Supplemental Funding Update: Polling Results, Draft Expenditure Plan, Implementation Guidelines and Next Steps

Draft 11/20/25 pg. 1
San Luis Obispo County Transportation
Expenditure Plan
Introduction
San Luis Obispo County’s transportation system is essential to the safety, mobility, and economic vitality of its residents, businesses, and visitors. Yet existing state and federal revenues are inadequate to maintain local streets and roads, operate reliable transit, and deliver major regional improvements.

This Transportation Expenditure Plan establishes a dedicated local funding source — a voter-approved ½-cent transactions and use tax — projected to generate approximately $35 million per year. All revenues will remain in San Luis Obispo County and may only be used for transportation purposes.

The Plan emphasizes geographic equity, fairness, transparency, and strong taxpayer safeguards while ensuring flexibility to leverage state and federal funds.

Revenue Distribution
Annual revenues shall be allocated as follows:
• 55% Local Road Repairs, Safety, and
Improvements distributed by population
to cities and the County. (Reviewed every
ten years based on census data1).
• 40% Regional Corridor
Improvements distributed by subregion
population within the areas defined as
shown.
• 4% Seniors, Veterans, and Mobility
Challenged Transportation Services,
regionwide.
• 1% Administration
1 Should a new city become incorporated, the percentages would be adjusted to reflect the updated population distribution.

Draft 11/20/25 pg. 2
Eligible Uses of Funds
Local Road Repairs, Safety, and Improvements (55%)
Funds are distributed by population and may be used for:
• Local road maintenance, rehabilitation, and repair.
• Safe Routes to School and Safe Routes to College programs. • Bicycle and pedestrian improvements (sidewalks, crosswalks, multi-use paths). • Bridge safety and seismic retrofits.
• Local intersection, operational, and traffic safety improvements. • Community enhancements tied to transportation
(streetscape, lighting, landscaping, wayfinding).
• Signal synchronization.
• Piers, walkways and other pedestrian or bike paths in and around waterfront and river areas.
• Transit services including local trolley services may be funded if desired by a Jurisdiction.

Regional Corridor Improvements (40%)
Regional project funds shall be distributed among subregions and may be used for:
• Highway and major corridor congestion relief improvements and including van or carpool lanes or other congestion relief measures.
• Safety and interchange improvements.
• Regional bicycle and pedestrian connectors between communities like the Bob Jones Trail.
• Interagency Transit access and improvements and efficiency programs • Mitigation impacts for proposed improvements.
• Other projects consistent with the adopted Regional Transportation Plan (RTP).

Seniors, Veterans and Mobility Challenged Transportation Services (4%) Project funds shall support expansion and improvements to mobility programs that prioritize services for seniors, veterans, and mobility challenged regionwide.

Administration (1%)

Draft 11/20/25 pg. 3
SLOCOG shall allocate no more than 1% of annual revenues for administration, planning, reporting, auditing, and program oversight.

Maintenance of Effort (MOE)
The enabling legislation in Public Utilities Code PUC 180001(e) states:

It is the intent of the Legislature that funds generated pursuant to this division be used to supplement and not replace existing local revenues used for transportation purposes.

Each Agency receiving revenues for “Local Projects” shall annually maintain, at a minimum, the same level of local fully discretionary general fund revenues that were expended on average for fiscal years 2023/24, 2024/25 and 2025/26, for transportation purposes. Dedicated funds for transportation such as gas tax revenues are not counted as general fund revenues. Transfers into the general fund will not be counted as general fund revenues. Grant awards and general fund revenues used as matching funds for grant awards will not be counted as general fund revenues.

Unusual one-time general fund allocations that have been expended for transportation purposes may be exempted prior to determining the Agency’s average expenditure for the three fiscal years noted above at the discretion of the SLOCOG Governing Board.

An agency petitioning for an exemption under this provision must supply evidence of the need for special consideration and the petition must be approved by a majority vote of the SLOCOG Governing Board.

The Authority shall not allocate any Net Revenues to any jurisdiction for any fiscal year until that jurisdiction has certified to the Authority that it has included in its budget for that fiscal year an amount of local discretionary funds for streets and roads purposes at least equal to the level of its maintenance of effort requirement. An annual independent audit will be conducted by the Authority to verify that the maintenance of effort requirements are being met by the jurisdiction. Any Net Revenues not allocated pursuant to the maintenance of effort requirement shall be allocated to the remaining eligible jurisdictions according to the formula described in the Ordinance.

Exceptions
Subject to Authority approval, if any local jurisdiction had extraordinary local discretionary fund expenditures during any fiscal year it may determine that year’s minimum expenditure base level of local discretionary funds by:

Draft 11/20/25 pg. 4
(a) subtracting those extraordinary expenses funding, assessment district contributions, development impact funds, redevelopment agency contributions, or other non-recurring contributions) from its total expenditures; or (b) petitioning the Authority for special consideration. It is possible that a local jurisdiction may need to revise its minimum expenditure base beyond the subtraction of extraordinary expenses. In this instance, the Authority may allow the establishment of a new base for that jurisdiction's Maintenance of Effort requirement.

A local jurisdiction petitioning the Authority under this provision must supply evidence of the need for special consideration and the petition must be approved by a majority vote of the Authority.

Requirements For Eligible Jurisdictions
In order to be eligible to receive Net Revenues, a jurisdiction shall satisfy and continue to satisfy the following requirements.

1. Mitigation Fee Program. Assess traffic impacts of new development and require new development to pay a fair share of necessary transportation improvements attributable to the new development.

2. Circulation Element. Adopt and maintain a Circulation Element as part of the jurisdiction’s General Plan,

3. Capital Improvement Program. Adopt and update a minimum Five-Year Capital Improvement Program (CIP). The CIP shall include all capital transportation projects, including projects funded by Net Revenues, and shall include transportation projects required to demonstrate compliance with pavement management requirements.

4. Pavement Management Plan. Adopt and update a Pavement Management Plan, and issue, using a common format approved by the Authority, regular reporting on the status of road pavement conditions and implementation of the Pavement Management Plan.

5. Expenditure Report. Adopt an Expenditure Report to account for Net Revenues, developer/traffic impact fees, and funds expended by the Eligible Jurisdiction which satisfy the Maintenance of Effort requirements. The Expenditure Report shall be submitted by the end of six (6) months following the end of the jurisdiction’s fiscal year and include the following:
a. All Net Revenue fund balances and interest earned.

Draft 11/20/25 pg. 5
b. Expenditures identified by type (i.e., capital, operations, administration, etc.), and program or project.

6. Project Final Report. Provide Authority with a Project Final Report within six months following completion of a project funded with Net Revenues.

7. Time Limits for Use of Net Revenues.
a. Agree that Net Revenues for Regional Projects shall be expended or encumbered no later than the end of the fiscal year for which the Net Revenues are programmed. A request for extension of the encumbrance deadline for no more than twenty-four months may be submitted to the Authority no less than ninety days prior to the deadline. The Authority may approve one or more requests for extension of the encumbrance deadline. b. In the event the time limits for use of Net Revenues are not satisfied then any retained Net Revenues that were allocated to an Eligible Jurisdiction and interest earned thereon shall be returned to the Authority and these Net Revenues and interest earned thereon shall be available for allocation to any project within the same source program.

8. No Supplanting of Funds. Agree that Net Revenues shall not be used to supplant developer funding which has been or will be committed for any transportation project.

9. Public Notice of Use of Measure Funds. Member agencies will provide the public with planned use of measure funding as part of its annual or biennial budget process. This includes each City and each Community Advisory Council will receive at a minimum, twice yearly presentations from the jurisdiction to review proposed investments prior to annual allocations.

Determination of Non-Eligibility
A determination of non-eligibility of a jurisdiction shall be made only after a hearing has been conducted and a determination has been made by the Authority’s Board of Directors that the jurisdiction is not an Eligible Jurisdiction as provided hereinabove.

Taxpayer Safeguards

1. A transportation special revenue fund (the “Local Transportation Authority Special Revenue Fund”) shall be established to maintain all Revenues.

Draft 11/20/25 pg. 6

2. Accounting Receipt, maintenance and expenditure of Net Revenues shall be distinguishable in each jurisdiction’s accounting records from other funding sources, and expenditures of Net Revenues shall be distinguishable by program or project. Interest earned on Net Revenues allocated pursuant to the Ordinance shall be expended only for those purposes for which the Net Revenues were allocated.

3. No Net Revenues shall be used by a jurisdiction for other than transportation purposes authorized by the Ordinance. Any jurisdiction which violates this provision must fully reimburse the Authority for the Net Revenues misspent and shall be deemed ineligible to receive Net Revenues for a period of five (5) years.

4. A Taxpayer Oversight Committee (“Committee”) shall be established to provide an enhanced level of accountability for expenditure of Revenues under the Ordinance. The Committee will help to ensure that all voter mandates are carried out as required. The roles and responsibilities of the Committee, the selection process for Committee members and related administrative procedures shall be carried out as described below.

5. A performance assessment shall be conducted at least once every three years to evaluate the efficiency, effectiveness, economy and program results of the Authority in satisfying the provisions and requirements of the Investment Summary of the Plan, the Plan and the Ordinance. A copy of the performance assessment shall be provided to the Committee.

6. Regular status reports regarding the major projects detailed in the Plan shall be brought before the Authority in public meetings.

7. Annual Report Annually the Authority shall publish a report on how all Revenues have been spent and on progress in implementing projects in the Plan and shall publicly report on the findings and posted on the agency website.

Ten-Year Comprehensive Program Review
At least every ten years the Authority shall conduct a comprehensive review of all projects and programs implemented under the Plan to evaluate the performance of the overall program and may revise the Plan to improve its performance. The review shall include consideration of changes to local, state and federal transportation plans and policies; changes in land use, travel and growth projections; changes in project cost estimates and revenue projections; right-of-way constraints and other project constraints; level of public support for the Plan; and the progress of the Authority and jurisdictions in implementing the Plan. The Authority may amend the Plan based on its comprehensive review, subject to the requirements of Plan Update, Approval Process, and Expenditure Plan Amendments section of this plan.

Draft 11/20/25 pg. 7
Governing Board and Organizational Structure
The San Luis Obispo Council of Governments (SLOCOG) serves as the designated Local Transportation Authority for San Luis Obispo County and is responsible for administering the Transportation Measure in compliance with Public Utilities Code (PUC) 180000 et seq. Upon voter approval of the Transportation Measure, the Board of Directors of SLOCOG will serve as the Authority Board and will oversee its implementation in accordance with the plans and programs detailed in this and future updates of the Expenditure Plan.

This Expenditure Plan provides for the creation of a Citizens’ Oversight Committee to ensure transparency and accountability. Details regarding the Committee are contained in this plan. The Biannual Implementation Plan will be prepared and updated by SLOCOG staff and approved by both the SLOCOG Policy Board and the Local Transportation Authority.

Per PUC 180000, the Authority’s governing board will include representation as follows:
• Five (5) members of the San Luis Obispo County Board of Supervisors • One (1) member representing each incorporated city within San Luis Obispo County—Arroyo Grande, Atascadero, Grover Beach, Morro Bay, Paso Robles, Pismo Beach, and San Luis Obispo—appointed by their respective city councils.

Alternates to the regular members may participate in accordance with SLOCOG bylaws.

Should another city become incorporated, it will have one seat on the steering committee.

Plan Update, Approval Process, and Expenditure Plan
Amendments
Three primary documents guide plan administration:

1. Expenditure Plan – Approved by voters and amendable once per year, following the process described below.

2. Annual Report – Prepared each year by the Citizens’ Oversight Committee to review expenditures and communicate results to the public.

3. Biennial Implementation Plan – Prepared every two years to outline project expenditures and coordinated with the development schedule of the State Transportation Improvement Program (STIP).

In compliance with state and federal requirements, SLOCOG regularly prepares a Regional Transportation Plan (RTP)that identifies priority projects across all transportation modes, including highways, local roads, public transit, bikeways, and aviation. Should funds

Draft 11/20/25 pg. 8
become available for projects not listed in this Expenditure Plan, they may be drawn from the RTP project list.

SLOCOG will have the option to issue bonds to accelerate project delivery, thereby reducing overall costs by advancing construction timelines.

All updates to the Expenditure Plan will undergo public review and hearings. Candidate projects and priorities may evolve, but the county’s extensive transportation needs will ensure robust use of all available funding, including sales tax revenues. During each update, a balanced approach across transportation modes will be emphasized to ensure efficiency and equity in addressing mobility needs throughout San Luis Obispo County.

Amendment Process
As specified in PUC Section 180207:
• (a) Once per calendar year, the Authority may review and propose amendments to the county’s transportation expenditure plan to incorporate additional revenues, account for unanticipated funds, or respond to unforeseen circumstances.

Amendments adopted late in the year will not preclude additional amendments in the following year.
• (b) The Authority must notify the County Board of Supervisors and each city council, providing copies of proposed amendments for their review. • (c) Amendments become effective 45 days after notification.

Changes to funding categories or overall allocation formulas require voter approval.

Biennial Implementation Plan
At least once every two years, SLOCOG will prepare and adopt a Transportation Measure Implementation Plan. This plan will include a financial component consistent with both the Regional Transportation Improvement Program (RTIP) and the STIP.

Process steps include:
• SLOCOG staff, working with member agencies and stakeholders, will draft and update the Implementation Plan biennially.
• The SLOCOG Policy Board will review the Draft Implementation Plan, hold public hearings, and incorporate feedback.
• Following review, the Policy Board formally adopts the Implementation Plan.

Bonding Authority
The Authority shall have the power to sell or issue, at any time, and from time to time,

Draft 11/20/25 pg. 9
including on or before the collection of the taxes authorized by this Ordinance, bonds, notes or other evidences of indebtedness, including capital appreciation bonds, payable from and secured by the proceeds from the sales taxes authorized by this Ordinance and from the proceeds of the existing Measure (TBD) sales taxes, in order to finance and refinance the transportation projects identified in the Transportation Expenditure Plan.

Bonding indebtedness shall be limited to 35% of net sales measured at the end of the 30- year program. An additional bonds test (ABT) no lower than 1.5x Maximum Annual Debt Service will be measured against revenues for any consecutive 12-month period in the prior 18 months.

Allocation of Excess Revenues
If revenues exceed projections or contingency needs, excess funds will first be used to complete projects listed in this Plan. Secondary priority may be given to additional RTPconsistent projects, following an amendment process.

Independent Financial Audits
If the Transportation Measure is approved by the voters, the San Luis Obispo Council of Governments (SLOCOG) will conduct independent financial audits of all revenues and expenditures associated with the measure in accordance with Public Utilities Code 180000 et seq. These audits will ensure full transparency and accountability in the use of voter-approved sales tax revenues.

The results of the audits will be presented annually to the SLOCOG Policy Board and made available to the public, reinforcing confidence in the administration of the Transportation Measure. Findings will also be shared with the Citizens’ Oversight Committee to support their independent review of expenditures and compliance with the Expenditure Plan.

Administration Program – 1% of Measure Revenues
To effectively manage and implement the Transportation Measure, SLOCOG will cap administration costs at no more than 1% of annual sales tax revenues to administrative activities. This allocation supports the necessary planning, oversight, and program development functions required for successful execution of the measure.

Key administrative responsibilities of SLOCOG include:
• Annual Work Program and Budget
Prepare and adopt an annual work program and budget outlining planned expenditures, oversight activities, and administrative costs. • Allocation Program Requirements and Focused Studies
Develop requirements for each funding program established by the Expenditure

Draft 11/20/25 pg. 10
Plan and undertake specialized studies needed to implement those programs effectively.
• Biennial Implementation Plan
Prepare and update the Transportation Measure Implementation Plan every two years, aligning it with the Regional Transportation Improvement Program (RTIP) and State Transportation Improvement Program (STIP)schedules. • Project Prioritization
Establish and update priority lists for regional capacity-enhancing and rehabilitation projects, in coordination with member jurisdictions and consistent with Expenditure Plan goals.
• Independent Annual Audit
Conduct an independent audit of all Transportation Measure funds to ensure compliance, fiscal integrity, and accountability to the public. • Public Outreach and Communication
Carry out ongoing outreach and public education efforts to keep residents informed about project progress, financial performance, and planned updates. • Bond Issuance for Accelerated Delivery
Issue bonds when appropriate to expedite project delivery, reducing overall project costs by leveraging future revenues for near-term improvements. • Revenue Allocation to Local Jurisdictions
Distribute Transportation Measure proceeds to incorporated cities and the county in accordance with the formulas and criteria established in the Expenditure Plan. • Support for Oversight Committees and Related Technical Assistance Provide staff support to advisory committees and furnish technical assistance to member jurisdictions to ensure consistent, equitable, and effective program implementation.

Citizens’ Oversight Committee
Committee Purpose
• To provide oversight on the implementation of the Transportation Expenditure Plan and advise the SLOCOG Policy Board when the Plan needs to be updated or augmented, ensuring that funds are spent in accordance with the approved Plan. • To inform the public and confirm that revenues and expenditures from the Transportation Measure are spent as promised to San Luis Obispo County voters.

Committee Formation
• The Committee will be formed within six (6) months following voter approval of the Transportation Measure in San Luis Obispo County.
• The Committee shall be a permanent component of the Expenditure Plan and cannot be eliminated by amendment.

Draft 11/20/25 pg. 11
• Meetings will begin when Transportation Measure revenues are recommended for expenditure, including Implementation Plan updates.

Selection and Duties of Committee Chair and Vice Chair
• The Committee will select a Chair and Vice Chair from among its members, each serving a one-year term.
• Chair Duties: Call meetings, set agendas, and preside over meetings. • Vice Chair Duties: Perform the Chair’s duties in the Chair’s absence.

Committee Meetings
• The Committee will hold at least two formal meetings annually, with additional meetings scheduled as needed.
• All meetings will comply with the Brown Act (open meeting requirements). • Meetings will be conducted in accordance with Robert’s Rules of Order.

Subcommittee Requirements
• The Committee may form subcommittees to address specific tasks or focus areas. • All subcommittees will consist of an odd number of members to ensure clear decision-making.

Committee Membership, Selection, and Quorum
The Committee will reflect the geographic and demographic diversity of San Luis Obispo County and consist of 12 members. Each represented organization will nominate its representative, with final appointments approved by the SLOCOG Policy Board.

Membership Composition:
• One resident representative appointed by each incorporated city (Arroyo Grande, Atascadero, Grover Beach, Morro Bay, Paso Robles, Pismo Beach, San Luis Obispo) and one member from each of San Luis Obispo County’s Supervisorial District’s within the unincorporated areas. (Total of 12)
The SLOCOG Policy Board will review and appoint these members. If any jurisdiction is unable to appoint a representative, SLOCOG may fill the position through an open application process. Should a new City become incorporated, a representative from that jurisdiction shall be appointed by the City.

Quorum
• A quorum will consist of no fewer than seven (7) members.

Draft 11/20/25 pg. 12
• Actions may be approved by a simple majority of members present, provided the quorum is met.

Term of Membership
• Members serve two-year terms, with a maximum of eight consecutive years of service.
• To establish staggered terms, the initial appointments will be divided so that half serve one-year terms and half serve two-year terms, determined by random selection.
• Proxy voting is not permitted.

Eligibility
• Must be a U.S. citizen, 18 years or older, and a resident of San Luis Obispo County. • Cannot be an elected official of San Luis Obispo County or its cities. • Cannot be an employee of state, county, or city government agencies within San Luis Obispo County (except employees of educational institutions).

Staffing
• SLOCOG staff will provide technical and administrative support, including preparation of agendas, meeting materials, and public communications. • Administrative costs for staffing will be funded through the Transportation Measure’s administrative allocation.
• Expert staff and consultants may be invited to present information or analyses as needed.

Responsibilities
The Committee will review and provide recommendations on financial and programmatic aspects of the Transportation Measure, including:
• Reviewing and commenting on independent financial and performance audits of Measure funds.
• Reviewing periodic reports, studies, and plans related to Measure revenues and expenditures.
• Ensuring that expenditures are consistent with the Expenditure Plan. • Conducting an annual review of sales tax revenue use and publicly reporting findings.
• Presenting recommendations and findings in a formal annual report to the public and SLOCOG Policy Board.

Draft 11/20/25 pg. 13
• Accessing information from SLOCOG’s independent auditor and requesting additional information as necessary to fulfill oversight responsibilities. • Remaining informed of advancements in transportation planning and finance to ensure oversight remains relevant and effective through the duration of the Measure.

Measure Duration
This Transportation Expenditure Plan shall remain in effect for 30 years as approved by San Luis Obispo County voters.

F-2-1

SAN LUIS OBISPO COUNCIL OF GOVERNMENTS

STAFF REPORT
MEETING DATE: DECEMBER 10, 2025 ITEM F-2
SUBJECT:

STAFF CONTACT:

Supplemental Funding Update: Polling Results, Draft Expenditure Plan, Implementation Guidelines, and Next Steps
James Worthley/Annie Bowsky/Kendall Flint, DKS/Richard Bernard, FM3

SUMMARY
Transportation funding for future infrastructure falls short of our needs within the San Luis Obispo region. A dedicated, local transportation sales tax is an invaluable tool that 25 California county transportation authorities use to deliver timely, cost-efficient transportation improvements to their communities. Adding San Luis Obispo county to the list of California’s self-help counties would help unlock hundreds of millions of dollars in additional transportation funding, guaranteeing, and delivering muchneeded transportation improvements and repairs for our residents and to our communities.

A San Luis Obispo regional, ½ cent sales tax for transportation would:
• Generate $35M annually, escalating each year (topping $1B over 30 years without escalations) • Reclaim $0.8M to $1M, annually, from State funds
• Collect a $3M to $5M one-time windfall from State funds • Qualify the region to receive our fair-share of State and Federal funds (our neighboring Central Coast Counties have seen average annual grants that equal or nearly double collected tax amounts) • Include Investment Guidelines providing safeguards, assurances, and oversight of all funds. • Guarantee 99% of all funds be for transportation-related improvements within the Expenditure Plan Attachments: Draft Polling Results and Draft Transportation Expenditure Plan / Implementation Guidelines

RECOMMENDATIONS
Staff: 1) Receive and Comment
2) Adopt Distribution Formulas
3) Direct Staff to Present Draft Expenditure Plan materials to Member Agencies and Seek Comments / Feedback; and Proceed with Development/Refinement of Draft Materials 4) Direct Staff to Publish a Public Hearing Notice ahead of the February 4, 2026 Board Meeting 5) Direct Staff to Return on February 4, 2026 for SLOCOG Board Review of Comments Received and Determination of Next Steps.
6) Direct Staff to Fund a 2026 Tracking Poll within Existing Contract Services and Budget.

TTAC: Support Staff Recommendation.

CTAC: Support Staff Recommendation.

SSTAC: Support Staff Recommendation.

DISCUSSION
Successful Transportation Measures are built upon input received through presentations, website feedback, focus groups, workshops and stakeholder input. The desired result is an equitable distribution of funding, with “right-fit” investments and flexibility, to address multiple transportation needs throughout the region. Staff worked with its consultant teams (DKS Associates, FM3, and Koble Collaborative), gained input from community groups and organizations, responded to media inquiries and interviews, hosted a website with information and a survey to gain input from the public, Four focus groups were completed in August 2025, 6 in person and 1 virtual Workshops were completed in Fall 2025, Polling was completed in Fall 2025, and SLOCOG has presented at nearly 70 public or community meetings, groups, and workshops across the region since June 1, 2025. With this information gathered, staff worked with its partners and the consultant team to prepare the draft Transportation Expenditure Plan and Implementation Guidelines for Board review.

SLOCOG Board Approved: 10-1, with 1 absent

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Staff continue its efforts to engage with the public and key stakeholders to seek and share information and to refine necessary materials.

Polling Results – Attachment 1 (Attachment 1, developed by FM3, is anticipated to be available for download on 12/8/25)
A statistically-valid poll (phone/text/email) began in October 2025. FM3 conducted an 18-minute survey among 1,000+ randomly selected November 2026 likely voters in San Luis Obispo County. The survey was conducted using dual-mode methodology where the survey is conducted both online and by land and cellular phones. The survey was offered in Spanish and English both online and by phone. A sample size of 1,000+ has a margin of error of ±3.1% (at the 95% confidence level).

Results of this poll will be presented at the SLOCOG meeting.

Prior to the April 1, 2026 Board meeting, the completion of a Tracking Poll is recommended to ascertain voter perspectives on the Draft Expenditure Plan. By shifting funds within the existing Local Roads First contracts, this poll may be completed using currently budgeted resources. $35,000 would complete a 600 person poll; $50,000 would complete a 1,000 person poll. Results of this poll would be provided at the April 1st 2026, SLOCOG Board
meeting
Draft Transportation Expenditure Plan and Implementation Guidelines – Attachment 2 Expenditure Plans provide the allocation and revenue distribution of unescalated revenues (with no presumptions of State/Federal grants). Staff, and its consultants, considered all feedback to date and developed the draft Transportation Expenditure Plan resulting in the following distributions and premises.

1. 55% for Local Road Repairs, Safety and Improvements (Jurisdictions determined) a. Distribute funds by formula to the jurisdictions based on share of population b. Build in flexibility through local control recognizing that each local agency (and its public) may differ in their transportation funding needs and priorities. c. Assure the public has a voice when each local agency determines its priorities. d. Uses may include (as determined by the local agency): Road and bridge repairs, maintenance, rehabilitation, safety, and congestion relief; pedestrian, bicycle, sidewalks, crosswalks, multiuse path, Safe Routes to School, and community enhancements, Signal improvements/synchronization, local transit or trolley services, and other local transportation priorities.

2. 40% for Regional Corridor Improvements (SLOCOG determined) a. Distribute funds by formula guaranteeing regional improvements based on share of population.
b. Assure equitable, guaranteed, distribution by using 4 subregions: North County, North Coast, Central County, and South County
c. Build in flexibility to recognize each subregion’s priority needs may differ from another. d. Assure the public has a voice when SLOCOG determines priorities. e. Uses can include: Improvements to highways, arterials, interchanges, bridges, van/carpool programs, regional trail corridors, safety/congestion relief, and regional transit.

3. 4% for Senior/Disabled/Veterans’ mobility improvements (SLOCOG determined) a. Use a public process in conjunction with current procedures to address and improve mobility of those that are mobility challenged.
b. Assure the public has a voice when SLOCOG determines its priorities.

4. 1% for Administration of the Measure Funds
a. Tasks include: Developing Implementation Plan, Project Prioritization, Annual Audits, Outreach and Communication, Revenue distributions to jurisdictions, Support for Measurerelated Committees and technical assistance.

To distribute funds, staff reviewed various data metrics (including Population, Sales Taxes collected, Road miles, and Employment by city and by subregion) and various combinations with the City Managers in October 2025 and received concurrence for the previously described funding distribution methodology.

Ultimately, the goal is an fair, equitable, and understandable (to the public) distribution of funds.

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1-Year Distribution of $35M, as described above:
55% for Local Road Repairs, Safety and Improvements $19,250,000 Arroyo Grande $ 1,256,955
Atascadero $ 2,029,354
Grover Beach $ 865,712
Morro Bay $ 733,207
Paso Robles $ 2,146,387
Pismo Beach $ 550,195
San Luis Obispo $ 3,207,856
Unincorporated $ 8,460,335
40% for Regional Corridor Improvements $14,000,000
North County $ 4,923,893
South County $ 4,001,218
Central County $ 3,085,830
North Coast $ 1,989,059
4% for Senior/Disabled/Veterans’ mobility improvements $1,400,000 1% Administration Costs (Maximum) $350,000
Draft Implementation Guidelines (included within the Transportation Expenditure Plan) include Safeguards and policies for use of Measure funds. These Safeguards were developed and included within the draft Implementation Guidelines to provide public assurances that the funds will be spent as promised, including:

1. Maintenance of Effort: Seeks to protect transportation investments from replacing current levels of general funds spent on transportation with Measure funds leading to diminished transportation benefits.

2. Mitigation Fee Program: Assures the public that new development pays a fair share of necessary improvements attributable to the new development.

3. Circulation Element: Assures the public the jurisdiction has a transportation plan that aligns with their General Plan

4. Capital Improvement Program: Provide the public a clear understanding of where Measure Funds will go in the coming 4-6 years.

5. Pavement Management Plan: Requires road conditions inventory, analysis, and evaluation to show: current status, a multi-year plan for road maintenance, and projected pavement conditions.

6. Expenditure Report: Annually, a city-developed report generated to account for Measure funds (received and expended), impact fees and transportation expenditures to satisfy the Maintenance of Effort requirements. Provides the public with clear understanding of all funds received, and interest gained, as well as expenditures.

7. Time Limits for Use for Regional Projects: Sets a ‘use by’ date to assure Regional funds are not sitting unused for an excessive period of time.

8. No Supplanting of Funds: Assures public that Measure funds will not supplant developer funding.

9. Repercussions: Identifies actions -all the way to withholdings and repayment – if funds were used inappropriately.

10. Regular Status Reports: Provides Board and public updates at public meetings on major projects.

11. Annual Report: A report published to the Board and public on how all Measure funds have been spent and progress in implementing the Plan.

12. Biennial Implementation Plan: Every two years, Measure funds are programmed working with member agencies and stakeholders. Board reviews draft in public hearing and incorporates feedback before adopting.

F-2-4

13. Performance Assessment: Every three years, prepare an evaluation of the efficiency, effectiveness and results of the provisions and requirements of the Expenditure Plan and Ordinance.

14. Ten-Year Comprehensive Program Review: A broad review of the full program along with assessment of changes to local, state, and federal transportation plans and policies; land use; travel and growth; project cost estimates; constraints; and revenue projections.

15. Amendment Process: There would be no provision or allowable amendment to change funding categories or overall allocation formulas without voter approval. Amendments provide an option to make changes within the Plan to account for unanticipated funds or respond to unforeseen circumstances with extensive notifications through public review and hearings.

16. Bonding Authority: Does not immediately enact bonds, but allows consideration of bonding (through a public process) should it make sense to advance projects, Measure funds would be used for repayment of Measure-eligible expenses only.

17. Excess Revenues: If revenues exceed projections, primary and secondary uses would be identified.

18. Financial Audits: Independent financial audits of all revenues and expenditures provide public with transparency and accountability assurances.

19. Program Administration: Under current law, a cap of no more than 1.5% of Measure funds can be used for administrative activities (i.e., Developing Implementation Plan, Project Prioritization, Audits, Outreach and Communication, Revenue Allocation to jurisdictions, Support for (Measure) Committees and technical assistance). The draft Transportation Expenditure Plan caps Administrative costs at 1%.

20. Citizens’ Oversight Committee: Reviews and provides recommendations on financial and programmatic aspects – review audits and reports, presents recommendations, etc.

Provides public assurances that average citizens are also watching. Membership proposed: 12 members.
• One resident representative appointed by each incorporated city (Arroyo Grande, Atascadero, Grover Beach, Morro Bay, Paso Robles, Pismo Beach, San Luis Obispo) and one member from each of San Luis Obispo County’s Supervisorial District’s within the unincorporated areas. (Total of 12) All sections of an Ordinance are to be drafted. Such an Ordinance is the actual local law a regional board adopts to place a measure on the ballot. A few typical components include:
• Title and Authority
• Findings and Purpose
• Tax Imposition (type, rate, duration, etc.)
• Effective Date
• The Investment or Expenditure Plan and Guidelines with Safeguards (Oversight and Accountability) Schedule and Next Steps
The draft expenditure plan, if supported by the SLOCOG Board, would be sent to the seven city councils and Board of Supervisors for review and input (eight meetings). Changes/recommendations from these meetings will be considered for inclusion into a final expenditure plan. The SLOCOG Board would then have the opportunity to review and consider approval of the final expenditure plan - with any final modifications - and direct staff to seek city/county approvals as well (8 more meetings). Following city/county meetings, the SLOCOG Board may then consider its final approval and to send it to the BOS for inclusion on a future ballot – November 2026 would be the first such opportunity.
• Summer and Fall 2025: Engagement Efforts, Focus Groups, Workshops and Polling • November 2025: Drafting of the Expenditure Plan and Guidelines) and Engagement opportunities • December 10, 2025: SLOCOG Board Meeting: Review/Comment on Draft Expenditure Plan; Send / Present Draft to Cities/County for review and input.
• December 2025/January 2026: Cities and County Review/Comment on Draft Expenditure Plan

F-2-5
• February 4, 2026: SLOCOG Board Meeting: Receive/Address Jurisdictions’ comments/adjustments; Review/Approve Final Measure Materials; Introduce Ordinance; Send Final Expenditure Plan to Cities/County for Approvals
• February/March 2026: Cities and County consider Approval of Final Expenditure Plan. • April 1, 2026: SLOCOG Board Meeting: Receive Tracking Poll Results and Consider Adoption of Ordinance along with Measure Materials.

Jurisdiction Council / Board
Action item to:

Review and provide
input into draft plan
SLOCOG 12/10/25
Arroyo Grande 1/13/25
Atascadero 1/13/26
Grover Beach 1/12/26
Morro Bay 1/13/26
Paso Robles 12/16/25
Pismo Beach 12/16/25
SLO City 1/20/26
County BOS 1/27/26

BACKGROUND
Benefits of a Dedicated Transportation Sales Tax
Transportation investments improve the region’s: safety, reliability, mobility, goods movement, and economic vitality; and a sales tax is paid by all users of the transportation system, including tourists. Regions (self-help counties) with more local funding have a competitive advantage: they are better able to build and maintain infrastructure and services, recapture competitive funds (our paid taxes), and have more flexibility to build partnerships and prepare for new technologies and future challenges.

Our jurisdictions require additional funds to repair our roadways, to deliver local and regional safety improvements, to improve transportation overall, and to offer as a match in order to capture our paid taxes through competitive State or Federal funds. Higher matches can leverage or ‘win’ more funds from Sacramento. Without our own dedicated transportation sales tax, we are effectively providing a ‘tax holiday’ to our tourists that come from the 25 counties with their own dedicated transportation sales tax.

The Insufficient Status Quo
The region’s current funding path relies not only on stable state and federal fund sources but also aspires to win competitive state and federal transportation grants. Every two years, SLOCOG programs its formula allotment of state and federal transportation funds.

The 2023 Regional Transportation Plan (RTP) identified a transportation funding shortfall of $2.4B and the initial financial estimates of the 2027 RTP anticipate transportation funding shortfalls topping $3B (Agenda item F-1 October 2025). Similarly, the success of the Major Transportation Projects (Agenda item F-2 October 2025) leans heavily upon the success of a local transportation-specific sales tax measure.

Projects are Cheaper Now than Tomorrow
Regions with a sales tax have a significant advantage over those without. When their new improvements are ‘fully funded’ but run into unexpected project escalations or inflation, these regions can use sales tax revenues to close the gap rather than losing the project (sometimes grant funded) or delaying for several months or years to await additional funding (and incurring further cost escalations). All regions are susceptible to State budget cuts (i.e., the 2024 proposed 50% cut to REAP funding in the State) but measure counties are better equipped to backfill and deliver improvements in spite of the state cuts.

The other four counties on the Central Coast annually generate $25m-$50m through their dedicated transportation sales tax to address the funding needs of their counties and they are successful in leveraging large competitive grants using their sales tax funds. In total, 25 California counties (7 of the 8 in Southern

F-2-6
California, 4 of the 5 on the Central Coast, 8 of the 9 in the Bay Area, 6 of the 8 in the Central Valley and Sacramento), have voter-approved dedicated transportation sales taxes. These 25 counties account for 89% of all Californians. Without a dedicated local sales tax, SLO county is not able to secure its fair share of billions in State and Federal grants.

Ability to Leverage
Comparing one investment category (Active Transportation), In FY 22/23, Santa Cruz COG ‘won’ $115m from Sacramento using their $32M of their 2016 sales tax measure funds. The Santa Cruz region has another $53m remaining in measure funds to use as leverage for more Active Transportation grants and has other categories of funding (Highway Corridors, Rail, and Neighborhood Projects) to also seek grants. In comparison, SLOCOG’s 2023 long range plan projects $184m for Active Transportation in our region between 2023 and 2045. Monterey will spend $600m from their 2016 measure funds on road maintenance and improvements in the coming decades. This is on top of their local jurisdictions’ annual investments and state or federal allotments, and they will use some of it to leverage or ‘win’ State and Federal funds, outpacing our region.

With the failure of Measure J in 2016, the region lost out on over $270M in the last 9 years and this could have easily doubled (or more) by capturing grants and competitive funds from State and Federal grants. The impact of a dedicated transportation sales tax for successful measure counties is evident. Those counties deliver more projects and investments, faster, and at a lower cost.

Shrinking Fuel Tax
Reliant on the fuel tax, locally, we have a funding problem. Most of our jurisdictions have pavement conditions that are too low – costing more to maintain - and do not have a path to reach pavement condition levels that are less costly to maintain. Our primary artery, U.S. 101 has recurring congestion in South County and has seen emerging congestion in North County, and we do not have the funding necessary to address its existing or emerging congestion and safety issues. Gasoline gallons consumed in California hit their peak in 2017 and 2018 topping 15.5B gallons. Discounting the significant drop due to COVID-19, every year sees a decrease in consumption from the prior year. 2023 and 2024 gasoline consumption was 13.6B and 13.4B gallons respectively (Source: CDTFA).

Better Together
Setting aside our own self-interests can be challenging, but a regional approach helps to build the infrastructure for today and the next generation. There is a holistic benefit of a regional measure. City measures collect and spend only within their borders, yet, our residents travel beyond the singular bubbles of each city and community, whether for commuting, shopping, or entertainment. We all do better when everyone does better.

An increase of transportation funding across the region provides benefits (safety, access, mobility, costsavings, etc.) to each person, community, and jurisdiction. With both local needs and regional needs, collaboration and coordination would be a key aspect if both a regional measure and a local measure were on the same ballot.

Presentations are ongoing: Encouraging feedback through the www.localROADSfirst.com website, SLOCOG continues to inform residents through engagement meetings, more presentations are already scheduled in 2026, and staff is open to additional presentation requests. With or without a presentation, the public is invited to share their thoughts, questions, and preferred allocations across transportation improvement areas through the LRF website and survey. Future presentations will now shift to showcase the draft Expenditure Plan. Additionally, staff continue to work with the City Managers, County Executive Officer, Transit Operators and others to gain insights into key aspects, topics, and needs.

Public Workshops were completed: Six in-person workshops, and one virtual workshop, was held in September/October. Staff encouraged attendance through: 3-minute public comments at City Council meetings, articles within County Advisory Committee newsletters, coordination with city managers and city and county staff, a press release, media outreach, and a dedicated SLOCOG eblast.

Four Focus Groups completed: In August, one Focus Group was held in each of the four subregions. For each group, 12 residents were sought and confirmed, along with several backup members should a confirmation fall through. Using registered voter information, the intent was a representative sample across metrics (political registration, age, gender, community) within each subregion using a random-selection

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process. These 2-hour meetings were facilitated by Koble Collaborative, Inc.; one page of conclusions is included below; and memorandum is attached ATTACHMENTS - October 1, 2025-F-3.

Self-Help Measures Impacts on the Central Coast
The impact of Self-Help measures in other counties is evident. They deliver more projects and investments, faster, and at a lower cost for their residents and visitors. Additionally, these four Self-help counties have leveraged hundreds of millions of State dollars back to their counties using their transportation measure funds. Each region receives its fair-share of formula funds, but without a significant influx of matching funds, the San Luis Obispo region cannot successfully compete to win back our fair share from Sacramento.

In the San Luis Obispo region, a voter-approved ½% sales tax measure would generate $35m/year (2024) and would be used to leverage state and federal funding grants. Well-over a billion dollars could be leveraged back to the San Luis Obispo region in 30 years using the approach of selfhelp counties. Currently, there are 25 CA self-help counties (transportation-specific sales tax) that encompass 89% of all Californians.

Our neighboring counties and SLOCOG each receive formula funds. Unlike SLOCOG, they collect a transportation-specific sales tax raising and investing $25M to $50M, annually into their transportation systems and they recapture gas tax funds that are reserved only for self-help counties. Moreover, they use these funds to also leverage competitive grants back to their county.

Looking back over the past 10 years, neighboring counties have raised $200M - $450M through their respective transportation-specific tax (San Benito County is much, much smaller in population and revenue generation).

Using solely these tax dollars, they then won (or leveraged) State grants– ranging from $200M to over $750M, in ten years or less. Comparatively, the San Luis Obispo region has lost out on $270M that would have been collected had a transportation measure passed in 2016, and another $330-$430M in likely our share of grant awards. Overall, this is a loss of transportation investment of $600M to $700M in the last nine years. This significant level of investment would have been used to improve Highways and interchanges, transit, mobility, Safe Routes to School, safety, road maintenance and more within our communities and throughout the region.

Using formula funds
(similar to those that all
COGs receive),
SLOCOG has been
successful in securing
grants as well, including
recent awards for:
• Bob Jones, $18M grant
• US 101 southbound
South County (Shell
Beach) improvement:
$61M.

The table, left, identifies
grants won by
neighboring counties
specifically using their
measure funds as the
grant match.

Self-Help Counties have a
competitive advantage: they are
better able to build and maintain
infrastructure and services,
recapture competitive funds (our
paid taxes), and have more
flexibility to build partnerships and
prepare for new technologies.