Agenda packet, regular meeting — Morro Bay City Council, March 10, 2026 (part 1 of 2)

CITY OF MORRO BAY
City Council Regular Meeting Agenda

Tuesday, March 10, 2026, 5:30 p.m.

Veterans Memorial Hall
209 Surf St., Morro Bay, CA
Public Participation
Public participation is offered in the following ways:
• Community members may attend the meeting in person at the Morro Bay Veterans Hall.

Alternatively, members of the public may watch the meeting and speak during general Public Comment or on a specific agenda item by logging into the Zoom webinar using the information provided below. Please use the "raise hand" feature to indicate your desire to provide public comment.
•
• NEW!! Zoom webinar link: https://us02web.zoom.us/j/82429164990 Or Telephone Attendee: 1 (669) 444-9171 or 1 (669) 900-9128 or 1 (346) 248-7799; Webinar ID: 824 2916 4990. Press *9 to raise hand for public comment. •
• Meetings are also livestreamed on the City's website.

Community Members are encouraged to submit agenda correspondence via email to the City Council at [email protected] prior to the meeting. Agenda correspondence received by 10:00 a.m. on the meeting day will be posted on the City website.
•
Pages

1. ESTABLISH QUORUM AND CALL TO ORDER

2. PLEDGE OF ALLEGIANCE

3. REPORTS

3.a Closed Session Report

3.b Mayor and Councilmembers' Reports, Announcements and Presentations

3.c City Manager Reports, Announcements and Presentations

3.d Subcommittee Reports - Verbal Update of Current Subcommittee Activities

1. Water Reclamation Facility & Morro Bay / Cayucos Sanitary District JPA

2. Morro Bay Power Plant (Vistra)

3. Offshore Wind Energy

4. Morro Elementary School

5. Shared Fire Services

4. RECOGNITION AND PRESENTATIONS

4.a Donation Presentation to the Friends of the Morro Bay Fire Department

4.b Lifesaving Award Presentation to three Fire Department Personnel

5. PUBLIC COMMENT
Members of the audience wishing to address the Council on City business matters not on the agenda may do so at this time. For those desiring to speak on items on the agenda, but unable to stay for the item, may also address the Council at this time.

Public comment is an opportunity for members of the public to provide input to the governing body. To increase the effectiveness of the Public Comment Period, the City respectfully requests the following guidelines and expectations be followed:
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Those desiring to speak are asked to complete a speaker slip, which are located at the entrance, and submit it to the City Clerk. However, speaker slips are not required to provide public comment.
•
When recognized by the Mayor, please come forward to the podium to speak.

Though not required, it is helpful if you state your name, city of residence and whether you represent a business or group. Unless otherwise established by the Mayor, comments are to be limited to three minutes. •
All remarks should be addressed to Council, as a whole, and not to any individual member thereof.
•
The Council respectfully requests that you refrain from making slanderous, profane or personal remarks against any elected official, commission and/or staff.
•
Please refrain from public displays or outbursts such as unsolicited applause, comments or cheering.
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Any disruptive activities that substantially interfere with the ability of the City Council to carry out its meeting will not be permitted and offenders will be requested to leave the meeting.
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Your participation in City Council meetings is welcome and your courtesy will be appreciated.
•
The Council in turn agrees to abide by its best practices of civility and civil discourse according to Resolution No. 07-19.
•

Recommended Action
Approve Consent Agenda Items 6.a through 6.e as submitted.

6.a Approval of Minutes
(City Clerk)
Recommended Action
Approve as submitted.

1. February 24, 2026 - Regular Council Meeting 6

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2. February 24, 2026 - Special Closed Session Meeting 14

6.b Approval of Proclamations
(City Clerk)
Recommended Action
None.

6.c Adopt Resolution No. 11-26 Approving the Morro Bay Seafood Company, LLC Lease Agreement
16 (Harbor Department)
Recommended Action
Adopt Resolution No. 11-26 approving a new lease agreement for lease site 129W-131W with Morro Bay Seafood Company, LLC located at 1231 Embarcadero.

6.d Status Update and Reconfirm Emergency for the Morro Creek Bank Stabilization Project
69 (Public Works Department)
Recommended Action
Receive and file status update and reconfirm the declaration of emergency for the Morro Creek Bank Stabilization Project by four fifths vote.

6.e Adopt Resolution No. 12-26 Approving the Harbor Director's Working Title and Job Description
119
(City Manager)
Recommended Action
Adopt Resolution No. 12-26 retitling the Harbor Vitality Director Job Title to Harbor Director.

7. PUBLIC HEARING ITEMS
None.

8. BUSINESS ITEMS

8.a San Luis Obispo Council of Governments (SLOCOG) Final Transportation Expenditure Plan for Potential Transportation Sales Tax Measure 125
(City Manager)
Recommended Action

1. Receive a presentation from SLOCOG staff, and
Consider adoption of Resolution No. 13-26 approving the San Luis Obispo Council of Governments (SLOCOG) Final Draft
Transportation Expenditure Plan (Plan) for a potential Transportation Sales Tax Measure.

2. 8.b Response to Letter of Interest from Los Osos Community Services District (Los Osos CSD) regarding Shared Fire Protection and Emergency Medical Services (EMS)
143
(Fire Department)

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Recommended Action
Authorize City staff to deliver the City's response to the letter of interest exploring shared fire and EMS services to the Los Osos CSD.

8.c Quarterly Update on the Status of City Council 2025-2027 Goals 148 (City Manager)
Recommended Action
Receive an update from staff on the City’s progress on City goals established in March 2025.

8.d Recommendation to Approve a Purchase and Sale Agreement with San Luis Coastal Unified School District for the Property Know as Morro Elementary School located at 1130 and 1330 Napa Avenue in Morro Bay, California 155
(APNs 066-280-045 and 066-044-011), take related actions and find the action exempt from CEQA
(City Manager)
Recommended Action
Adopt Resolution No. 14-26 approving a Purchase and Sale Agreement (Agreement) and Budget Resolution between the City of Morro Bay (City) and San Luis Coastal Unified School District (District) for the purchase of the property commonly known as Morro Elementary School (Property), in substantially the form attached, subject to review and approval by the City Attorney as to form and legal effect.

1. Authorize the City Manager to execute the Agreement and related escrow documents, and to negotiate and execute non-substantive amendments consistent with the terms approved by the City Council, subject to review and approval by the City Attorney as to form and legal effect; and

2. Authorize the City Manager to undertake due diligence activities during the due diligence period, including engaging a project manager and specialized consultants, consistent with City procurement requirements and within available appropriations.

3. Find the action is not a project or in the alternative exempt from the California Environmental Quality Act (CEQA) under Guidelines Sections 15378, 15061(b)(3) and 15301.

4. 9. COUNCIL DECLARATION OF FUTURE AGENDA ITEMS

10. ADJOURNMENT
The next Regular Meeting will be held on March 24, 2026.

This agenda is subject to amendment up to 72 hours prior to the date and time set for the meeting. Please refer to the agenda posted at City Hall, 595 Harbor Street, Morro Bay, CA 93442 for any revisions or call the Clerk's office at (805) 772-6205 for further

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information.

Materials related to an item on this agenda submitted to the City Council after distribution of the agenda packet are available for public inspection upon request by calling the City Clerk's office at (805) 772-6205.

In compliance with the Americans Disability Act, if you need special assistance to participate in a City meeting, please contact the Clerk's office 24 hours prior to the meeting to insure reasonable arrangements can be made to provide accessibility to the meeting.

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1 MINUTES - MORRO BAY CITY COUNCIL

REGULAR MEETING
February 24, 2026, 5:30 p.m.

Veterans Memorial Hall
209 Surf St., Morro Bay, CA
Members Present: Mayor Carla Wixom
Council Member Jeff Eckles
Council Member Cyndee Edwards
Council Member Zara Landrum
Council Member Bill Luffee
Staff Present: City Manager John Craig
City Attorney Brian Stack
City Clerk Dana Swanson
Finance Director Emily Conrad
Public Works Director Greg Kwolek
Community Development Director Airlin Singewald
Police Chief Amy Watkins
Fire Chief Dan McCrain
Harbor Vitality Director Chris Munson
City Engineer Nate Stong
Project Engineer Dan Heimel, Confluence Engineering Solutions _____________________________________________________________________

1. ESTABLISH QUORUM AND CALL TO ORDER
Mayor Wixom called the meeting to order at 5:30 p.m. with all members present.

2. PLEDGE OF ALLEGIANCE

3. REPORTS

3.a Closed Session Report
City Attorney Stack announced the Council met in closed session to discuss two real property negotiations matters and one potential litigation matter. Property negotiations involved Morro Elementary and the former wastewater treatment plant site. No reportable action was taken in closed session pursuant to the Brown Act.

3.b Mayor and Councilmembers' Reports, Announcements and Presentations

3.c City Manager Reports, Announcements and Presentations

3.d Subcommittee Reports - Verbal Update of Current Subcommittee Activities

1. Water Reclamation Facility & Morro Bay / Cayucos Sanitary District JPA

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2 2. Morro Bay Power Plant (Vistra)

3. Offshore Wind Energy

4. Morro Elementary School

5. Shared Fire Services

4. RECOGNITION AND PRESENTATIONS
None.

5. PUBLIC COMMENT
 Renn Strong, Morro Bay, shared his thoughts on climate geoengineering.  Nicole Dorfman, Morro Bay, spoke on behalf of Friends of Morro Elementary, offering their support to ensure the property benefits our town and enriches our community for years to come.
 Michelle Leicester-Cadaret, Morro Bay, questioned impacts the proposed injection wells may have on the commercial fishermen's storage area and requested safety improvements between Main Street and Highway 1.  Barry Branin, Morro Bay, agreed with the previous speaker's concerns along Highway 1 in north Morro Bay and urged the City to contact Caltrans regarding safety improvements.
 Judy Setting, Morro Bay, encouraged the Council and staff to work with Caltrans to improve safety, prevent crossovers, and beautify Highway 1.

End of public comment.

Staff responded to issues raised during public comment and committed to contact Caltrans regarding safety concerns.

6. CONSENT AGENDA
Unless an item is pulled for separate action by the City Council, the following actions are approved without discussion. The public will also be provided an opportunity to comment on consent agenda items.
 Renn Strong, Morro Bay, offered his thoughts on water safety and supply.  Barry Branin, Morro Bay, spoke to Item 6h, questioning the sequence of the Morro Creek stabilization project as it relates to injection well drilling. Regarding Item 6f, he requested an overall summary on the recycled water project.  Betty Winholtz, Morro Bay, spoke to Item 6f, requesting a performance review of the injection well portion of the WRF project by other sewer management professionals, and stated her continued opposition to Item 6h.  Margaret Carman, Morro Bay, commented on Item 6f, expressing concern the proposed injection wells would negatively affect the commercial fishermen.

End of public comment.

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3 Council Member Eckles pulled Item 6.g, Council Member Luffee pulled Item 6.f, Council Member Landrum pulled Item 6.h, and Mayor Wixom pulled Item 6.e.

Motion by Council Member Eckles
Seconded by Council Member Landrum
Approve Consent Agenda Items 6.a through 6.d as submitted.

Ayes (5): Mayor Wixom, Council Member Eckles, Council Member Edwards, Council Member Landrum, and Council Member Luffee
CARRIED (5 to 0)

6.a Approval of Minutes
Approve as submitted.

1. January 13, 2026 - Special Council Meeting

2. February 10, 2026 - Regular Council Meeting

3. February 10, 2026 - Special Closed Session Meeting

6.b Approval of Proclamations
None.

6.c Adoption of Resolution No. 06-26 Declaring Pursuant to Government Code Section 54221 that Real Property Owned by the City of Morro Bay, Located at 231 Atascadero Road (APN: 065-182-005) is Non-Exempt Surplus Land and not Necessary for the City's Use;
Adopt Resolution No. 06-26, declaring pursuant to Government Code Section 54221 that real property owned by the City of Morro Bay, located at 231 Atascadero Road (APN: 065-182-005) is non-exempt surplus land and is not necessary for the City’s use; taking related actions; and authorizing Staff to proceed with the disposal of the property pursuant to the requirements of the Surplus Land Act.

6.d Request to approve Resolution No. 07-26 appointing two new Waterfront Master Plan Advisory Committee (WMPAC) members
Adopt Resolution No. 07-26 appointing two new Waterfront Master Plan Advisory Committee (WMPAC) members.

6.e Report on Attendance at the 2026 C-MANC Washington Week Meetings Mayor Wixom asked Harbor Vitality Director Munson to provide a verbal update on the C-MANC Washington Week visit.

Motion by Mayor Wixom
Seconded by Council Member Luffee
Receive and file.

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4 Ayes (5): Mayor Wixom, Council Member Eckles, Council Member Edwards, Council Member Landrum, and Council Member Luffee
CARRIED (5 to 0)

6.f Water Reclamation Facility Quarterly Report and Contract Amendments Public Works Director Kwolek and IPR Project Engineer Dan Heimel responded to Council questions.

Motion by Council Member Luffee
Seconded by Council Member Landrum

1. Receive and file the Fiscal Year (FY) 2026 Quarterly Report for October – December for the Water Reclamation Facility Program (WRF Program); and

2. Approve and authorize the City Manager to execute:

A. A no cost amendment to the professional services agreement with Rincon Consultants Inc. (Rincon) for professional environmental permitting consulting services for the Recycled Water Facilities component of the WRF Project to extend the agreement term to December 31, 2026; and
B. An amendment to the professional services agreement with Kevin Merk Associates (KMA) for biological resources technical support in support of the implementation of the Recycled Water Project in the amount of $43,450 resulting in a not to exceed amount of $154,490, and to extend the agreement term to December 31, 2026; and C. An amendment to the professional services agreement with GSI Water Solutions, Inc. (GSI) to provide hydrogeological support services in the amount of $48,400 resulting in a not to exceed amount of $1,796,863, and to extend the agreement term to December 31, 2026.

Ayes (5): Mayor Wixom, Council Member Eckles, Council Member Edwards, Council Member Landrum, and Council Member Luffee
CARRIED (5 to 0)

6.g Approval of Resolution No. 08-26 Authorizing the Police Department to Apply for and Receive Award for the California Highway Patrol (CHP) Cannabis Tax Fund Grant Program (CTFGP) - Small and Mid-Size Law Enforcement Agency, and authorize the City Manager to Execute all Necessary Documents to Accept, Implement, and Carry Out the Terms of the Grant
Council Member Eckles and Police Chief Watkins commented on an error in the staff report and resolution, confirming the correct dollar amount for this grant application is $208,396.

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5 Motion by Council Member Luffee
Seconded by Council Member Landrum
Adopt Resolution No. 08-26 to authorize staff to apply for and accept award of grant funds for the purpose of enhancing the Morro Bay Police Department’s impaired-driving enforcement, training, and public-education efforts, with the corrected dollar amount to read $208,396.

Ayes (5): Mayor Wixom, Council Member Eckles, Council Member Edwards, Council Member Landrum, and Council Member Luffee
CARRIED (5 to 0)

6.h Status Update and Reconfirm Emergency for the Morro Creek Bank Stabilization Project
Public Works Director Kwolek and City Engineer Stong responded to Council questions.

Motion by Council Member Landrum
Seconded by Council Member Luffee
Receive and file status update and reconfirm the declaration of emergency for the Morro Creek Bank Stabilization Project by four fifths vote.

Ayes (5): Mayor Wixom, Council Member Eckles, Council Member Edwards, Council Member Landrum, and Council Member Luffee
CARRIED (5 to 0)

7. PUBLIC HEARING ITEMS

7.a Hearing to Adopt Ordinance No. 677 and 678: Amendments to Zoning Code / Coastal Implementation Plan (IP)
Community Development Director Singewald presented the report and, along with Senior Planner Toner, responded to Council questions.

Mayor Wixom opened the public hearing and public comment period.  Margaret Carman, Morro Bay, expressed frustration that the state allows ADUs without required parking and asked that the bluff top restrictions be extended to include all of Surf Street and two houses.
 Betty Winholtz, Morro Bay, requested the bluff top restrictions be inclusive of Surf Street and clarify it includes two additional addresses on Surf Street, adding this would allow for orderly and consistent development.  Shirley Fraser, Morro Bay, asked that bluff top restrictions be inclusive of Surf Street.
 Judy Setting, Morro Bay, agreed the Surf Street view corridor should be protected.

End of public comment.

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6 The public hearing was closed.

Following discussion, a majority of Council supported moving forward with ordinance adoption, as presented, with the understanding consideration of extending the bluff top restrictions would be considered as part of the Waterfront Master Plan update.

Motion by Council Member Eckles
Seconded by Council Member Luffee

1. Adopt Ordinance No. 677, “An Ordinance of the City Council of Morro Bay, California, Amending Chapters 17.29, 17.30, and 17.46 of the Zoning Code, Title 17 of the Morro Bay Municipal Code,” with a finding that no further environmental review is required pursuant to State CEQA Guidelines Section 15061(b)(3) and Statutory Exemption Section 15282(h); and

2. Adopt Ordinance No. 678, “An Ordinance of the City Council of Morro Bay, California, Amending Chapters 17.07, 17.08, and 17.23 of the Zoning Code / Coastal Implementation Plan (IP), Title 17 of the Morro Bay Municipal Code,” with a finding that no further environmental review is required pursuant to State CEQA Guidelines Section 15061(b)(3) and Statutory Exemption Section 15282(h); and

3. Waive further reading of Ordinance No. 677 and Ordinance No. 678; and

4. Forward comments on the issue of expanding the bluff height limit to be inclusive of Surf Street to the Waterfront Master Plan Advisory Committee.

Ayes (4): Mayor Wixom, Council Member Eckles, Council Member Edwards, and Council Member Luffee
Noes (1): Council Member Landrum
CARRIED (4 to 1)

8. BUSINESS ITEMS
The Council took a brief recess at 7:16 p.m. and reconvened at 7:26 p.m. with all but Council Member Landrum present. Mayor Wixom announced Council Member Landrum left to attend to a family matter.

8.a Presentation and Discussion of the Fiscal Year 2024-25 Annual Comprehensive Financial Report
Finance Director Conrad introduced the item and turned to Lindsay Zimmerman, Brown Armstrong, to present the report.

Mayor Wixom opened public comment for Item 8.a; seeing none, the public comment period was closed.

As a receive and file report, no formal action was taken on this item.

8.b Public Meeting to Renew the Morro Bay Tourism Business Improvement District

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7 City Manager Craig presented the report.

Mayor Wixom opened public comment for Item 8.b
 Betty Winholtz, Morro Bay, asked if clean restrooms is considered beautification.
 Michael Wambolt, Visit Morro Bay, provided an update on the Executive Director position and offered to answer questions.

End of public comment.

No formal action was taken on this item.

8.c Fiscal Year 2025-26 Mid Year Report
Finance Director Conrad presented the report and responded to Council inquiries.

Mayor Wixom opened public comment for Item 8.c.
 Betty Winholtz, Morro Bay, reminded Council the intent of Measure Q was intended to cover costs beyond normal budget items and should not be spent on salaries.

End of public comment.

Motion by Mayor Wixom
Seconded by Council Member Luffee

1. Receive the Fiscal Year (FY) 2025-26 Midyear Budget Report; and

2. Adopt Resolution No. 09-26 authorizing the attached Budget Amendments.

Ayes (4): Mayor Wixom, Council Member Eckles, Council Member Edwards, and Council Member Luffee
Absent (1): Council Member Landrum
CARRIED (4 to 0)

8.d Award of Contract with J Bruce Kies - Contractor/Consultant for the Coleman Park Improvements Phase 1 Project
Public Works Director Kwolek and City Engineer Stong presented the report and responded to Council inquiries.

Mayor Wixom opened public comment for Item 8.d.
 Garrett Loughran, JJ Fisher Construction, responded to the City's determination his bid was unresponsive.
 Judy Setting, Morro Bay, spoke to estimated restroom costs and asked that an adult swing set be included in the project.

End of public comment.

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8 City Attorney Stack, Director Kwolek and City Engineer Stong responded to questions raised during public comment.

Motion by Council Member Luffee
Seconded by Council Member Eckles

1. Award and authorize the City Manager to execute a contract with J Bruce Kies – Contractor, for the Coleman Park Improvements Phase 1 Project (Project) in the amount of $724,874.00 and sign any documents or amendments necessary for the ongoing administration of the contract subject to review and approval by the City Attorney’s Office as to form / legal effect; and

2. Adopt Resolution No. 10-26 to reallocate $194,167 in available capital project funding as defined in the report.

Ayes (4): Mayor Wixom, Council Member Eckles, Council Member Edwards, and Council Member Luffee
Absent (1): Council Member Landrum
CARRIED (4 to 0)

9. COUNCIL DECLARATION OF FUTURE AGENDA ITEMS
None.

10. ADJOURNMENT
The meeting adjourned at 9:04 p.m.

Respectfully submitted,
/s/ Dana Swanson, City Clerk

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1 MINUTES - MORRO BAY CITY COUNCIL

CLOSED SESSION MEETING
February 24, 2026, 3:30 p.m.

City Hall Conference Room
595 Harbor Street, Morro Bay, CA
Members Present: Mayor Carla Wixom
Council Member Jeff Eckles
Council Member Cyndee Edwards
Council Member Zara Landrum
Council Member Bill Luffee
Staff Present: City Manager John Craig
City Attorney Brian Stack
_____________________________________________________________________

1. ESTABLISH QUORUM AND CALL TO ORDER
Mayor Wixom called the meeting to order at 3:30 p.m. with all members present.

2. CLOSED SESSION PUBLIC COMMENT
Mayor Wixom opened public comment for items on the agenda; seeing none, the public comment period was closed.

3. SUMMARY OF CLOSED SESSION ITEMS

4. THE COUNCIL WILL CONVENE IN CLOSED SESSION

4.a CONFERENCE WITH REAL PROPERTY NEGOTIATOR - GOVERNMENT CODE SECTION 54956.8
Property: APNs 066-280-045 and 066-044-011, 1130/1330 Napa Ave., Morro Elementary
Property Negotiators: San Luis Coastal Unified School District Agency Negotiators: Airlin Singewald, Community Development Director; Emily Conrad, Finance Director; John Craig, City Manager; Brian Stack, City Attorney Negotiations: Price and Terms of Payment

4.b CONFERENCE WITH REAL PROPERTY NEGOTIATOR - GOVERNMENT CODE SECTION 54956.8
Property: APNs 066-331-032, -033, and -034; 160/180 Atascadero Road and 1700 Embarcadero
Property Negotiator: Cayucos Sanitary District

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2 Agency Negotiators: Greg Kwolek, Public Works Director; Emily Conrad, Finance Director; John Craig, City Manager; Brian Stack, City Attorney Negotiations: Price and Terms of Payment

4.c CONFERENCE WITH LEGAL COUNSEL - POTENTIAL LITIGATION Potential initiation of litigation pursuant to Government Code Section 54956.9(d)(4): (one potential case)

5. RECONVENE IN OPEN SESSION
The City Council reconvened in Open Session. The Council did not take any reportable action in accordance with the Brown Act.

6. ADJOURNMENT
The meeting adjourned at 4:36 p.m.

Respectfully submitted,
/s/ Dana Swanson, City Clerk

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Prepared By: CM Dept Review: LT
City Manager Review: JC City Attorney Review: __BS____
Staff Report
TO: Honorable Mayor and City Council DATE: March 4, 2026 FROM: Chris Munson, Harbor Vitality Director
Lori Thompson, Harbor Business Manager
SUBJECT: Adopt Resolution No. 11-26 Approving the Morro Bay Seafood Company, LLC Lease Agreement

RECOMMENDED ACTION
Adopt Resolution No. 11-26 approving a new lease agreement for lease site 129W-131W with Morro Bay Seafood Company, LLC located at 1231 Embarcadero.

ALTERNATIVES
The City Council can elect not to approve the lease agreement.

FISCAL IMPACT
The lease site does not currently generate rent under the terms of lease assignment between the original tenant Morro Bay Fish Company, the current tenant Morro Bay Seafood Company, LLC and the City currently in holdover status. The new lease agreement would generate $15,000 annually in rent.

BACKGROUND
On November 21, 2023, Morro Bay Fish Company (Santa Monica Seafood) informed the City it was incurring significant operating losses at the Morro Bay fish landing facilities due to recent developments in the fishing industry and would be vacating the premises effective December 31, 2023.

To maintain a fish wholesaler and avoid disruption to commercial fishing, Morro Bay Seafood Company (MBSC) was assigned the lease for the remainder of the term, expiring June 30, 2025. With the agreement MBSC was not required to pay rent during the short-term.

Currently MBSC is on holdover status as the lease expired on June 30, 2025. However, they provided a proposal and notified the Harbor Department of their desire for a new lease prior to the expiration.

MBSC appears to be successful, and the owners are eager to maintain and expand commercial fishing in Morro Bay.

In 2025, the Harbor Department collaborated with the Central Coast Joint Cable/Fisheries Liaison Committee and the Morro Bay Community Quota Fund to pursue funding for repairs of the wharf under the lease site. The agencies granted $400,000 and $150,000 respectively, which will be used by the Morro Bay Commercial Fishing Organization (MBCFO) for wharf repairs at lease site 129WAGENDA NO: 6.c MEETING DATE: March 10, 2026

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131W. As a condition of the grants, the repaired lease site must be dedicated exclusively to commercial fishing use for a period of 20 years. A Memorandum of Understanding (MOU) outlining this commitment will be presented to City Council at an upcoming meeting.

Associated Pacific Constructors provided an estimate for the repairs and organized the work into two priorities levels (Attachment 2, Exhibit B). Priority 1 repairs were quoted at $572,900 and Priority 2 at $235,000, plus $10,000 for inspection/monitoring for a total of $817,700.

After $550,000 in grant funding, there are approximately $22,900 more needed to fully fund the Priority 1 repairs.

DISCUSSION
MBSC submitted their latest proposal on January 15, 2026. The following is a summary of their proposed terms:

Ten Year Term:
• $15,000 base rent per year consistent with master lease policy Twenty Year Term:
• $15,000 base rent per year consistent with master lease policy • Remodel the dock office building for up to $15,000 within 24 months • Maintain and repair two freezer containers
• Maintain the current icehouse with maximum expenditure of $10,000 per year • Payment of $22,500 toward Priority 1 repairs
• Payment of $22,500 toward Priority 2 repairs

RECOMMENDED TERMS
Beyond having a successful tenant that will support Morro Bay’s commercial fishing fleet, the Harbor Department has three main priorities to be addressed:

1. Complete the wharf repairs with sufficient redundancy to minimize the likelihood of future repairs.

2. Restore a fair base rent.

3. Clarify the agreement regarding responsibility for icehouse repairs.

Base/Minimum Rent: $15,000
The proposed minimum/base rent is consistent with what was paid by Morro Bay Fish Company after CPI adjustments. The rent will be increased by CPI annually consistent with the Lease Management Policy.

Percentage Rents: $.00 per pound, $0 per ton of wetfish (squid) The Lease Management Policy states 0% is to be collected for wholesale sales under ground lease agreements. The previous lease agreement included $.01 per pound of seafood and $2 per ton of wetfish (squid), less minimum rent. However, the minimum rent was always higher than the percentage rent. For example, on the final full year of MBFC, they landed just over 500,000 pounds which yielded $5,000 in percentage rent. Since the minimum rent was around $11,000, no additional rent was due to the City.

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Initial Lease Term Length: 10-Years
To receive 10 years, MBSC would need to commit to most of the items they proposed for 20 years:
 Remodel the dock office building for up to $15,000 within 24 months  Maintain and repair two freezer containers
 Maintain the current icehouse with maximum expenditure of $10,000 per year  Payment of $22,500 toward Priority 1 repairs
*In addition, any associated monitoring/inspection costs up to $10,000 Option to extend an additional 10-Years after Priority 2 Repairs Complete The leaseholder would only receive an additional 10 years after the remaining Priority 2 repairs are completed, for which they would be required to contribute at least $22,500 of the remaining $235,000 and any associated monitoring/inspection costs up to $10,000.

Harbor staff will assist in seeking additional funding opportunities for the $212,500, but the repairs and maintenance of the lease site will remain the responsibility of the leaseholder.

To line up with the city’s fiscal years, the proposed 10-year lease would expire on June 30, 2036 and the option to extend for an additional 10-years would end on June 30, 2046.

Ice Facility: Leaseholder pays up to $10,000 per year for maintenance; mandatory inspections The previous lease required the tenant to set aside 10% of ice sales in a dedicated account for maintenance and repairs. In practice, this doesn’t work well because most of the ice is used by the leaseholder.

The leaseholder has proposed a $10,000 maximum per year, which is reasonable. In addition, the ice facility will be inspected annually. The Harbor Department will have the ability to increase the inspections to twice a year if deemed necessary.

Updated Lease Language
Penalties for delinquent maintenance and repairs. After 15 days of written notice, tenant needs to address the issue or provide a game plan. If we don’t receive either, a penalty of $100/day is issued.

The penalty ramps up every 60 days until default at 180 days. Other standard lease provisions were updated to be consistent with the Harbor Lease Management Policy.

CONCLUSION
Harbor staff believe the new lease agreement addresses the three main priorities. While the terms do not generate significant revenue, compared to retail and non-Measure D sites, they are consistent with past and current wholesale operations in Morro Bay. The benefit of this agreement is its support of the local commercial fishing industry.

ATTACHMENTS

1. Resolution No. 11-26 Approving the Lease Agreement for Morro Bay Seafood Company, LLC

2. Lease Agreement for Morro Bay Seafood Company, LLC

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RESOLUTION NO. 11-26

RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF MORRO BAY, CALIFORNIA
APPROVING A 10-YEAR MASTER LEASE AGREEMENT FOR
LEASE SITES 129W-131W BETWEEN THE

CITY OF MORRO BAY AND MORRO BAY SEAFOOD COMPANY LLC,
LOCATED AT 1231 EMBARCADERO

T H E C I T Y C O U N C I L
City of Morro Bay, California
WHEREAS, the City of Morro Bay is the lessor of certain properties on the Morro Bay Waterfront described as City Tidelands leases and properties; and WHEREAS, Morro Bay Seafood Company, LLC. (“Tenants”) have been the lessee of Lease Site 129W-131W since 2024, and are tenants in good standing; and WHEREAS, the Harbor Department and Tenants have negotiated in good faith and mutually agreed to the terms of a new lease agreement; and, WHEREAS, the lease term of ten (10) years, expiring June 30, 2036, is conditioned upon the leaseholder’s commitment to complete specified capital improvements and maintenance obligations, including remodel of the dock office building, maintenance of freezer containers, contribution toward Priority 1 wharf repairs, and ongoing maintenance of the ice facility, and,
WHEREAS, the lease includes an option to extend for an additional ten (10) years, through June 30, 2046, contingent upon completion of remaining Priority 2 repairs and the leaseholder’s financial contribution toward such repairs; and, WHEREAS, the lease clarifies the Tenants’ responsibility for maintenance of the ice facility, establishes a maximum annual maintenance expenditure of $10,000, and requires mandatory annual inspections.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Morro Bay, California, as follows:

1. The attached new Master Lease Agreement for Lease Sites 129W-131W is hereby approved.

2. The Mayor is hereby authorized to execute said Master Lease Agreement.

PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 10th day of March 2026 with the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

RECUSE:
______________________________
CARLA WIXOM, Mayor
ATTEST:

DANA SWANSON, City Clerk Page 19 of 196
City of Morro Bay Master Lease Fish Dock Lease 2026
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L E A S E
by and between
the CITY OF MORRO BAY
("CITY")
and
Morro Bay Seafood Company, LLC
("TENANT")

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City of Morro Bay Master Lease Template, July 2020
01181.0024/656492.1 JWP -iTABLE OF CONTENTS
Article 1 FIXED TERM.............................................................................................................2 Section 1.01 Term..............................................................................................2 Section 1.02 Option to Extend...........................................................................2 Section 1.03 Hold Over......................................................................................3 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 Gross Sales Reporting (No Percentage Rent). ..............................6 Section 2.05 Reimbursements............................................................................7 Section 2.06 Penalty and Interest.......................................................................8 Article 3 USE OF PREMISES...................................................................................................8 Section 3.01 Permitted Uses. .............................................................................8 Section 3.02 Unauthorized Use..........................................................................8 Section 3.03 Operation of Business - Hours of Operation.................................8 Section 3.04 Competition...................................................................................9 Section 3.05 Environmental Considerations and Hazardous Materials.............9 Section 3.06 Tidelands Trust. ..........................................................................11 Section 3.07 Compliance with Law.................................................................11 Section 3.08 Waste or Nuisance. .....................................................................11 Section 3.09 Use by CITY...............................................................................11 Article 4 CONSTRUCTION, ALTERATION AND REPAIRS .............................................12 Section 4.01 Construction Approval................................................................12 Section 4.02 Construction Bond. .....................................................................12

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01181.0024/656492.1 JWP -iiSection 4.03 Mechanics' Liens.........................................................................13 Section 4.04 Ownership of Improvements.......................................................13 Article 5 LEASEHOLD MORTGAGES .................................................................................14 Article 6 REPAIRS, MAINTENANCE AND RESTORATION ............................................14 Section 6.01 Maintenance by TENANT..........................................................14 Section 6.02 Seawalls and Revetment. ............................................................15 Section 6.03 Legal Requirements. ...................................................................15 Section 6.04 Failure to Repair. ........................................................................16 Section 6.05 Inspection by CITY.....................................................................16 Section 6.06 TENANT'S Duty to Restore Premises........................................16 Section 6.07 Termination of Lease for Destruction.........................................17 Section 6.08 Destruction Due to Risk Not Covered by Insurance...................18 Article 7 INDEMNITY AND INSURANCE ..........................................................................18 Section 7.01 Indemnity Agreement. ................................................................18 Section 7.02 Liability Insurance. .....................................................................19 Section 7.03 Worker's Compensation..............................................................20 Section 7.04 Property Insurance. .....................................................................20 Section 7.05 Additional Coverage. ..................................................................20 Section 7.06 General Requirements.................................................................21 Section 7.07 No Subrogation. ..........................................................................22 Section 7.08 TENANT'S Waiver.....................................................................22 Section 7.09 Insurance Not a Limit. ................................................................22 Article 8 TAXES AND FEES..................................................................................................22 Section 8.01 TENANT to Pay Taxes...............................................................22 Section 8.02 TENANT to Pay License and Permit Fees. ................................23 Section 8.03 Utilities........................................................................................23

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01181.0024/656492.1 JWP -iiiArticle 9 CONDEMNATION..................................................................................................23 Section 9.01 Total Condemnation....................................................................23 Section 9.02 Condemnation Award. ................................................................23 Section 9.03 Termination for Partial Taking. ..................................................24 Section 9.04 Rent Abatement for Partial Taking.............................................25 Section 9.05 Conveyance in Lieu of Eminent Domain....................................25 Section 9.06 Temporary Taking. .....................................................................25 Article 10 ASSIGNMENT AND SUBLEASING .....................................................................26 Section 10.01 No Assignment Without CITY'S Consent. .................................26 Section 10.02 Change of Ownership as Assignment.........................................26 Section 10.03 Application for Assignment........................................................27 Section 10.04 Probate Transfer of Assignment. ................................................27 Section 10.05 No Sublease Without CITY'S Consent.......................................27 Section 10.06 Subtenant Subject to Lease Terms..............................................28 Section 10.07 Consent to Sublease Agreement. ................................................28 Section 10.08 TENANT and Guarantor Remain Liable....................................28 Section 10.09 Nondisturbance. ..........................................................................29 Article 11 DEFAULT AND TERMINATION..........................................................................29 Section 11.01 Abandonment by TENANT........................................................29 Section 11.02 Termination for Breach by TENANT.........................................29 Section 11.03 Termination for Failure to Pay Rent. ..........................................29 Section 11.04 Lender May Cure Default. ..........................................................30 Section 11.05 Damages for Breach....................................................................30 Section 11.06 Cumulative Remedies. ................................................................30 Section 11.07 Waiver of Breach. .......................................................................31 Section 11.08 Surrender of Premises.................................................................31

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01181.0024/656492.1 JWP -ivArticle 12 MISCELLANEOUS .................................................................................................31 Section 12.01 Notices. .......................................................................................31 Section 12.02 Governing Law and Jurisdiction.................................................32 Section 12.03 Binding on Successors. ...............................................................32 Section 12.04 Partial Invalidity..........................................................................32 Section 12.05 Sole and Only Agreement...........................................................32 Section 12.06 Modification................................................................................32 Section 12.07 Time of Essence..........................................................................33 Section 12.08 Memorandum of Lease for Recording........................................33 Section 12.09 Force Majeure. ............................................................................33 Article 13 SPECIAL PROVISIONS PECULIAR TO THIS LEASE SITE.................................34 Section 13.01 Repair and Construction of Improvements.................................34 Section 13.02 Operation of Full-Service Fish Buying Station ..........................35 Section 13.03 Operation of Ice Making Machine..............................................36 Section 13.04 Prohibition on Interfering with Adjacent Lease Sites and Access Corridor 37
Section 13.05 Liquidated Damages. ..................................................................37

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L E A S E
This LEASE is made and entered into by and between the CITY OF MORRO BAY, a municipal corporation of the State of California herein called CITY, and Morro Bay Seafood Company, LLC, a California limited liability company, herein called TENANT. (CITY and TENANT, at times, are referred to herein individually as Party and collectively as Parties)

WITNESSETH
WHEREAS, the State of California granted certain tide and submerged lands located within the CITY limits of CITY to the County of San Luis Obispo and to its successors, being Chapter 1076, Statutes of 1947, as amended by Chapter 413, Statutes of 1955, Chapter 1874, Statutes of 1957, and Chapter 70, Statutes of 1960, first extraordinary session; which Statutes may be amended from time to time by the Legislature of the State of California; all of which Statutes are expressly recognized and agreed to be in full force and effect by the Parties; and WHEREAS, the Parties hereto recognize and agree, on July 17, 1964, CITY succeeded to all of the right, title and interest of the County of San Luis Obispo in and to all of the tide and submerged lands conveyed to said County by the State of California pursuant to the above mentioned acts; and
WHEREAS, judgment has been entered on October 14, 1968, in the case of City of Morro Bay, Plaintiff, versus County of San Luis Obispo, and State of California, Defendants, by the Superior Court of the State of California in and for the County of San Luis Obispo, #30417, adjudging and decreeing, among other things, the title to said tide and submerged lands so conveyed by the State of California to the County of San Luis Obispo in trust, as set forth above, passed automatically to CITY upon the date of its incorporation as a city on the 17th day of July, 1964; and
WHEREAS, TENANT accepts the within Lease with full knowledge there is no warranty of title in and to the within described premises by CITY to TENANT; and WHEREAS, in order to develop and improve Morro Bay Harbor and to assist in carrying out the provisions of the tideland grant as aforesaid, and in order to provide facilities for the accommodation of those using Morro Bay Harbor, CITY desires to lease to TENANT the within described property upon the terms and conditions set forth herein;

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NOW, THEREFORE, in consideration of the covenants to be performed and the rental to be paid by TENANT to CITY, CITY leases to TENANT, and TENANT leases from CITY, all of the following premises (herein collectively referred to as the "Premises") in the CITY of Morro Bay, County of San Luis Obispo, State of California, described as follows:

Lease Site: 129W-131W
This Premises is delineated on Parcel Map of the CITY of Morro Bay Resolution No. 77- 74, document entitled “Lease Sites Map” dated November 1974, consisting of Thirteen (13) sheets and designated as the official reference document for said Tideland Trust lease sites, adopted on December 9, 1974, by the CITY Council of Morro Bay, San Luis Obispo County, California. A copy of one (1) sheet is attached hereto as Exhibit A and made a part hereof by reference.

Article 1 FIXED TERM
Section 1.01 Term.

The term of this Lease is a period of 10 years and 3 months, commencing April 1, 2026 (the "Commencement Date"). The term of this Lease will terminate without notice on June 30, 2036, unless sooner terminated as herein provided.

Section 1.02 Option to Extend.

TENANT shall have the option to extend the term of this Lease for an additional ten (10) years, contingent upon TENANT contributing no less than Twenty-Two Thousand Five Hundred Dollars ($22,500.00) toward, and the completion of, the Priority 2 repairs identified in the repair plan attached as Exhibit B, and payment of any associated monitoring and inspection costs not to exceed Ten Thousand Dollars ($10,000).

TENANT shall give the CITY written notice of its intent to exercise this extension option no less than eighteen (18) months prior to Lease expiration and cause completion of the Priority 2 repairs prior to Lease expiration. Priority 2 repairs must be completed no less than twelve (12) months prior to Lease expiration.

Upon CITY’s confirmation that said funds have been applied and repairs completed in accordance with this section, the lease term shall be extended for the additional ten (10) year period on the same terms and conditions set forth herein, unless otherwise agreed to in writing by CITY and TENANT.

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TENANT’s exercise of the option to extend shall be further contingent upon TENANT not being in default under any term or condition of the Lease at the time of TENANT’s exercise of the option and the time of commencement of the option. Time is of the essence.

Section 1.03 Hold Over.

If TENANT holds the Premises after the expiration of the term of this Lease with the consent of the CITY, express or implied, then such holding over (in the absence of a written agreement between CITY and TENANT with respect thereto) will be deemed to create a tenancy from month-to-month, terminable on 30-days’ written notice from either Party to the other, at a monthly rental equal to two hundred percent (200%) of the average total Rent per month for the twelve (12) months immediately preceding the expiration of this Lease, and otherwise subject to each and every term, covenant and condition of this Lease.

Section 1.04 Replacement.

Subject to the next paragraph, as of the Commencement Date, this Lease will extinguish and replace every prior lease between CITY and TENANT respecting the Premises, if any. Any right or interest held by the TENANT pursuant to any existing lease with respect to the Premises, which is not granted pursuant to this Lease, will be extinguished as of the Commencement Date of this Lease.
(Note: the following paragraph to be included only if the lease is associated with a development/redevelopment project on the site)
If on or before ___________, 20__, TENANT does not provide satisfactory evidence, as approved by CITY’S Harbor Director and City Attorney, TENANT has obtained all the financing necessary to commence and complete the Project (as defined in Section 13.__), then (i) this Lease will automatically terminate, without any notice to TENANT, and be of no force and effect and (ii) the lease between CITY and TENANT for the Premises that was in effect prior to this Lease, if any, will be automatically reinstituted and remain in full force and effect subject to all of that lease’s terms and conditions.

Article 2 RENT
Section 2.01 Annual Minimum Rent.

TENANT agrees to pay to CITY a minimum guaranteed annual rental for the use and occupancy of the Premises, in an initial amount of $15,000.00 per year (the "Minimum Rent"),

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payable in advance and at the option of TENANT either in equal semiannual installments or equal monthly instalments. If paid in equal semiannual installments, then such installments must be on January 1 and July 1 each year during the term of the Lease. If the Commencement Date is other than January 1 or July 1, then TENANT must pay, on the Commencement Date, the proportionate amount of the Minimum Rent payable for the period from the Commencement Date until the next payment date of January 1 or July 1, as the case may be. If the term of the Lease expires on a date other than December 31 or June 30, then TENANT'S final installment of Minimum Rent must be proportionate to the time remaining in the term. If paid in equal monthly installments, then each monthly installment must be paid no later than the tenth day of each applicable month. All Rent, including the Minimum Rent and the Percentage Rent, must be paid in lawful money of the United States of America, without offset or deduction and must be paid to CITY at City Hall located at 595 Harbor Street, Morro Bay, California, or at such other place or places CITY may from time to time designate by written notice delivered to TENANT.

Section 2.02 CPI Adjustment to Annual Minimum Rent.
(1) The Parties agree, as of every July 1 following the Commencement Date (each, a "CPI Adjustment Date"), except as outlined in section 2.03 hereof, the annual Minimum Rent will be adjusted in direct proportion to any upward or downward movement in the Consumer Price Index for January 1, 2026, which is hereby agreed to be 347.690 (Base Index). The percentage adjustment for any given year will be based on the monthly average Index for the calendar year immediately preceding the CPI Adjustment Date as compared with the Base Index. The Consumer Price Index referred to herein is the Consumer Price Index (all items indexes, all urban consumers) for Los Angeles – Long Beach – Anaheim, California, compiled and published by the United States Department of Labor, Bureau of Labor Statistics, 1982-84 Base Year = 100 (the "Index") (2) The Annual Minimum Rent will be adjusted as of each CPI Adjustment Date, and will remain in effect as adjusted until the next CPI Adjustment Date. As an illustration only, if the Base Index (Jan. 1, 1999 CPI) is 166.1 and the monthly average CPI for 2000 is 171.6, then the percentage increase is equal to 3.31%. Therefore, the Minimum Rent would be increased by 3.31% as of July 1, 2001, and would continue at that rate through June 30, 2002. (3) If the United States Department of Labor, Bureau of Labor Statistics, ceases to compile and make public the Index as now constituted and issued, but substitutes another index in its place, then said substituted index must be used for the purpose of adjusting the Minimum Rent for the Premises. If the Index is changed so the base year differs from that in effect on the Lease Commencement Date, then the Index must be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics.

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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 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 Gross Sales Reporting (No Percentage Rent).

A. TENANT shall report to CITY all TENANT’S Gross Sales (as defined below) for the Premises. No percentage rent or additional rent based upon Gross Sales shall be due or payable under this Lease.

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:
(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.

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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. On or before 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.

F. For the purpose of enabling CITY to check the accuracy of any such statement or statements, TENANT must, for 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.

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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.
(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 only for the purpose of operating and conducting thereon and therein a full-service fish buying and ice service station. At the Commencement Date, such uses include, landing, unloading, buying, selling, storing and transporting Seafood and Wetfish, ice making and sales and temporary berthing of fishing vessels ancillary to landing and unloading operations. Such uses permitted by, and in compliance with, any Conditional Use Permit, if required, 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.

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 in the manner described in Section 13.02 of this Lease.

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

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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 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

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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.
(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).

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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.

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.

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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.

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.

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(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 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

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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.

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

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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.
(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 Seawalls 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, seawalls, 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);

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(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 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 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

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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.

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 this 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.

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(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 (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

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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; (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

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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 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

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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. (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.

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(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.

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.

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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 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

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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. (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.

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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.

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.

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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.

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 effected 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.

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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.

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,"

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"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.

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.

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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 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

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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;
(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.

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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:

Harbor Director
1275 Embarcadero
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:

Morro Bay Seafood Company, LLC
Garrett Rose
PO Box 599
Cayucos, CA 93430
Such addresses may be changed by written notice by either Party to the other Party.

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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.

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.[NOTE: See 12.07] 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

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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 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.

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Article 13 SPECIAL PROVISIONS PECULIAR TO THIS LEASE SITE The following provisions apply to this Lease site only:

Section 13.01 Repair and Construction of Improvements
TENANT shall remodel the dock office building at TENANT’s sole cost and expense, with a minimum investment of Fifteen Thousand Dollars ($15,000), and shall complete such remodel within twenty-four (24) months from the Commencement Date of this Lease.

TENANT shall further maintain in good working order and repair two (2) freezer containers during the term of this lease.

In addition to the foregoing obligations, within Eighteen (18) months from the Commence Date of this Lease, TENANT must cause the completion of, and contribute no less than TwentyTwo Thousand Five Hundred Dollars ($22,500.00) towards, the Priority 1 repairs identified in the repair plan attached as Exhibit B, and pay any associated monitoring and inspection costs, not to exceed Ten Thousand Dollars ($10,000).

TENANT acknowledges that construction of TENANT’s proposed improvements to the Premises may require, without limitation, permits from the California Coastal Commission, the U.S. Army Corps of Engineers, and a CITY Building Permit. TENANT shall be solely responsible for investigating, obtaining, and bearing all costs associated with such permits and approvals.

Failure to obtain any required permits or approvals shall not excuse TENANT from compliance with this Section. TENANT further acknowledges that construction of improvements may require repair or replacement of docks, buildings, revetments, access ways, sidewalks, drainage systems, and other improvements on the Premises, and TENANT agrees to meet CITY standards as

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determined by the CITY Engineer through review and approval of final building plans prior to issuance of any building permit.

During construction of improvements, TENANT shall take all measures to:

A. Avoid any pollution of the atmosphere or littering of land or water by or originating in or about the Premises or caused by TENANT’S construction activities; B. Keep the noise level on the Premises to a minimum so that persons in the neighborhood will be able to comfortably enjoy business and facilities in the area; C. Prevent any pollutants, including but not limited to petroleum products, from entering Morro Bay waters;
D. Avoid negative impacts on surrounding businesses;
E. Prohibit storage of materials or equipment on public property and avoid parking or traffic delays or impairment without prior consent of CITY.

F. Keep the construction site in a sightly, orderly, and safe manner at all times.

Section 13.02 Operation of Full-Service Fish Buying Station TENANT agrees to operate the Premises as a full-service fish buying and unloading station. TENANT shall make the hoists and other equipment on the Premises available at commercially reasonable fees to any licensed commercial fish buyer on a first-come, first-served basis; provided, that TENANT may establish commercially reasonable hours for TENANTS operation of the hoists and equipment. TENANT may only refuse service to other licensed fish buyers if TENANT has commercially reasonable reasons for said refusal, such as unpaid bills or fees to TENANT or illegal or unsafe operations by users. If there is a dispute between TENANT and CITY of what constitutes "commercially reasonable" fees, hours, and reasons for refusal of service, then TENANT agrees CITY shall be the sole determinant for defining those terms as outlined in this section. CITY may, at its sole discretion, allow TENANT to operate at less than the minimum proscribed hours required due to sea, weather, acts of God, or other reasons.

TENANT at no time shall refuse service to any commercial fisherman, including unloading their vessels, unless TENANT has commercially reasonable reasons for said refusal as outlined above.

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Section 13.03 Operation of Ice Making Machine
(1) TENANT agrees to operate and maintain the CITY-owned ice making machine and associated equipment for CITY, including blowing ice to customers, collection of fees, paying all utilities related to the machine, insuring the machine and conducting basic daily maintenance and repairs.
(2) TENANT shall be responsible for ice making machine maintenance and repair costs in an amount of not less than Fifteen Thousand Dollars ($10,000) per year. CITY shall be responsible for ice making machine maintenance and repair costs in excess of TENANT’s minimum annual contribution, provided TENANT demonstrates to CITY’s reasonable satisfaction that the ice making machine is being maintained in good working order and repair.

All maintenance and repair work for each CITY fiscal year beginning July 1 shall be subject to mutual consent, collaboration, and planning between TENANT and CITY. In the event of a dispute regarding the nature or scope of maintenance or repair to be performed, CITY shall be the sole determinant of the work required.

TENANT shall maintain the ice making machine in good condition and repair at all times, consistent with commercially reasonable standards and the needs of the commercial fishing industry. For purposes of this Lease, “Good Repair” shall mean that the ice making machine, including all machinery, equipment, utilities, structural components, and related systems, is maintained in a safe, sanitary, and fully operable condition, consistent with its intended commercial use and in compliance with all applicable laws, codes, permits, and manufacturer maintenance requirements. “Good Repair” shall include routine preventative maintenance, timely repairs to prevent deterioration, and the prompt correction of any condition that materially interferes with the reliable production, storage, or sale of ice. Normal wear and tear excepted, the ice making machine shall be maintained in a condition equal to or better than its condition at the commencement of this Lease, as reasonably determined by CITY.

TENANT may set commercially reasonable limits on the quantity of ice available for purchase and the hours during which ice is available, provided TENANT shall not discriminate against or refuse service to any party except for commercially reasonable reasons. TENANT shall not charge more than ten percent (10%) above the coast-wide average cost, as determined by CITY, for ice sold to the commercial fishing industry. In the event of a dispute regarding what constitutes commercially reasonable practices, CITY shall be the sole determinant.

TENANT shall keep full, complete, and accurate records of all ice sales and all costs associated with operating, maintaining, and repairing the ice making machine, in accordance with

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generally accepted accounting principles. Such records shall be maintained within San Luis Obispo County and shall be available for inspection by CITY or CITY’s authorized representatives at reasonable times.

By July 31 of each year, TENANT shall provide CITY with a written annual report covering the prior twelve (12) months ending June 30, which shall include:

1. Total gross ice sales.

2. Itemized costs to operate, maintain, and repair the ice making machine.

3. Mandatory annual inspection report (May be increased to twice yearly at the City’s discretion)

4. Documentation reasonably sufficient to demonstrate TENANT’s compliance with the minimum annual maintenance expenditure requirement and that the icehouse has been kept in good repair.

CITY shall have the right, within five (5) years after receipt of such report, to audit or otherwise review TENANT’s records related to ice sales and icehouse maintenance for purposes of verifying compliance with this Lease.

Section 13.04 Prohibition on Interfering with Adjacent Lease Sites and Access Corridor TENANT shall take all necessary steps, management measures, and vessel berthing configurations so, at no time, will TENANT’S operations interfere with, block, or adversely affect adjacent or nearby Lease Sites or their operations. TENANT shall keep the northerly 10 feet in a north to south direction for the entire east to west length of the Premises, hereinafter Access Corridor as described in Exhibit A, on Lease Site 131W free and clear of any and all permanent installations or equipment, and TENANT shall at all times allow free and open access to the Access Corridor for the use of vehicles actively unloading fish at the hoist operated there by the adjacent lease holder. If the hoist is not in active use, then TENANT may store easily removable gear and equipment in the Access Corridor.

Section 13.05 Liquidated Damages.

If TENANT is not in strict compliance with Sections 13.01 through. 13.04 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,

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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 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.

EXECUTED on ________________, 2026, at San Luis Obispo County, California.

CITY OF MORRO BAY TENANT – Morro Bay Seafood Company,
LLC
_________________________________
Carla Wixom, MAYOR
By: ________________________________
Garret Rose
By: ________________________________
David Rose
ATTEST:
_________________________________
Dana Swanson, CITY CLERK
APPROVED AS TO FORM:
_______________________________________
Brian Stack, CITY ATTORNEY

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City of Morro Bay Master Lease Template, July 2020
01181.0024/656492.1 JWP A-1

EXHIBIT A

COPY OF PARCEL MAP

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EXHIBIT B
ASSOCIATED PACIFIC CONSTRUCTORS PROPOSAL – 10/24/25

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Associated Pacific Constructors, Inc. 495 Embarcadero Morro Bay, California, 93442 Tel (805) 772-7472 Fax (805) 772-5803 Contractor’s License 394886 October 24, 2025
Bill Blue
Morro Bay Seafood Company
Pricing
Subject: Morro Bay Fish Company Roadside Pile Cap Repair and Pile Repairs Dear Bill,
The following is my updated quote to repair the wharf on Lease sites 131W, 130W and 129W based on our inspection. We had performed previous repairs for Santa Monica Seafood and these repairs were partially complete due to nonpayment. This quote includes the cost of completing the repairs previously quoted to Santa Monica seafood.

The quote is broken down into two levels of priority, Priority 1 is all the major structural repairs necessary to return wharf to a structurally sound condition. Priority 2 would be wrapping existing piles to prevent future pile deterioration and replacing and or flipping deck boards that are structurally sound but show signs of wear.

Our inspections were primarily at low tide and diver visual inspection of submerged portions of piles.

Generally, all the cross bracing will need to be replaced as well as piling that have 50% or more of deterioration. They are noted. Some will require pile encasements, which is cleaning the pile and encasing it in a fiberglass sleeve, filled with high strength grout. In order to protect the remaining piles over the long term it is recommended that they have the cleaning and HDPE pile wrap system. Fender piles are listed separately, since it is a commercial wharf, these should be addressed.

Scope of work
 Phase I-East to West
o Remove or Reposition Containers over Area to be worked (Row 0-4) 25’+-  Remove Decking -as needed
 Pile Stub Repairs-12 piles
 Pile Encasements-19 piles
 Pile wrapping-25 piles
 Cross Bracing-36 Pairs
 Pile Cap along Road – 25 LF
 Re Decking approximately 4000 LF of total decking and estimating 2000 lf new and 2000 lf flipped and refastened.

Pricing

Item
No.

Description Units Unit Price Extended Price
1 Mobilization Demobilzation of Equipment, Personnel and Consumables (per mob/demob)
LS 20,000 $ 10,000

2 Pile Stub Repair ( includes pile stub removal, disposal, rip 12 $ 17,000 $ 204,000 Exhibit B

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Associated Pacific Constructors, Inc. 495 Embarcadero Morro Bay, California, 93442 P (805) 772-7472 F (805) 772-5803 www.associatedpacific.com Contractor’s License 394886 rap relocation, pile replacement and encasement)
3 Pile Encasement ( includes rip rap relocation, pile cleaning, encasement
19 $ 12,000 $ 228,000
4 Cross Bracing removal, disposal and replacement new pairs 4x10x30’
36Pairs $ 2,400 EA $ 86,400
5 Remove exising timber cap rail alongside roadway and
replace as needed. (includes removal asphalt, shoring as required, replacement and compaction of new fill, sub base, new cold patch) 25 L/F off 12”x12” DougFir .6 ACZA
$ 1,000 /LF $ 25,000
10 Reposition Exisiting Refer Containers for work. Lift and Position elsewhere on dock, replace after work.

LS $ 4,000 $ 4,000
11 Drawing Submittals / Preparation Est $ 5,500 $ 5,500 Total Priority 1 $ 572,900
4 Pile wrap (includes cleaning, wraping. 25 $4,000 $ 100,000 6 Remove and replace decking (includes disposal and
supply/install new decking 4x14” x 24’ Estimate 2000 LF 2000
est
$ 30LF $ 60,000
7 Remove and reinstall exising decking (if not damaged) estimate 2000
2000
est
$ 15/LF $ 30,000
9 Fender Piles, Remove , dispose and reinstall 14-16” dia, 5’ imbedment, secured ¾” HDG All Thread. HDPE Wrapped.
6 Est $ 7,500 EA $ 45,000.

Total Priority 2 $ 235,000
Total Combined Priority 1 and 2 $ 807,700
Estimated special inspections and required monitoring Est $ 10,000 $ 10,000 Total Project Estimate $ 817,700
Scope of Work
 Upon Receipt of Permits and Notice to Proceed
 Procure materials (
 Establish traffic control, b m p s and USA utility markings  Remove decking in area of repairs of piles (4) phases  Remove damaged pile, remove rip rap sufficiently to start post repair.  Prepare post pile (measured to correct length)
 Cut and fit pile with appropriate HDG hardware

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Associated Pacific Constructors, Inc. 495 Embarcadero Morro Bay, California, 93442 P (805) 772-7472 F (805) 772-5803 www.associatedpacific.com Contractor’s License 394886  Install pile post repairs
 Install fiber glass casing and FX system grout
 Repeat for all pile post repairs and encasements
 Re install decking, if deck boards are re-usable then the reduced l/f rate will apply Clarifications
1 Subject to all permits and cost of permits by others
2 All cost for special inspections, monitoring or other permit requirements shall be billed at cost plus 15%, if paid by APC.
3 Condition of any additional piling or any other deteriorated conditions found will be priced as additional work.
4 Does not include replacement or repair of under pier fire system. 5 Does not include any movement or repositioning of utilities. 6 Pricing is non-prevailing wages.
7 Work will be done in phases subject to working with client’s schedule and tides. 8 Due to fluctuating price of materials and transportation, any increase in pricing more that 3% will be past on and documented costs plus.
9 Estimated duration of work in Phases 60-90 days and subject to weather and access. 10 Materials 45-60 days lead time.

Associated Pacific Constructors, Inc. appreciates this opportunity to our budget pricing and look forward to performing this work.

Sincerely,
Paul E. Gillen
President
Associated Pacific Constructors, Inc.

California General Engineering Lic. #394886

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Prepared By: GK Department Review: GK

City Manager Review: JC City Attorney Review: BS
Staff Report
TO: Honorable Mayor and City Council DATE: March 5, 2026 FROM: Greg Kwolek – Public Works Director
SUBJECT: Status Update and Reconfirm Emergency for the Morro Creek Bank Stabilization Project

RECOMMENDED ACTION
Receive and file status update and reconfirm the declaration of emergency for the Morro Creek Bank Stabilization Project by four fifths vote.

STATUS UPDATE
On November 18, 2025, the City Council adopted an emergency declaration by unanimous vote for the Morro Creek Bank Stabilization Project (Project) due to the sudden 2023 erosion event that created an ongoing and imminent threat to adjacent public and private property. Since then, City staff have been focused on obtaining permission from the property owner to perform the work, preparing design, and coordinating permitting with the California Coastal Commission, United States Army Corps of Engineers (USACE), Regional Water Quality Control Board (RWQCB), and California Department of Fish and Wildlife (CDFW).

There has been significant project progress in the last month. Key milestones achieved to date include:
 Recordation of a Temporary Construction Easement (TCE) from Vistra, who owns the property. The term of the TCE is six months expiring August 15, 2026 to allow sufficient time for construction including landscaping and fence replacement.  Issuance of the Emergency Coastal Development Permit (ECDP) by the Community Development Department on March 4
th. The permit requires construction begin within 30
days.
 Selection of a David Crye General Engineering Contractor, Inc., as the City’s contractor for the Project. Although the City is authorized to proceed with sole source procurement due to the emergency, staff conducted an informal bidding process to ensure cost competitiveness.

The base contract amount is $355,665.
 Submission of documentation to USACE for coverage under Regional General Permit 63.

Once authorized, the City has 15 days to begin construction. Through this process, USACE will notify US Fish and Wildlife Service and NOAA Fisheries.  Submission of Notice of Intent to the RWQCB to obtain Water Quality Certification under Section 401 of the Clean Water Act.
 Execution of contracts for archaeological monitoring, geotechnical support, and environmental compliance services.
 Coordination with local tribes regarding monitoring of construction activities.

Once USACE and RWQCB have authorized the work, staff will notify the California Department of Fish and Wildlife.

AGENDA NO: 6.d
MEETING DATE: March 10, 2026

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As of the date of this staff report, construction is expected to begin on Monday, March 16, 2026.

Construction, including restoration work, is expected to take three to four weeks. Beyond the construction timeline, the City will be responsible for habitat mitigation monitoring and reporting for five years.

EMERGENCY COASTAL DEVELOPMENT PERMIT NOTIFICATION
On March 4, 2026, the Community Development Director issued an Emergency Coastal Development Permit (ECDP) (Attachment 1) for the Morro Creek Bank Stabilization Project. As an emergency repair, the project is exempt from the California Environmental Quality Act (CEQA) under CEQA Guidelines Section 15269(b) – Emergency Projects.

As required by Municipal Code Section 17.39.110, the Community Development Director provided notice of the ECDP to the California Coastal Commission and will report issuance of the ECDP to the City Council at its first scheduled meeting (March 10, 2026) after the ECDP was issued. The Community Development Director will also report the ECDP at the next scheduled Planning Commission meeting (March 17, 2026). The ECDP is not appealable to the Coastal Commission.

The ECDP includes conditions of approval to avoid and minimize impacts to biological and archaeological resources. The ECDP establishes the following timelines consistent with the Municipal Code: work must begin within 30 days of permit issuance (by April 3, 2026); the ECDP expires on June 2, 2026, with a potential extension to July 2, 2026; a regular CDP must be submitted to the Community Development Department within 60 days (by May 3, 2026).

Absent a regular CDP, the emergency development shall be removed and the affected area restored to pre-emergency conditions or better within six months of emergency CDP issuance, unless the director authorizes an extension of time for good cause.

The regular CDP will be subject to the City’s standard CDP process, including public notice, a hearing before the Planning Commission, and appealability to the City Council. The regular CDP is also appealable to the Coastal Commission given its location within a Coastal appealable area. The regular CDP will also require a separate CEQA determination. Because the emergency repair is limited to the low impact stabilization of a previously stabilized creek bank without any history of negative environmental or coastal resource impacts, and the repair will help protect coastal uses such as the commercial fisherman storage area and morro creek pedestrian bridge, no substantial CEQA or Coastal Act consistency issues are expected as part of the regular CDP and environmental review process.

EMERGENCY STATUS
Under Public Contract Code Section 22050, the City Council must review the emergency action at each regularly scheduled meeting and confirm there is a need to continue the emergency action by a four-fifths vote. Because additional time is needed to complete the emergency response, staff recommends the City Council reaffirm by a four-fifths vote that the local emergency continues to exist. If reaffirmed, Staff would continue to return to City Council at each regularly scheduled meeting to report on any emergency actions taken and for a determination whether there continues to be a need for the emergency action.

ATTACHMENT

1. Emergency Coastal Development Permit (CDP25-006)

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December 19, 2025
(Revised January 15, 2026)
File No.: 307503-001
Mr. Nate Stong
City of Morro Bay, Public Works
595 Harbor Street
Morro Bay, CA 91671
PROJECT: MORRO CREEK EMERGENCY BANK REPAIR
1620 EMBARCADERO

MORRO BAY, CALIFORNIA
SUBJECT: Revised Geotechnical Engineering Letter
REF: Proposal to Provide Geotechnical Consultation, Morro Creek Bank Repair, 1620 Embarcadero, Morro Bay, California, by Earth Systems Pacific, Doc.

No. SLO-2510-065.PRP, dated October 29, 2025
Dear Mr. Stong:

Per your authorization of the above referenced proposal, this revised geotechnical engineering letter has been prepared for use in the development of plans and specifications for the Morro Creek Emergency Bank Repair project, located adjacent to the access road at 1620 Embarcadero in Morro Bay, California. Multiple site visits were conducted which included a field reconnaissance survey and a geotechnical subsurface investigation.

This letter has been revised to provide recommendations for an additional repair solution requested by the City of Morro Bay following unofficial review by additional government agencies and approximate construction material quantities. The approximate construction quantities are attached.

On October 18, 2025, a site visit was conducted by the undersigned to assess the conditions of creek bank. The southernmost bank of the creek exhibited signs of active erosion and had experienced significant soil loss, likely resulting from high energy flow events. The extent of bank retreat was corroborated by a review of historical aerial photography. Rip rap previously installed to protect the slope had been displaced, presumably due to these hydraulic forces. The creek bank is now near-vertical and poses a risk of undermining the access road to 1620 Embarcadero.

The slope instability appears to be primarily driven by bank scour, exacerbated by elevated flow

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Morro Creek 2 December 19, 2025
Emergency Bank Repair (Revised January 15, 2026)
Morro Bay, California
conditions and insufficient slope stabilization. The affected bank faces measures approximately 220 feet in length, with vertical bank heights ranging from approximately 5 to 8 feet.

On November 24, 2025, a field reconnaissance survey and a geotechnical subsurface investigation were conducted. The survey consisted of using hand tolls to determine field measurements of the existing slope and the limits and extent of the failure. In addition, images of the site were captured using an Autel EVO II V3 unmanned aerial vehicle equipped with a 1- inch CMOS 20MP sensor and an Angle Nadir camera. Aerial imagery and dimensions recorded during the survey are presented in the attached Exploration Location Map and cross sections. To characterize the subsurface conditions, the geotechnical subsurface investigation consisted of advancing six exploratory borings to a maximum depth of 5.0 feet below the existing ground surface (bgs) using 4-inch outside diameter solid stem hand auger equipment. At selected depths in the face of the creek bank, soil samples were obtained using a 3-inch outside diameter ringlined barrel sampler (ASTM D 3550-17 with shoe similar to ASTM D 2937-24). Bulk samples were also obtained from the auger cuttings. The approximate locations of the borings are shown on the attached Exploration Location Map and cross sections. Soils encountered in the borings were categorized and logged in general with the Unified Soil Classification System and ASTM D 2488-

17. Logs of the borings are attached, along with a Boring Log Legend. In reviewing the boring logs and legend, the reader should recognize that the legend is intended as a guideline only, and there are a number of conditions that may influence the characteristics observed during drilling. These include, but are not limited to, variations in soil moisture and density, presence of groundwater, and other factors. Consequently, the logger must exercise judgment in interpreting soil characteristics, possibly resulting in soil descriptions that vary from the legend. Selected samples were tested for in-situ moisture content and dry unit weight (ASTM D 2937-17, as modified for ring liners) and shear strength (ASTM D 3080/D 3080M-11, in-situ). The results of the laboratory tests are attached.

An additional field reconnaissance survey was conducted on December 11, 2025 to record the depth and location of the active creek channel relative to the creek bank. Measurements are included in the attached cross-sections. While the aerial imagery shown on the attached Exploration Location Map depicts creek alignment and width as of November 24, 2025, the crosssections reflect the most recent creek depth and alignment and indicate a reduced water level and a narrower active channel.

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Morro Creek 3 December 19, 2025
Emergency Bank Repair (Revised January 15, 2026)
Morro Bay, California
The subsurface profiles found in the exploratory borings and the creek bank profiles varied by location. In the east limits of the site and in the middle of the site—as shown in Cross Sections AA’ and B-B’, respectively—the profiles consisted of fill. At the top of the bank, the exploratory borings encountered silty sandy with gravel and cobbles and debris; this was observed in the bank face as well. In the west portion of the site—as shown in Cross Section A-A’—the creek bank profiles consisted of fill overlying alluvium and aeolian deposits. The fill consisted of silty sand with gravel and poorly graded sand. The alluvial soils were silty sand with gravel and the aeolian deposits were poorly graded sand. The soils in the bank were medium dense and logged as slightly moist to moist. At the toe of the creek bank, the exploratory borings encountered alluvial soils—loose silty sand and very soft fat clay; subsurface water was encountered at 1.0 feet bgs.

Excessive concrete debris, varying in diameter from 1 to 10 feet, were also observed in the channel margins within the project limits.

Based upon discussions with the City, the site visits, and the field reconnaissance, our recommendation is to repair the creek bank slope with rock slope protection (RSP). At the City’s request, the repair provided prioritizes minimal impact to the creek and maximum habitat rehabilitation, recognizing that this approach provides reduced bank protection. The repair should extend along the full length of the portion of creek bank shown on the attached Exploration Location Map. The front face of the repair is set back to reduce disturbance of the existing creek flow and preserve in-stream habitat.

To construct the repair, we recommend excavating to the bottom of the existing creek bed a minimum 15 feet from the toe of the vertical bank. The bank should then be sloped back to a 1:1, where feasible. Topsoil within the excavation should be salvaged and stockpiled with vegetation intact for reuse in the repair. Class IX rock should then be placed at the bottom of the excavation up to a minimum height of approximately 4 feet above the existing creek bed. Beyond this height, Class VII or Class VIII rock may be used an additional maximum thickness of 2 feet. Soil in-fill should be incorporated into the rock matrix without reducing 3-point rock contact. Above the rock, a 2-foot maximum thick soil layer consisting of Class II rock underlying top soil for planting purposes per the environmental recommendations should be placed. In addition, a tree root and root ball should be intermixed with the Class IX rock per the environmental recommendations in the approximate location of the attached Cross Section B-B’. Rock may be placed using Caltrans Method B. Slope protection measures should conform to Section 72 of the Caltrans 2024 Standard Specifications (Caltrans 2024). The front face of the slope consisting of Class IX rock

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Morro Creek 4 December 19, 2025
Emergency Bank Repair (Revised January 15, 2026)
Morro Bay, California
should be a maximum of 1.5:1 when complete; the slope consisting of rock with soil in-fill and top soil should be a maximum of 2:1 when complete.

The Rock Slope Protection Structure Detail – Repair is attached and the repair is illustrated in Figure 6.

We appreciate the opportunity to have provided services for this project and look forward to working with you again in the future. If there are any questions concerning this letter, please do not hesitate to contact the undersigned.

Sincerely,
Earth Systems Pacific
Samuel Venable, PE Robert Down, PE
Project Engineer Principal Engineer
Attachments: Approximate Construction Material Quantities Figure 1 – Site Vicinity Map
Figure 2 – Exploration Location Map
Boring Logs
Laboratory Data
Rock Slope Protection Structure Detail – Repair
Figures 3 through 5 – Cross-Sections A-A’ through C-C’ – Existing Conditions Figure 6 – Cross-Section B-B’ – Repair
Doc. No.: 2512-043.LTR.REV/pm

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Class IX
Rock
Class VIII or
VII Rock
Class II
Rock Top Soil
Excavated
Embankment
In-Fill Soil Export
Root
Balls/Tree
Roots
Vegetation
Volume (Cubic Yards) 585 270 129 125 484 342 17 -- --
Quanitity -- -- -- -- -- -- -- 1 --
Area (Square Feet) -- -- -- -- -- -- -- -- 1368

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Earth Systems Pacific 4378 Old Santa Fe Road, San Luis Obispo, CA 93401 www.earthsystems.com (805) 544-3276 Fax (805) 544-1786 Date December 2025 Project No. 307503-001 Figure 1 SITE VICINITY MAP City of Morro Bay - Morro Creek Emergency Bank Repair 1620 Embarcadero Morro Bay, California NOT TO SCALE BASE MAP PROVIDED BY: Google Earth (2025) SITE Embarcadero Page 100 of 196 Approx. Scale: 1" = 30' Earth Systems Pacific 4378 Old Santa Fe Road, San Luis Obispo, CA 93401 www.earthsystems.com (805) 544-3276 Fax (805) 544-1786 Date December 2025 Revised January 2026 Project No. 307503-001 Figure 2 EXPLORATION LOCATION MAP City of Morro Bay - Morro Creek Emergency Bank Repair 1620 Embarcadero Morro Bay, California BASE MAP PROVIDED BY: ESP (aerial photograph taken on 11/24/25) LEGEND Boring Location (Approx.) Cross-Section Location (Approx.) Proposed Project Limits (Approx.) B6B1 B2 B5 B3B4 CC' B B' A' A B6CC' Page 101 of 196 drafting/masters/Boring Log Legend 062719.dwg
UNIFIED SOIL CLASSIFICATION SYSTEM (ASTM D 2487)

OBSERVED MOISTURE CONDITION

DRY SLIGHTLY MOIST MOIST VERY MOIST WET (SATURATED)

TYPICAL BEDROCK HARDNESS

TYPICAL BEDROCK WEATHERING

GRAIN SIZES

CONSISTENCY

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DEPTH (feet) USCS CLASS SYMBOL INTERVAL (feet) SAMPLE TYPE DRY DENSITY (pcf) MOISTURE (%) BLOWS PER 6 IN.

SAMPLE DATA

SOIL DESCRIPTION
Earth Systems Pacific
LEGEND: Ring Sample Grab Sample Shelby Tube Sample SPT
NOTE: This log of subsurface conditions is a simplification of actual conditions encountered. It applies at the location and time of drilling.

Subsurface conditions may differ at other locations and times.

AUGER TYPE: 4" Hand Auger
LOGGED BY: S. Venable
PAGE 1 OF 1
Boring No. 1
JOB NO.: 307503-001
DATE: 11/24/2025

0.0 - 2.5
City of Morro Bay -
Morro Creek Emergency Bank Repair
1620 Embarcadero
Morro Bay, California
SM SILTY SAND: dark brown, medium dense, moist,
trace gravel, occasional 2"-6" cobbles and debris
(Fill)
End of Boring @ 2.5' (refusal on debris)
No subsurface water encountered

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DEPTH (feet) USCS CLASS SYMBOL INTERVAL (feet) SAMPLE TYPE DRY DENSITY (pcf) MOISTURE (%) BLOWS PER 6 IN.

SAMPLE DATA

Subsurface conditions may differ at other locations and times.

AUGER TYPE: 4" Hand Auger
LOGGED BY: S. Venable
PAGE 1 OF 1
Boring No. 2
JOB NO.: 307503-001
DATE: 11/24/2025

5.0 1.0 - 4.0
City of Morro Bay -
Morro Creek Emergency Bank Repair
1620 Embarcadero
Morro Bay, California

98.3 9.4
SM SILTY SAND WITH GRAVEL: dark brown,
medium dense, moist, occasional 2"-6" cobbles
and debris (Fill)
End of Boring @ 4.7' (refusal on cobble or debris)
No subsurface water encountered (sampled at slope face)

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DEPTH (feet) USCS CLASS SYMBOL INTERVAL (feet) SAMPLE TYPE DRY DENSITY (pcf) MOISTURE (%) BLOWS PER 6 IN.

SAMPLE DATA

Subsurface conditions may differ at other locations and times.

AUGER TYPE: 4" Hand Auger
LOGGED BY: S. Venable
PAGE 1 OF 1
Boring No. 3
JOB NO.: 307503-001
DATE: 11/24/2025

3.5 1.0 - 5.0
City of Morro Bay -
Morro Creek Emergency Bank Repair
1620 Embarcadero
Morro Bay, California

94.6 4.3
SM SILTY SAND WITH GRAVEL: dark brown,
medium dense, moist (Fill)
End of Boring @ 5.0'
No subsurface water encountered
(sampled at slope face)
SP POORLY GRADED SAND: light brown, medium
dense, slightly moist
SP POORLY GRADED SAND: light brown, medium
dense, slightly moist (Eolian Deposits)
SM
SILTY SAND WITH GRAVEL: dark brown,
medium dense, moist (Alluvium)

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DEPTH (feet) USCS CLASS SYMBOL INTERVAL (feet) SAMPLE TYPE DRY DENSITY (pcf) MOISTURE (%) BLOWS PER 6 IN.

SAMPLE DATA

Subsurface conditions may differ at other locations and times.

AUGER TYPE: 4" Hand Auger
LOGGED BY: S. Venable
PAGE 1 OF 1
Boring No. 4
JOB NO.: 307503-001
DATE: 11/24/2025
City of Morro Bay -
Morro Creek Emergency Bank Repair
1620 Embarcadero
Morro Bay, California
SM SILTY SAND: dark brown, loose, very moist
(Alluvium)
End of Boring @ 3.0'
Subsurface water encountered @ 1.0'
wet
CH FAT CLAY: dark gray, very soft, wet

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DEPTH (feet) USCS CLASS SYMBOL INTERVAL (feet) SAMPLE TYPE DRY DENSITY (pcf) MOISTURE (%) BLOWS PER 6 IN.

SAMPLE DATA

Subsurface conditions may differ at other locations and times.

AUGER TYPE: 4" Hand Auger
LOGGED BY: S. Venable
PAGE 1 OF 1
Boring No. 5
JOB NO.: 307503-001
DATE: 11/24/2025
City of Morro Bay -
Morro Creek Emergency Bank Repair
1620 Embarcadero
Morro Bay, California
SM SILTY SAND WITH GRAVEL: dark brown, loose,
very moist (Alluvium)
End of Boring @ 2.5'
Subsurface water encountered @ 1.0'
wet

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DEPTH (feet) USCS CLASS SYMBOL INTERVAL (feet) SAMPLE TYPE DRY DENSITY (pcf) MOISTURE (%) BLOWS PER 6 IN.

SAMPLE DATA

Subsurface conditions may differ at other locations and times.

AUGER TYPE: 4" Hand Auger
LOGGED BY: S. Venable
PAGE 1 OF 1
Boring No. 6
JOB NO.: 307503-001
DATE: 11/24/2025
City of Morro Bay -
Morro Creek Emergency Bank Repair
1620 Embarcadero
Morro Bay, California
SM SILTY SAND WITH GRAVEL: dark brown, loose,
very moist (Alluvium)
End of Boring @ 2.0'
Subsurface water encountered @ 1.0'
wet

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Morro Creek Emergency Bank Repair 307503-001
BULK DENSITY TEST RESULTS ASTM D 2937-17 (modified for ring liners) December 11, 2025

BORING DEPTH MOISTURE WET DRY
NO. feet CONTENT, % DENSITY, pcf DENSITY, pcf
2 5.0 9.4 107.5 98.3
3 3.5 4.3 98.7 94.6

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Morro Creek Emergency Bank Repair 307503-001
DIRECT SHEAR ASTM D 3080-23 (modified for consolidated, undrained conditions) December 11, 2025
Boring #2 @ 5.0' INITIAL DRY DENSITY: 98.7 pcf
Silty Sand with Gravel (SM) INITIAL MOISTURE CONTENT: 9.4 % Ring sample, saturated PEAK SHEAR ANGLE (Ø): 28°
COHESION (C): 198 psf
0 500
1,000
1,500
2,000
2,500
3,000
0 500 1,000 1,500 2,000 2,500
SHEAR STRESS, psf
NORMAL STRESS, psf
SHEAR vs. NORMAL STRESS

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Morro Creek Emergency Bank Repair 307503-001
DIRECT SHEAR continued ASTM D 3080-23 (modified for consolidated, undrained conditions) Boring #2 @ 5.0' December 11, 2025
Silty Sand with Gravel (SM)
Ring sample, saturated SPECIFIC GRAVITY: 2.65 (assumed) SAMPLE NO.: 1 2 3 AVERAGE

INITIAL
WATER CONTENT, % 9.4 9.4 9.4 9.4
DRY DENSITY, pcf 98.2 99.8 98.1 98.7
SATURATION, % 36.5 37.9 36.3 36.9
VOID RATIO 0.683 0.657 0.686 0.675
DIAMETER, inches 2.410 2.410 2.410
HEIGHT, inches 1.00 1.00 1.00

AT TEST
WATER CONTENT, % 17.3 17.8 18.9
DRY DENSITY, pcf 99.9 103.6 104.6
SATURATION, % 70.1 79.0 86.3
VOID RATIO 0.655 0.596 0.581
HEIGHT, inches 0.98 0.96 0.94
0 500
1,000
1,500
2,000

0.00 0.05 0.10 0.15 0.20 0.25
SHEAR STRESS, psf
HORIZONTAL DEFORMATION, inches
500 psf
1,000 psf
2,000 psf

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Morro Creek Emergency Bank Repair 307503-001
DIRECT SHEAR ASTM D 3080-23 (modified for consolidated, undrained conditions) December 11, 2025
Boring #3 @ 3.5' INITIAL DRY DENSITY: 92.9 pcf
Poorly Graded Sand (SP) INITIAL MOISTURE CONTENT: 4.3 % Ring sample, saturated PEAK SHEAR ANGLE (Ø): 29°
COHESION (C): 54 psf
0 500
1,000
1,500
2,000
2,500
3,000
0 500 1,000 1,500 2,000 2,500
SHEAR STRESS, psf
NORMAL STRESS, psf
SHEAR vs. NORMAL STRESS

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Morro Creek Emergency Bank Repair 307503-001
DIRECT SHEAR continued ASTM D 3080-23 (modified for consolidated, undrained conditions) Boring #3 @ 3.5' December 11, 2025
Poorly Graded Sand (SP)
Ring sample, saturated SPECIFIC GRAVITY: 2.65 (assumed) SAMPLE NO.: 1 2 3 AVERAGE

INITIAL
WATER CONTENT, % 4.3 4.3 4.3 4.3
DRY DENSITY, pcf 91.4 93.2 94.1 92.9
SATURATION, % 14.1 14.7 15.0 14.6
VOID RATIO 0.808 0.774 0.758 0.780
DIAMETER, inches 2.410 2.410 2.410
HEIGHT, inches 1.00 1.00 1.00

AT TEST
WATER CONTENT, % 28.3 11.2 11.5
DRY DENSITY, pcf 92.7 96.2 99.3
SATURATION, % 95.8 41.3 45.8
VOID RATIO 0.783 0.719 0.664
HEIGHT, inches 0.99 0.97 0.95
0 500
1,000
1,500
2,000

0.00 0.05 0.10 0.15 0.20 0.25
SHEAR STRESS, psf
HORIZONTAL DEFORMATION, inches
500 psf
1,000 psf
2,000 psf

Page 113 of 196 ends

15' MIN. WIDTH

METHOD B PLACEMENT

CLASS IX ROCK,
FIRST 4' ABOVE

1.5:1 MAX SLOPE

CLASS VIII OR VII ROCK
California Department of Transportation,
Standard Specifications 2024, 72-2.03C
1 1

CREEKBED

EXISTING
SOIL
California Department of Transportation,
Standard Specifications 2024, 72-2.02B
2 2
2 4' min.

CREEKBED
MIRAFI HP 570

ROCK SLOPE PROTECTION
FABRIC PER 2024

CALTRANS STANDARD
SPECIFICATIONS 96-1.02I
4' Min
2' max.
2' max.

TOP SOIL/PLANTING PER ENV. REC.
2:1 MAX SLOPE
ROOT WAD PER ENV. REC.

CLASS II ROCK (1-FT)

SOIL IN-FILL

W/O REDUCING
3-POINT CONTACT

SCHEMATIC ONLY

NOT TO SCALE

ROCK SLOPE PROTECTION STRUCTURE DETAIL
Morro Creek Bank Repair
1620 Embarcadero
Morro Bay, California
January 2026 SV
Earth Systems Pacific 4378 Old Santa Fe Road
San Luis Obispo, CA 93401-8116
(805) 544-3276
1:1 SLOPE

IF POSSIBLE

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South A' North A fence line creek flow + depth measured 12/11/25 B1 B6 concrete debris 7-10 foot diameter concrete debris 4-5 foot diameter 05 Vertical Scale (approx. ft.) af af Qya Qya Qya ? ? ? ? Horizontal Scale (approx. ft.) 0 10 20 30 40 50 access road Earth Systems Pacific 4378 Old Santa Fe Road, San Luis Obispo, CA 93401 www.earthsystems.com (805) 544-3276 Date December 2025 Project No. 307503-001 Figure 3 CROSS SECTION A-A' - EXISTING CONDITIONS City of Morro Bay - Morro Creek Emergency Bank Repair 1620 Embarcadero Morro Bay, California LEGEND Qya Alluvium af Fill Page 115 of 196 South B' North Bcreek flow + depth measured 12/11/25 Qya Qya Qya 05 Vertical Scale (approx. ft.) Horizontal Scale (approx. ft.) 0 10 20 30 40 50 60 fence line B2 B5 access road concrete debris 2-3 foot diameter af ? ? Earth Systems Pacific 4378 Old Santa Fe Road, San Luis Obispo, CA 93401 www.earthsystems.com (805) 544-3276 Date December 2025 Project No. 307503-001 Figure 4 CROSS SECTION B-B' - EXISTING CONDITIONS City of Morro Bay - Morro Creek Emergency Bank Repair 1620 Embarcadero Morro Bay, California LEGEND Qya Alluvium af Fill Page 116 of 196 North South C C' B3 B4 Qya Qya af af Qya Qya Qe Qe Qe Sloughed Material creek flow + depth measured 12/11/25 05 Vertical Scale (approx. ft.) Open Graded Parking Lot ? ? ? ? ? ??? Horizontal Scale (approx. ft.) 0 10 20 30 40 50 concrete debris 1-2 foot diameter Earth Systems Pacific 4378 Old Santa Fe Road, San Luis Obispo, CA 93401 www.earthsystems.com (805) 544-3276 Date December 2025 Project No. 307503-001 Figure 5 CROSS SECTION C-C' - EXISTING CONDITIONS City of Morro Bay - Morro Creek Emergency Bank Repair 1620 Embarcadero Morro Bay, California LEGEND Qya Alluvium af Fill Qe Eolian Deposits Page 117 of 196 South B' North Bcreek flow + depth measured 12/11/25 Qya Qya Qya 05 Vertical Scale (approx. ft.) Horizontal Scale (approx. ft.) 0 10 20 30 40 50 60 fence line access road af ? ? -5 Rock Slope Protection - Repair #3 detail Earth Systems Pacific 4378 Old Santa Fe Road, San Luis Obispo, CA 93401 www.earthsystems.com (805) 544-3276 Date January 2026 Project No. 307503-001 Figure 6 CROSS SECTION B-B' - REPAIR City of Morro Bay - Morro Creek Emergency Bank Repair 1620 Embarcadero Morro Bay, California LEGEND Qya Alluvium af Fill Page 118 of 196 Prepared By: JC Dept Review: ______
City Manager Review: JC City Attorney Review: __BS____
TO: Honorable Mayor and City Council DATE: March 3, 2026

FROM: John Craig, City Manager
SUBJECT: Adopt Resolution No. 12-26 Approving the Harbor Director’s Working Title and Job Description

RECOMMENDED ACTION
Adopt Resolution No. 12-26 retitling the Harbor Vitality Director Job Title to Harbor Director.

ALTERNATIVES
The Council may choose not to adopt the new Harbor Director title and job description and provide alternative directions to staff.

FISCAL IMPACT
None

BACKGROUND/DISCUSSION
In September 2024, staff recommended a change to the position of Harbor Director to the new title and job description of Harbor Vitality Director. The reason for the change was due to the diverse functions the Harbor Department performs daily. However, the title Harbor Vitality Director is not widely recognized and has led to confusion as to what functions the Harbor Director performs.

Following a review of the job description, discussions with community members, City staff, and evaluation of the City’s needs, it has become apparent that the title should revert back to Harbor Director. Staff have modified the job description to clarify a reversion to the previous title; while maintaining the position classification, key responsibilities expected of a director, and salary. At this time staff recommend changing the working title and job description name to Harbor Director, with further changes to the City’s Pay Schedule to be completed during the upcoming budget process.

CONCLUSION
City Staff recommends approving the updated Harbor Director working title and job description.

ATTACHMENT(S)

1. Resolution No. 12-26 approving updated Harbor Director Classification and Job Description AGENDA NO: 6.e
MEETING DATE: March 10, 2026

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01181.0004/762865.1
RESOLUTION NO. 12-26

RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF MORRO BAY, CALIFORNIA,

APPROVING UPDATED HARBOR DIRECTOR WORKING TITLE

AND JOB DESCRIPTION

T H E C I T Y C O U N C I L
City of Morro Bay, California
WHEREAS, the Council desires to approve retitling the “Harbor Vitality Director” job title to “Harbor Director” and adopt an updated job description for the position, which will continue to serve as Director of the City’s Harbor Department.

NOW, THEREFORE, BE IT RESOLVED the City Council of the City of Morro Bay as follows:

The unrepresented full-time classification of “Harbor Vitality Director” is hereby retitled to “Harbor Director.” The classification will continue to be included within the City’s Unrepresented Department Head Group and provided benefits pursuant to the then-current City Council resolution establishing compensation and benefits for certain City department head positions. The updated job description for this classification, attached hereto, is hereby adopted.

PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 10th day of March 2026 by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

RECUSE:
______________________________
CARLA WIXOM, Mayor
ATTEST:
_____________________________
DANA SWANSON, City Clerk

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1 HARBOR VITALITY DIRECTOR

DEFINITION
Under the administrative direction of the City Manager, the Harbor Vitality Director will plan, organize, and direct harbor operations and economic development initiatives. This role involves overseeing Harbor Department activities and functions such as property and lease management of Embarcadero lease sites, providing administrative oversight of Harbor Patrol and harbor business functions, addressing infrastructure needs, overseeing oceanfront-related federal, state, and local initiatives, and fulfilling other related duties. The Harbor Vitality Director will leverage new technologies and ideas to enhance service delivery, streamline operations, and increase revenue while managing contracts, drafting reports, and conducting financial analyses.

Effective communication with diverse stakeholders, including the boating community, commercial fishing community, environmental groups, developers, lessees, City Council members, the advisory committee, employees, and the community is crucial.

ESSENTIAL DUTIES & RESPONSIBILITIES
 Plans, manages, organizes, and directs the operations and business activities of the Harbor Department.
 Develop and implement policies, procedures, and strategies to ensure efficient harbor operations.
 Negotiates and manages complex real property leases, leads the property management program, and negotiates long-term leases.  Plans for the harbor's long-term needs, considering environmental, maritime, maintenance, safety, commercial, and economic factors.  Implements and plans for future public infrastructure and capital improvement projects needed to ensure harbor vitality.
 Advises other City departments and consultants on lease compliance, maintenance, and language.
 Administers and manages the annual Harbor operating budget; manages operations to achieve goals within available financial resources.
 Consult with governmental agencies, other staff members, and the public; attend meetings, make presentations, and recommend departmental-related activities to appointed and elected officials.

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2  Prepares and manages grants, formal bid specifications, and proposal requests.
 Reviews and designs long-range plans to meet the harbor's needs, addressing environmental, navigation, fishing, commerce, and other related coastal concerns.
 Ensures conformance with the City’s clean marina program and bay water quality efforts and coordinates and works with the National Estuary Program/Comprehensive Conservation Management Plan.  Reviews and analyzes legislation affecting the City or the harbor, determining impact and recommending appropriate action.  Assists and coordinates with other agencies, such as State Parks, the Army Corps of Engineers, the National Estuary Program, the California Coastal Commission, and the Marine Interest Group.

Examples of Economic and Real Estate Development Duties:
 Leads Participates in economic development efforts for the City, focusing on the Embarcadero and harbor areas.
 Performs City real estate transactions, including site characterization, appraisal, title review, environmental and geotechnical investigations, relocation, purchase and sale agreements, mitigation agreements, and site preparation.
 Prepares lease specifications and reviews applications for conditions for use of lease and sub-lease sites and lease amendments.
 Ensures leaseholder compliance with lease terms, contract-related performance, and delivery requirements and remedies non-compliance.  Coordinates the City’s efforts to strengthen the economic vitality of the harbor and City.
 Identifies and pursues opportunities for business growth, tourism development, and increased revenue generation. Implements initiatives that benefit the City.
 Analyzes the economic feasibility of potential projects and makes recommendations.
 Serves as liaison to various federal, state, and local public agencies, developers, contractors, professionals, and property owners.  Fosters relationships with citizens, business owners, lessees, and developers to promote economic vitality.
 Performs other duties as required.

QUALIFICATIONS
Knowledge of:
 Public policy and political processprocesses, especially as it relates to

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3 federal, state, county, and municipal governments.
 Commercial lease and contract negotiation, real estate management, and municipal finance.
 Principles of economic or real estate development, city planning theory and practice.
 Environmental regulations, project management, and government operations.
 Principles and basic practices of harbor management, maritime law, and economic development.
 Best practices in customer service, public relations, and community engagement.

Ability to:
 Manage multiple complex projects and departmental operations efficiently.
 Negotiate and manage property agreements and economic development initiatives.
 Manage and perform financial analysis and economic studies of real property.
 Plan for future public infrastructure and capital improvement.  Communicate effectively both orally and in writing.
 Build and maintain effective working relationships with governmental agencies, businesses, and the public.
 Be comfortable with ambiguity and uncertainty, with the ability to adapt nimbly and lead others through complex situations.
 Work irregular hours for public meetings and events, including evenings.

Education and Experience:
 A bachelor's degree in business, law, public policy, public administration, economic development, or a closely related field is required. A master's degree in a relevant field is highly desirable; AND
 Six or more years of progressively responsible experience in harbor management, economic development, real estate asset management, government operations, or a comparable field, with at least three years in a management capacity; OR
 An equivalent combination of education and experience.  Valid California driver’s license or ability to obtain it within 30 days of hire.

The Fine Print
The job description does not constitute an employment agreement between the employer and employee and is subject to change as the employer's needs and job requirements change. The duties listed above are intended only as illustrations of the various types of work that may be performed. The omission of specific statements of duties does not exclude them from the position if the work is similar, related, or a logical assignment to the position.

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4 PHYSICAL DEMANDS
The physical demands described here represent those that an employee must meet to perform the essential functions of this job successfully. Reasonable accommodations may be made to enable individuals with disabilities to perform these functions.

Work is performed mainly in office settings. Some outdoor work, such as kneeling, walking and riding in boats, is required to inspect various land use developments, harbor assets and construction sites. Handeye coordination is necessary to operate computers and different pieces of office equipment. The employee is frequently required to talk or hear, sit, use hands to finger, handle, feel, or operate objects, tools, or controls, and reach with hands and arms. The employee must occasionally lift and/or move up to 50 pounds.

WORK ENVIRONMENT
While performing the duties of this job, the employee works primarily in office settings, with occasional work in outside weather conditions. The employee may be exposed to wet and/or humid conditions or airborne particles. The noise level in the work environment is usually quiet in the office and moderate to loud in the field.

Approved the Morro Bay City Council on September 10, 2024March 10, 2026.

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Prepared By: ________ Dept Review: ______
City Manager Review: JC City Attorney Review: __BS___
Staff Report
TO: Honorable Mayor and City Council DATE: March 4, 2026 FROM: John Craig, City Manager
SUBJECT: San Luis Obispo Council of Governments (SLOCOG) Final Transportation Expenditure Plan for Potential Transportation Sales Tax Measure

RECOMMENDED ACTION

1. Receive a presentation from SLOCOG staff, and

2. Consider adoption of Resolution No. 13-26 approving the San Luis Obispo Council of Governments (SLOCOG) Final Draft Transportation Expenditure Plan (Plan) for a potential Transportation Sales Tax Measure.

ALTERNATIVES

1. Do not adopt the Resolution. In order for the ballot measure to move forward, the ordinance must be approved by a majority of the cities, and those approving cities must collectively represent a majority of the region’s population. If this majority approval is not reached, or if the SLOCOG Board of Board of Supervisors chooses not to support the proposed sales tax measure, the measure would not move forward for placement on a future ballot.

2. Provide other direction to staff.

FISCAL IMPACT
There is no immediate fiscal impact related to the action.

If the regional half-cent sales tax measure proceeds and is approved by voters in November 2026, Morro Bay would receive a significant, stable, multi-decade revenue stream of approximately $733,207 annually to supplement road repair and transportation-related infrastructure improvements within the City. The new sales tax measure proceeds would be required to supplement, not replace, the existing local revenues used for transportation purposes. The City would therefore have a required annual Maintenance of Effort (MOE). This means the City would be required to continue funding transportation purposes with local fully discretionary general fund revenues in an amount equal to the average the City expended in Fiscal Years 2021-22 through 2025-26. That amount is currently calculated at $500,000 annually, and would be finalized after June 30, 2026 when the fiscal year spending is complete. The transportation sales tax measure would not apply to the 2% local sales tax cap pursuant to Revenue and Taxation Code section 7294.5, of which 1.5% is currently used by Measures Q and E.

AGENDA NO: 8.a
MEETING DATE: March 10, 2026

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BACKGROUND/DISCUSSION
SLOCOG developed a Plan 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.

On January 13, 2026, the City Council received a presentation from SLOCOG staff regarding a proposed countywide 0.5% transportation sales tax measure being considered for the November 2026 ballot. The proposed measure responds to a projected $3 billion funding shortfall in SLOCOG’s Regional Transportation Plan and is intended to allow San Luis Obispo County to become a self-help county, improving the region’s competitiveness for state and federal funding and capturing an estimated $1 billion over 30 years in funding opportunities that would otherwise be unavailable.

The proposed sales tax is projected to generate approximately $35 million annually (2024 estimate), and expected to escalate each year over the proposed 30-year term. The Plan describes revenue distribution 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)
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.

Under the Plan, the City of Morro Bay would receive an estimated $733,207 annually from the Local Road Repair category (55% share), as shown in Table 1 below. Additional funds are guaranteed to fund improvements in North Coast communities’ regional projects through the Regional Corridor Improvements category (44%). The SLOCOG Board of Directors, including an elected official representing each of the seven cities and the five members of the San Luis Obispo County Board of Supervisors, will serve as the Authority Board for the potential Transportation Measure and oversee the implementation of the Plan.

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Table 1: 1-Year Distribution of $35M
Following direction from the SLOCOG Board at its December 10, 2025 meeting, SLOCOG staff conducted outreach to cities, the County, and regional partners to review and refine the Draft Transportation Expenditure Plan. An updated final draft plan, draft ordinance and a summary of agency feedback were presented to the SLOCOG Board on February 4, 2026.

During the February 4, 2026 SLOCOG Board meeting, one modification was made to the draft Plan, Section VII.E “Taxpayer Safeguards” to retain the commitment of a performance assessment but that it be conducted every 5 years rather than every 3 years. The Final Transportation Expenditure Plan included in this Council staff report as Attachment 2 represents the final version. The Board voted in support of the San Luis Obispo County Local Transportation Investment Ordinance and advanced the Transportation Expenditure Plan for consideration by the cities and the County in advance of final SLOCOG Board action recommending the County Board of Supervisors place the measure on the ballot.

Next Steps
During February and March 2026, all cities within the region as well as the County Board of Supervisors will consider approval of the Final Expenditure Plan. To move forward, the ordinance must be approved by a majority of the cities, and those approving cities must collectively represent a majority of the region’s population. If this majority approval is reached, the SLOCOG Board will receive the final poll results at its April 1, 2026 meeting and may take final action to submit the measure to the County Board of Supervisors for placement on a future ballot, the earliest option being November 2026. If voters approve the tax, it would be applied countywide, regardless of whether an individual city supported the measure.

ATTACHMENTS

1. Draft Resolution No. 13-26 in Support of the San Luis Obispo County Transportation Expenditure Plan

2. Final Transportation Expenditure Plan

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RESOLUTION NO. 13-26

RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF MORRO BAY, CALIFORNIA

SUPPORTING THE SAN LUIS OBISPO COUNTY TRANSPORTATION EXPENDITURE PLAN AND IN SUPPORT OF THE PROPOSED COUNTYWIDE 0.5% TRANSPORTATION SALES TAX MEASURE BEING PLACED ON THE NOVEMBER 3, 2026 BALLOT

T H E C I T Y C O U N C I L
City of Morro Bay, California
WHEREAS, the streets, roads, highways, transit systems, bicycle and pedestrian facilities within the incorporated and unincorporated areas of San Luis Obispo County are of regional concern and are essential to the safety, mobility, economic vitality, environmental sustainability, and quality of life of residents, businesses, visitors, seniors, veterans, and persons with mobility challenges; and
WHEREAS, existing federal, state, and local transportation revenues are insufficient to adequately maintain, operate, and improve the County’s and Cities’ transportation system and keeping roads and highways in good condition and enhancing mobility helps protect public safety; and
WHEREAS, the San Luis Obispo Council of Governments has developed a proposal for a 0.5% sales tax measure to support transportation infrastructure and services, enabling the County of San Luis Obispo to become a self-help county, increase access to federal and state transportation funding, and strengthen local and regional investment in critical transportation needs.

WHEREAS, the San Luis Obispo Council of Governments Board has developed the San Luis Obispo County Transportation Expenditure Plan pursuant to the authority of Public Utilities Code Section 180206; and
WHEREAS, the Transportation Expenditure Plan guides the investment of revenues generated, provides for locally controlled funding for transportation repairs and improvements, and requires strict fiscal accountability protections, including a Citizen’s Oversight Committee, annual independent audits, and public disclosure of all spending; and WHEREAS, the San Luis Obispo County Transportation Expenditure Plan and Ordinance was introduced by the governing body of the San Luis Obispo Council of Governments on February 4, 2026; and
WHEREAS, the interests of San Luis Obispo County and its residents and businesses will benefit by the implementation of a San Luis Obispo County Transportation Expenditure Plan through a proposed new half-cent sales tax for transportation in San Luis Obispo County.

NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Morro Bay as follows:

SECTION 1. The City Council of the City of Morro Bay hereby approves the San Luis Obispo County Transportation Expenditure Plan introduced by the San Luis Obispo County Council of Governments on February 4, 2026.

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SECTION 2. The City Council of the City of Morro Bay recommends that the San Luis Obispo County Board of Supervisors place the San Luis Obispo County Transportation Expenditure Plan on the November 3, 2026 ballot together with a transportation sales tax measure.

PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 10th day of March 2026, on the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

RECUSE:
_________________________________
CARLA WIXOM, Mayor
ATTEST:
_________________________________________
DANA SWANSON, City Clerk

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February 5, 2026 SLO County Transportation Expenditure Plan 1 San Luis Obispo County Transportation
Expenditure Plan
I. 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 equitable distribution of funds, fairness, transparency, and strong taxpayer safeguards while ensuring flexibility to leverage state and federal funds.

II. Revenue Distribution
Revenues shall be allocated as follows:

A. 55% Local Road Repairs and
Improvements distributed by population
to each city and the County. (Reviewed
every ten years based on census data1
).

B. 40% Regional Corridor
Improvements distributed by subregion
population within the areas defined as
shown.

C. 4% Mobility Services for Seniors,
Veterans and Mobility Challenged
D. 1% Administration
1 Should a new city become incorporated, the percentages would be adjusted to reflect the updated population distribution.

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February 5, 2026 SLO County Transportation Expenditure Plan 2 III. Eligible Uses of Funds
Local Road Repairs and Improvements (55%)
Funds are distributed by population to the cities and the County. County funds shall be distributed equally by Supervisorial District over the life of the measure as monitored and reported by the Citizens Oversight Committee. Funds may be used for:

A. Local road maintenance, rehabilitation, and repair.

B. Safe Routes to School and Safe Routes to College programs.

C. Local intersections, operational and traffic safety improvements.

D. Bridge safety and seismic retrofits.

E. Bicycle and pedestrian improvements (sidewalks, crosswalks, multi-use paths).

F. Community enhancements tied to transportation
(streetscape, lighting, landscaping, wayfinding).

G. Traffic signal improvements and synchronization.

H. Piers, walkways and other pedestrian or bike paths in and around waterfront and river areas.

I. Transit services including local trolley services may be funded if desired by a City.

Regional Corridor Improvements (40%)
Regional project funds shall be distributed by population among subregions over the life of the measure as monitored and reported by the Citizens Oversight Committee and used for:

A. Highway and major corridor congestion relief such as van or carpool lanes or other congestion relief measures.

B. Safety and interchange improvements.

C. Regional bicycle and pedestrian connectors between communities like the Bob Jones Trail.

D. Interagency Transit Access.

E. Mitigation impacts for proposed improvements.

F. Other projects consistent with the adopted Regional Transportation Plan (RTP).

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

Administration (1%)
No more than 1% of annual revenues shall be allocated by the Authority for administration, reporting, auditing, and program oversight.

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February 5, 2026 SLO County Transportation Expenditure Plan 3 IV. 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, hereafter the Authority, 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 (Section XIV). The Biennial Implementation Plan will be prepared and updated by SLOCOG staff and approved by the Authority Board as per the Ordinance Section 14.

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 Authority Board.

V. 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 2021/22, 2022/23, 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. Revenue from general or special tax measures over and above the agency’s baseline tax of 1 ½% will not be counted as part of general fund revenues for the purposes of MOE.

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February 5, 2026 SLO County Transportation Expenditure Plan 4 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 five fiscal years noted above at the discretion of the Authority.

An agency petitioning for an exception 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 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 jurisdictions be allocated to the remaining eligible jurisdictions according to the formula described in the Section III.

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:
(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.

VI. Requirements for Eligible Jurisdictions
To be eligible to receive Net Revenues, a jurisdiction shall satisfy and continue to satisfy the following requirements.

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February 5, 2026 SLO County Transportation Expenditure Plan 5 A. 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.

B. Circulation Element. Adopt and comply with its Circulation Element as part of the jurisdiction’s General Plan,
C. 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.

D. Pavement Management Plan. Adopt and update a Pavement Management Plan and provide regular reporting on the status of road pavement conditions and implementation of the Pavement Management Plan.

E. 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:

1. All Net Revenue fund balances and interest earned.

2. Expenditures identified by type (i.e., capital, operations, administration, etc.), and program or project.

F. Project Final Report. Provide Authority with a Project Final Report for regional projects within six months following completion of a project funded with Net Revenues.

G. Time Limits for Use of Net Revenues for Regional Projects.

1. 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 thirty-six 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.

2. In the event the time limits for use of Net Revenues for Regional Projects are not satisfied then any retained Net Revenues that were allocated to an Eligible Jurisdiction and interest earned thereon shall be returned to the

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February 5, 2026 SLO County Transportation Expenditure Plan 6 Authority and these Net Revenues and interest earned thereon shall be available for allocation to any project within the same source program.

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

I. 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 Community Advisory Council will receive at a minimum, twice per programming year presentations from jurisdictional staff 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 that the jurisdiction is not an Eligible Jurisdiction as provided hereinabove.

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

B. 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.

C. 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.

D. A Citizens 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 in the Section XIII below and Ordinance Section 15.

E. A performance assessment shall be conducted at least once every five years to evaluate the efficiency, effectiveness, economy and program results of the Authority in satisfying the provisions and requirements of the Investment Summary

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February 5, 2026 SLO County Transportation Expenditure Plan 7 of the Plan, the Plan and the Ordinance. A copy of the performance assessment shall be provided to the Committee.

F. Annual status reports regarding the regional corridor projects and improvements shall be brought before the Authority by local agencies and Authority staff at least annually in public meetings.

G. 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.

VIII. 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 Section IX: Reporting, Implementation and Amendments.

IX. Reporting, Implementation and Amendments
Administration
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.

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, the Authority will review investments across multiple transportation modes to ensure efficiency and equity in addressing mobility needs throughout San Luis Obispo County.

Annual Report
Each year, the Citizens’ Oversight Committee (Section XIV) reviews expenditures and communicates results to the public through an Annual Report.

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February 5, 2026 SLO County Transportation Expenditure Plan 8 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.

Voter approval (2/3 majority) is required for changes to funding categories or overall allocation formulas as per Ordinance Section 10.

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

Process steps include:

A. SLOCOG staff, working with member agencies and stakeholders, will draft and update the Implementation Plan biennially.

B. The Authority Board will review the Draft Implementation Plan, hold public hearings, and incorporate feedback.

C. Following review, the Authority formally adopts the Implementation Plan.

Implementation Guidelines
Following voter approval of this Measure, the Authority shall adopt Implementation Guidelines to administer and implement the Expenditure Plan in a manner consistent with the voter-approved purposes of this Measure. The Implementation Guidelines shall establish procedures for project programming and delivery, eligibility requirements, fund distribution, accountability and reporting, audits, amendments, and other administrative matters necessary to ensure effective and transparent use of Measure revenues. The Implementation Guidelines shall not expand or alter the uses of funds authorized by this Measure and shall be adopted by the governing board at a public meeting following a noticed public process.

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February 5, 2026 SLO County Transportation Expenditure Plan 9 X. Bonding Authority
To reduce overall costs by advancing construction timelines, the Authority shall have the option to sell or issue, at any time, and from time to time, including on or before the collection of the taxes authorized by the Ordinance Section 16, 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 projected revenues for any consecutive 12-month period in the prior 18 months.

Should the tax be ended by voter action, the obligation to repay the bond debt remains with the agency, in this case the Authority and its member agencies.

XI. Independent Financial Audits
If the Transportation Measure is approved by the voters, the Authority 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 Authority 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.

XII. Administration Program – 1% of Measure Revenues
To effectively manage and implement the Transportation Measure, the Authority 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 the Authority include:

A. Annual Work Program and Budget
Prepare and adopt an annual work program and budget outlining planned expenditures, oversight activities, and administrative costs.

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February 5, 2026 SLO County Transportation Expenditure Plan 10 B. Allocation Program Requirements and Focused Studies
Develop requirements for each funding program established by the Regional Programs allowed in the Expenditure Plan and undertake specialized studies needed to implement those programs effectively.

C. 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).

D. Regional Project Prioritization
Establish and update priority lists for regional projects and rehabilitation projects, in coordination with member jurisdictions and consistent with Expenditure Plan goals.

E. Independent Annual Audit
Conduct an independent audit of all Transportation Measure funds to ensure compliance, fiscal integrity, and accountability to the public.

F. Public Outreach and Communication
Carry out ongoing outreach and public education efforts to keep residents informed about project progress, financial performance, and planned updates.

G. 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.

H. 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.

I. 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.

XIII. Citizens’ Oversight Committee
Committee Purpose
A. To provide fiscal oversight on the implementation of the Transportation Expenditure Plan ensuring that funds are spent in accordance with the approved Plan.

B. To inform the public and confirm that revenues and expenditures from the Transportation Measure are spent as promised to San Luis Obispo County voters.

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February 5, 2026 SLO County Transportation Expenditure Plan 11 Committee Formation
A. The Committee will be formed within six (6) months following voter approval of the Transportation Measure in San Luis Obispo County.

B. The Committee shall be a permanent component of the Expenditure Plan and cannot be eliminated by amendment.

C. Meetings will begin when Transportation Measure revenues are recommended for expenditure, including Implementation Plan updates.

Selection and Duties of Committee Chair and Vice Chair
A. The Committee will select a Chair and Vice Chair from among its members, each serving a one-year term.

B. Chair Duties: Call meetings, set agendas, and preside over meetings.

C. Vice Chair Duties: Perform the Chair’s duties in the Chair’s absence.

Committee Meetings
A. The Committee will hold at least two formal meetings annually, with additional meetings scheduled as needed.

B. All meetings will comply with the Brown Act (open meeting requirements).

C. Meetings will be conducted in accordance with Robert’s Rules of Order.

Subcommittee Requirements
A. The Committee may form subcommittees to address specific tasks or focus areas.

B. All subcommittees will consist of an odd number of members to ensure clear decision-making.

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 Authority Board.

Membership Composition:

A. 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.

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February 5, 2026 SLO County Transportation Expenditure Plan 12 B. The Authority Board will review and appoint these members. If any jurisdiction is unable to appoint a representative, THE AUTHORITY 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. A quorum will consist of no fewer than seven (7) members.

B. Actions may be approved by a simple majority of members present, provided the quorum is met.

Term of Membership
A. Members serve two-year terms, with a maximum of eight consecutive years of service.

B. 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.

C. Proxy voting is not permitted.

Eligibility
A. Must be a U.S. citizen, 18 years or older, and a resident of San Luis Obispo County.

B. Cannot be an elected official of San Luis Obispo County or its cities.

C. Cannot be an employee of state, county, or city government agencies within San Luis Obispo County (except employees of educational institutions).

Staffing
A. SLOCOG staff will provide technical and administrative support, including preparation of agendas, meeting materials, and public communications.

B. Administrative costs for staffing will be funded through the Transportation Measure’s administrative allocation.

C. Expert staff and consultants may be invited to present information or analyses as needed.

Responsibilities
A. Reviewing and commenting on independent financial and performance audits of Measure funds.

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February 5, 2026 SLO County Transportation Expenditure Plan 13 B. Reviewing periodic reports, studies, and plans related to Measure revenues and expenditures.

C. Ensuring that expenditures are consistent with the Expenditure Plan.

D. Conducting an annual review of sales tax revenue use and publicly reporting findings.

E. Presenting recommendations and findings in a formal annual report to the public and Authority Board.

F. Accessing information from the Authority’s independent auditor and requesting additional information as necessary to fulfill oversight responsibilities.

G. Remaining informed of advancements in transportation planning and finance to ensure oversight remains relevant and effective through the duration of the Measure.

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

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Prepared By: DM Dept Review: DM
City Manager Review: JC City Attorney Review: _BS__
Staff Report
TO: Honorable Mayor and City Council DATE: March 3, 2026 FROM: Daniel McCrain, Fire Chief
SUBJECT: Response to Letter of Interest from Los Osos Community Services District (Los Osos CSD) regarding Shared Fire Protection and Emergency Medical Services (EMS)

RECOMMENDED ACTION
Authorize City staff to deliver the City’s response to the letter of interest exploring shared fire and EMS services to the Los Osos CSD.

ALTERNATIVES
Provide alternative direction.

FISCAL IMPACT
None. If Los Osos CSD decides to move forward with shared services, a foundational requirement of any future contract would be that all personnel and operational costs incurred to meet the obligations of the contract would be paid by the Los Osos CSD. Actual contract costs will be finalized upon negotiation of contract terms.

BACKGROUND
Currently the Los Osos CSD contracts for this service with CAL FIRE/ San Luis Obispo County Fire.

Rising costs for these services prompted the Los Osos CSD Board to direct staff to explore alternative service delivery models that may better meet the needs of their community. The Morro Bay Fire Chief and Interim City Manager received a letter of interest from Los Osos CSD’s General Manager Ron Munds on Friday September 19, 2025 (Attachment 1). The content of this letter of interest was a request to explore the possibility of the Los Osos CSD contracting with the City of Morro Bay for fire protection and emergency medical services. Exploratory discussions preceding the receipt of this letter suggest a partnership of shared services may be mutually beneficial for both communities.

Some of the potential benefits include opportunities for service level enhancements for both agencies, improved operational efficiencies due to shared policies and procedures, greater local control over operations, shared costs for administrative functions may result in cost savings for Morro Bay.

A Shared Fire Services Council subcommittee was formed to evaluate this request. The draft AGENDA NO: 8.b
MEETING DATE: March 10, 2026

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response to the letter of interest was created providing an estimated cost to provide services and a scope of service this contract would include. If the Los Osos CSD Board of Directors chooses to proceed with evaluating shared services, a formal contract negotiation would take place. Providing this estimate allows the Los Osos CSD Board to evaluate the options available to them to meet the obligation of providing fire and emergency medical services to the community of Los Osos.

Benefits of collaboration
 Improves local control of fire services, greater collaboration between neighboring communities.
 Unified policies and procedures. Standardized equipment, improved training.  Potential cost savings and admin fee could provide for additional staffing to increase level of service in Morro Bay in alignment with Standards of Cover recommendations  Larger pool of personnel provides greater flexibility for mutual aid participation, special event coverage, and local disaster response.

Drawbacks of collaboration
 Potential for loss of employees if contract terminated.  Hiring all paramedics may be problematic due to demand statewide- having combination EMT and Paramedic staff may reduce this burden.

ATTACHMENT(S)

1. Letter of interest from Los Osos CSD

2. Discussion Draft Proposal to Los Osos CSD for shared fire and EMS services

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Letter of Interest: Shared Fire Protection and Emergency Medical Services
September 19, 2025
Dear Ms. Lueker and Chief McCrain,
The Los Osos Community Services District Board of Directors has been actively evaluating how best to provide high-quality fire protection and emergency medical services for our community. For over two decades, the District has contracted with County Cal Fire for these essential services.

However, recent sharp increases in contracted service costs—and persistent challenges in resolving operational and fiscal issues with the County—have prompted the Board to direct staff, as of September 4th, to seek alternative service models that better meet Los Osos’ needs.

One promising strategy is a partnership with a neighboring agency. The City of Morro Bay, as our closest neighbor, represents the most logical and mutually beneficial partner for a shared approach to fire protection and EMS. Exploratory discussions suggest the following potential benefits for our communities:
• Shared administrative costs and substantial cost savings to Morro Bay
• Greater local control over operations and standards
• Increased operational flexibility
• Collaborative staff scheduling to maximize coverage and efficiency • Opportunities for service level enhancements for both agencies Los Osos Community Services District is eager to begin a dialogue with the City of Morro Bay to examine the feasibility of a joint service arrangement and welcomes the opportunity to discuss possible models and mutual advantages in detail.

We look forward to your consideration and to a discussion about how our communities might work together to preserve and enhance fire protection and emergency medical services.

Sincerely,
Ron Munds
General Manager
Los Osos Community Services District
President
Christine M. Womack
Vice President
Matthew D. Fourcroy
Directors
Charles L. Cesena
Tom Cross
Richard Hubbard
General Manager
Ron Munds
District Accountant
Robert Stilts, CPA
Unit Chief
John Owens
Battalion Chief
Paul Provence
Mailing Address:

P.O. Box 6064
Los Osos, CA 93412
Offices:
2122 9th Street, Suite 110
Los Osos, CA 93402
Phone: 805/528-9370
FAX: 805/528-9377
www.losososcsd.org

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Discussion Draft Proposal to Los Osos CSD for shared fire and EMS services with the City of Morro Bay Fire Department.

Currently the Los Osos CSD contracts for this service with CAL FIRE/ San Luis Obispo County Fire. Rising costs for these services has prompted the CSD Board to direct staff to explore alternative service delivery models that may better meet the needs of their community. The Morro Bay Fire Chief and Interim City Manager received a letter of interest from the Los Osos Community Services District General Manager Ron Munds on Friday September 19, 2025. The content of this letter of interest was a request to explore the possibility of the Los Osos CSD contracting with the City of Morro Bay for fire protection and emergency medical services.

Scope of services
 Initial term of contract requested is fifteen (15) years  Daily staffing 4 full-time personnel
 Minimum of 1 Paramedic per apparatus on duty daily
 Combination of EMT and paramedic staff to meet minimum level requirement  1 Captain, 2 Engineers, 1 Firefighter normal daily staffing (Acting out of class allowed)
 4 personnel staff 2 apparatus daily (i.e. 2 engines, 1 engine, 1 squad)  Agreement for dispatch services, response coverage for Montana De Oro and CSA zone 9 will need to be negotiated with CAL FIRE/ SLO County Fire.  Collaborative EOC operations for disasters affecting LOCSD and MRB. Fire Chief or designee will act as Agency-Rep for LOCSD only disaster.  Fire Marshal services for weed abatement program, building inspections and fire plan review as required.
 Overhead response will be same as Morro Bay. Chief Officer will respond to working structure fires, wildland fires, MCI, and significant events. Nighttime and weekend response from home with extended ETA. If additional overhead Chief Officer coverage is desired it will require the addition of an additional Chief Officer position.
 The Morro Bay Fire Department does not currently employ enough personnel to provide this level of service. Recruitment of 12 personnel would be required prior to implementation. Funding for recruitment, training, and PPE would have to be provided in advance of the implementation date. PPE and uniform costs approximately $202,000 for start-up, approximately 6-month lead time on PPE.

The proposal below is an estimate calculated using the Morro Bay Fire Department fiscal year 26/27 personnel costs. All personnel are calculated as Paramedics at step 5 and PERS Tier 1 for the highest possible personnel costs.

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Los Osos CSD Proposal
March 10, 2026

Page 2 ends

 Personnel costs calculated at Top step, estimated annual contract costs $4,088,365 annual contract includes $3,617,915 for personnel costs and $470,450 in operating costs.

Estimated Total annual Fire Department operating costs $4,631,428. This includes the annual contract amount plus $543,063 of expenses paid directly by the LOCSD.

The annual contract cost includes personnel costs, administrative costs, uniforms and safety equipment, station cleaning and minor repair supplies, small tools and equipment, vehicle maintenance, personnel training, employee annual physicals, and estimated dispatch fees.

Items not included in contract but are factored into total operating costs are paid directly by the LOCSD. These items include station utilities, legal services, vehicle replacement funds, infrastructure CIP, General contingency funds. This amount totals $543,063.

To better estimate actual contract and operating costs for the first year we estimated a mix of personnel at step two and three, with firefighters and Engineers in the PERS Tier 3 and Captains at PERS Tier 2
 First year probable contract cost $3,641,287- this total includes $3,170,837 in personnel costs and $470,450 in operating costs.

Estimated Annual total Fire Department operating costs = $4,184,350 Actual personnel costs will be adjusted based on employees hired and MOU negotiations.

Daniel McCrain
Fire Chief
Morro Bay Fire Department

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AGENDA NO: 8.c
MEETING DATE: March 10, 2026
Prepared By: JC Dept Review: ______
City Manager Review: JC City Attorney Review: __BS____
Staff Report
TO: Honorable Mayor and City Council DATE: March 5, 2026 FROM: John Craig, City Manager
SUBJECT: Quarterly Update on the Status of City Council 2025-2027 Goals

RECOMMENDED ACTION
Receive an update from staff on the City’s progress on City goals established in March 2025.

ALTERNATIVES
None

FISCAL IMPACT
There is no fiscal impact related to the recommendation

BACKGROUND
The City Council held a Special Meeting on March 25, 2025 as a Goal Setting process, facilitated by consultant Michael Codron. The Goal setting process provided extensive public engagement opportunities including an online community survey, discussions with Advisory Bodies, a community forum and virtual participation through emails. Additionally, live polling and real time survey analysis were utilized as interactive public engagement tools at the community forum.

At the conclusion of the process, the Morro Bay City council decided on three City Goals for the two fiscal years.

1. Economic Vitality and Fiscal Health
Goal Statement: A vibrant and active business community supported by coordinated strategies for economic vitality and fiscal health that create the conditions for individual business success and the long-term fiscal health of the City.
 Downtown Revitalization
Using existing plans, identify and implement programs for beautification and incentivizing private property improvements, including facade rehabilitation.  General Fund Reserve Analysis
Perform a risk-based analysis of the City's Reserve Policy to identify appropriate reserve levels for long-term financial planning.
 Revenue Enhancement
Perform outreach and engagement with customers of the City's planning and building permit

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services to identify changes to improve satisfaction and increase economic activity in the City associated with building permits.

2. Infrastructure Resiliency
Goal Statement: An infrastructure program that includes regular maintenance to prolong the life of existing infra-structure (streets, buildings, structures, equipment) while implementing a Capital Improvement Plan that prioritizes new projects in alignment with available resources (funding and staff).
 5-Year CIP
Create a 5-Year Capital Improvement Plan (CIP) that prioritizes infrastructure projects in consideration of available resources (funding and staff).  Infrastructure Maintenance
Increase the City's efficiency and awareness of infrastructure maintenance requirements by improving the City's asset management and work order system, including the functionality of the public-facing Service Request form.
 Harbor Infrastructure
Utilize the recently completed study of the harbor revetments to prioritize projects and identify maintenance responsibilities. Develop a funding strategy informed by research on grant opportunities.

3. Morro Elementary School
Goal Statement: Work with the San Luis Coastal Unified School District to acquire or partner on the Morro Elementary School site or assist in development for the purpose of preserving community access, historic preservation, and/or housing development consistent with the City's General Plan.
 Acquisition Plan
Identify partners, such as market-rate and affordable housing developers, to work on a plan to fund the acquisition of the Morro Elementary School site.  Community Engagement
Continue to engage with the community regarding uses of the school site that take into consideration the current land use designation for the property and cost of acquisition.  Grants
Identify potential grant opportunities for historic preservation, public access, and other beneficial uses of the property that could be supported by one or more grants.

DISCUSSION
Each of the three City Goals included a Goal Statement and Objectives. Staff have attached a chart that includes these items as well as a very brief description of the progress to date on the objectives.

ATTACHMENT

1. City Goals, Goal Statements & Objectives Status Update Worksheet

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2025/2026 Goals, Goal Statements and Objectives
Status Update No. 2 – March 10, 2026
1 Goal - Economic Vitality and Fiscal Health – A vibrant and active business community supported by coordinated strategies for economic vitality and fiscal health that create the conditions for individual business success and the long-term fiscal health of the City
Objective - Downtown Revitalization
Using existing plans, identify and implement
programs for beautification, wayfinding
signage and incentivizing private property
improvements, including façade
rehabilitation
Status – Actions to date

1. Waterfront Master Plan Process – in progress

2. Economic Development Program recommendation – to City Council 11/12/25

3. Reduced sign fees to promote compliance with the City’s sign regulations Objective – General Fund Reserve Analysis
Perform a risk-based analysis of the City’s
Reserve Policy to identify appropriate reserve
levels for long-term financial planning.

Status – Actions to date

1. Review of the Reserve Policy identified as a Future Agenda Item, prior to the 2026/27 budget process

2. StaƯ began the risk-based reserve analysis
Objective – Revenue Enhancement
Develop a comprehensive strategy for
increasing revenues over time to support the
provision of core services.

Status – Actions to date

1. Joint CFAC/Council hearing to discuss revenue options held 10/21/25

2. Economic Development Program recommendation – to City Council 11/12/25

3. Conducted user fee study and updated fees to phase in cost recovery for City services that provide a direct benefit to individuals

4. Conducted a nexus study to evaluate the City’s development impact fees and recommend fee adjustments for development to pay its fair share cost of new public facilities

5. Developing license program for tidelands areas – in progress

6. CFAC formed a sub-committee 2/17/26 to review the revenue policy

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2025/2026 Goals, Goal Statements and Objectives
Status Update No. 2 – March 10, 2026
2 Objective – Planning and Building Services
Perform outreach and engagement with
customers of the City’s Planning and
Building permit services to identify changes
to improve satisfaction and increase
economic activity in the City associated with
building permits.

Status – Actions to date

1. FD-performing business inspections for license renewals and STR licenses. FD Completing approximately 40 business license inspections per month.

2. Held stakeholder meetings with the building industry to review development impact fees

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2025/2026 Goals, Goal Statements and Objectives
Status Update No. 2 – March 10, 2026
3 Goal – Infrastructure Resiliency – An infrastructure program that includes regular maintenance to prolong the life of existing buildings infrastructure (streets, buildings, structures, equipment) while implementing a Capital Improvement Program that prioritizes new projects in alignment with available resources (funding and staƯ).

Objective - 5-Year CIP
Create a 5-Year Capital Improvement Plan
(CIP) that prioritizes infrastructure projects in
consideration of available resources (funding
and staƯ).

Status – Actions to date

1. Hired new City Engineer 9/29/25, review of current capital projects has begun.

Objective – Infrastructure Maintenance
Increase the City’s eƯiciency and awareness
of infrastructure maintenance requirements
by improving the City’s asset management
and work order system, include the
functionality of the public facing Service
Request form.

Status – Actions to date

1. Internal review of asset management system and work order system has begun.

Objective – Harbor Infrastructure
Utilize the recently completed study of the
harbor revetments to prioritize projects and
identify maintenance responsibilities.

Develop a funding strategy informed by
research on grant opportunities.

Status – Actions to date

1. Continued discussions with City regional/federal lobbyist to identify grants – ongoing

2. Revetment assessment/repairs – in progress

3. FEMA claim on revetments and seawalls – in progress

4. Seeking USACE assistance on revetment/seawall repairs – in progress

5. Drafted plans for Phase 1 of Boat Launch Ramp rehabilitation

6. Assessing feasibility and options for State Park Marina dredge project

7. Updating mooring specifications and inspection guidelines

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2025/2026 Goals, Goal Statements and Objectives
Status Update No. 2 – March 10, 2026
4 Goal – El Morro Elementary School – Work with San Luis Coastal Unified School District to acquire the Morro Elementary School site or assist in development for the purposes of preserving community access, historic preservation, and /or housing development consistent with the City’s General Plan.

Objective - Acquisition Plan
Identify partners, such as market-rate and
aƯordable housing developers, to work on a
plan to fund the acquisition of the Morro
Elementary School site.

Status – Actions to date

1. Commissioned an independent City cost estimate appraisal for the property

2. Ordered a preliminary title report for the property

3. Formed Morro Elementary Subcommittee

4. Pending MOU for exclusive right to negotiate between CMB/SLCUSD – 10/28/25

5. Update financial forecast and evaluate potential financing options for acquisition (ongoing)

6. Re-engaged the School District in negotiations

7. Successfully agreed to a tentative deal with School Board staƯ

8. Recruited a project manager to perform due diligence Objective – Community Engagement
Continue to engage with the community
regarding uses of the school site that take
into consideration the current land use
designation for the property and cost of
acquisition.

Status – Actions to date

1. Local Historic Preservation Ordinance discussion – 12/9/2025

2. Conducted a public information session regarding City zoning and land use for Morro Elementary – 1/30/25 and TBD pending negotiations with School District

3. City staƯ have engaged with Friends of Morro Elementary, a non-profit, to understand community concerns and priorities for the property

4. Two community meetings tentatively scheduled during due diligence period

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2025/2026 Goals, Goal Statements and Objectives
Status Update No. 2 – March 10, 2026
5 Objective – Grants
Identify potential grant opportunities for
historic preservation, public access and
other beneficial uses of the property that
could be supported by one or more grants.

Status – Actions to date

1. Not yet started – pending negotiations with School District

2. Added potential grant opportunities to the Project Manager consultant work to be completed by the end of summer

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Prepared By: JC Dept Review: ______
City Manager Review: JC City Attorney Review: __BS____
Staff Report
TO: Honorable Mayor and City Council DATE: March 5, 2026 FROM: John Craig, City Manager
SUBJECT: Recommendation to Approve a Purchase and Sale Agreement with San Luis Coastal Unified School District for the Property Known as Morro Elementary School located at 1130 and 1330 Napa Avenue in Morro Bay, California (APNs 066-280-045 and 066-044-011), take related actions and find the action exempt from CEQA

RECOMMENDED ACTIONS

1. Adopt Resolution No. 14-26 approving a Purchase and Sale Agreement (Agreement) and Budget Resolution between the City of Morro Bay (City) and San Luis Coastal Unified School District (District) for the purchase of the property commonly known as Morro Elementary School (Property), in substantially the form attached, subject to review and approval by the City Attorney as to form and legal effect.

2. Authorize the City Manager to execute the Agreement and related escrow documents, and to negotiate and execute non-substantive amendments consistent with the terms approved by the City Council, subject to review and approval by the City Attorney as to form and legal effect; and

3. Authorize the City Manager to undertake due diligence activities during the due diligence period, including engaging a project manager and specialized consultants, consistent with City procurement requirements and within available appropriations.

4. Find the action is not a project or in the alternative exempt from the California Environmental Quality Act (CEQA) under Guidelines Sections 15378, 15061(b)(3) and 15301.

ALTERNATIVES
The City Council could: (a) decline to approve the Agreement; (b) direct staff to negotiate different terms; or (c) continue the item to a future meeting for additional information.

FISCAL IMPACT
The Agreement includes a purchase price of $5.3M with an earnest deposit of $500,000, applicable to the purchase price at closing and for which there is a recommended General Fund budget amendment (Attachment 2). The City will incur due diligence, escrow, and related consultant costs during the due diligence period. Estimated near-term costs during the due diligence period are shown below and are subject to refinement as work scopes are finalized. These costs are expected to be funded by current year appropriations in the adopted budget.

AGENDA NO: 8.d
MEETING DATE: March 10, 2026

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Cost Item Amount
Purchase Price $5,300,000
Earnest Money Deposit $500,000
Due at Closing $4,800,000
Estimated Due Diligence Costs
Environmental Due Diligence (Phase I, Phase
II if needed, asbestos/lead, limited sampling) $20,000
Appraisal and Market/Highest-and-Best-Use
Analysis
$5,000
Survey, Title and Escrow Fees (CLTA) $10,000
Planning and Feasibility (zoning, Coastal Zone
constraints, infrastructure capacity,
access/traffic, historic) $10,000
Project Management (due diligence
coordination)
TBD
Staff will return to the City Council with a budget amendment if needed, once final consultant scopes and refined cost estimates are available.

BACKGROUND
The District has made available for sale the Property commonly known as Morro Elementary School.

In line with established 2025-2027 City Goals to work with the District to acquire or partner on the Morro Elementary School, the City has negotiated a conditional purchase framework with the District to allow the City to acquire the property subject to the completion of due diligence before closing. The City’s objectives during due diligence include confirming the Property’s environmental condition, physical constraints, and feasibility for potential City needs, including identifying possible constraints to future potential uses like housing or other community priorities. While no firm financing proposals for the purchase are being identified at this time, staff will have recommendations for Council consideration prior to the end of due diligence period. While self-funding through appropriate mechanisms using existing City funds is an available option, staff will also pursue other outside funding options to provide policy options for future consideration by the Council.

The City Council is scheduled to consider the Agreement on March 10, 2026. The District’s governing board is scheduled to consider the Agreement on March 17, 2026.

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DISCUSSION
Overview
Approval of the Agreement would allow the City to proceed with a structured due diligence period to evaluate the Property and determine whether to proceed to closing, based on conditions identified during the due diligence period. If the City determines the condition of the Property has unacceptable risks or unexpected remediation costs are identified, the Agreement provides an opportunity to terminate prior to the end of the due diligence period and have the deposit refunded, or if a decision is made not to close on the Agreement after the diligence period, the deposit would be forfeited.

Key Agreement Terms
 Property: Morro Elementary School site, located at 1130 and 1330 Napa Avenue in Morro Bay, California (APNs 066-280-045 and 066-044-011).
 Purchase Price: $5.3M.
 Earnest Money Deposit: $500,000, applicable to the purchase price and nonrefundable after expiration of the due diligence period (August 31, 2026), except as otherwise provided in the Agreement.
 Due Diligence Period: begins upon full execution and ends August 31, 2026. The due diligence contingency is limited to a review of the condition of the Property and title; there are no entitlement or financing contingencies.
 Escrow and Title Costs: cost of standard title policy and escrow charges will be paid 50/50 by the City and District.
 Closing: on or prior to October 31, 2026.
 District Documents: the District will provide copies of leases, licenses, contracts, or other agreements with a term or effect that extends past the closing date, and will provide relevant due diligence materials in its possession for City review.

Due Diligence Work Program
If the Agreement is approved, staff will initiate a coordinated due diligence effort managed by a project manager. The work program is expected to include, at a minimum, the following tasks:
 Title, survey, and boundary review, including easements, encumbrances, and access constraints.
 Environmental review, including Phase I Environmental Site Assessment and additional testing as warranted (for example, asbestos/lead, hazardous materials, soil and groundwater screening).
 Site and building condition inspections, including structural and major building systems evaluations.
 Infrastructure review, including water, sewer, stormwater, power, and broadband connections and potential upgrade needs.
 Planning and entitlement conceptual feasibility review, including zoning, General Plan consistency, Coastal Zone constraints and permit pathways, regarding potential future uses like city offices, housing or other community needs.
 Preliminary cost and timing estimates for potential reuse scenarios and required improvements.

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Staff intends to engage a project manager to coordinate these tasks, manage schedules and deliverables, and serve as the primary point of integration across technical disciplines. Staff will provide periodic updates to the City Council during the due diligence period and return with recommendations prior to any decision to proceed to closing.

Community Engagement Plan and Key Dates
As set forth in adopted City goals, the Property presents exciting opportunities for community access, historic preservation and housing development consistent with the City’s General Plan. While no specific reuse or redevelopment is being proposed at this time, with only current and historical uses continuing in the near term, proactive and robust community engagement regarding potential future uses of the Property will be critical to ensure any long-term plan for the Property succeeds and delivers greater community benefit. To that end, City staff proposes holding two community meetings during the due diligence period, the first for a purchase overview and initial feedback on potential future use concepts, and the second to provide an update on due diligence findings and further feedback on potential future use concepts. A Council meeting would also be held prior to the end of the due diligence period to review due diligence findings, receive direction whether to proceed with closing or terminate based on the findings, and if proceeding to closing, direction on which funding option to use for the remainder of the purchase price. Below is a summary of key tentative dates.  City Council vote: March 10, 2026
 School Board vote: March 17, 2026
 Due diligence starts: Immediately upon full execution of purchase agreement  Community meeting #1: April 2026
 Community meeting #2: July 2026
 Due diligence report from consultant: August 10, 2026  City Council review of due diligence findings: August 25, 2026  Due diligence ends: August 31, 2026
 Closing: on or before October 31, 2026
 City Council discussion of potential Future Work Program: First Quarter 2027

ENVIRONMENTAL
The City’s proposed purchase of the Property 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.), as the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment. Additionally or alternatively, the City’s action 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], 15301 [Class 1, categorical exemption applying to the operation of existing facilities involving negligible or no expansion of existing or former use]. Further, none of the exceptions to exemptions, found in Section 15300.2 of the State CEQA Guidelines would apply to invalidate the categorical exemptions identified because (a) the site is not located in a sensitive environment; (b) the acquisition would not create significant cumulative impacts by contributing to impacts of successive acquisitions of the same type in the same place; (c) there is

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no potential for the acquisition to result in a significant effect on the environment due to unusual circumstances; (d) the acquisition would not result in damage to scenic resource; (e) the site is not included on any list compiled pursuant to Section 65962.5 of the Government Code; and (f) the acquisition does not have the potential to cause a substantial change to the significance of an historical resource. Although a portion of the Property has been identified as a potential historical resource, the City’s action does not contemplate any modification or expansion of the current use and/or operation thereof at this time. Approval of the Agreement does not commit the City to a specific development project. Any future decision to construct or implement a specific reuse plan would be subject to additional City approvals and compliance with the California Environmental Quality Act (CEQA).

CONCLUSION
Approval of the Agreement provides a structured pathway for the City to acquire the Property subject to evaluation of the Property through August 31, 2026 and, if appropriate, proceed to closing on or before October 31, 2026. Staff recommends approval of the Agreement to allow due diligence to begin and to ensure the City’s has the opportunity to acquire the Property in accordance with City goals subject to confirmation of the Property’s condition and suitability for the City’s long-term needs.

ATTACHMENT(S)

1. Purchase and Sale Agreement

2. Resolution No. 14-26 Approving Purchase and Sale Agreement and Budget Amendment

3. APN Parcel Map 066-044-011

4. APN Parcel Map 066-280-045

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1 AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY

AND JOINT ESCROW INSTRUCTIONS

BETWEEN

THE SAN LUIS COASTAL UNIFIED SCHOOL DISTRICT
AND

CITY OF MORRO BAY
This Agreement for Purchase and Sale of Real Property and Joint Escrow Instructions (“Agreement”) is entered into as of March ___, 2026 (“Effective Date”), by and between the San Luis Coastal Unified School District, a public corporation (“Seller”), and City of Morro Bay, a municipal corporation (“Buyer”). Seller and Buyer may also be referred to in this Agreement singularly as a “Party” and collectively as the “Parties.”

RECITALS
A. Seller is the fee owner of +/- 9.70 acres of real property commonly known as the former site of Morro Elementary School, located at 1130 Napa Avenue, Morro Bay, California, 93442, Assessor’s Parcel Numbers 066-044-011 and 066-280-045, and as more particularly described in Exhibit A attached hereto and incorporated herein (the “Land”), together with any and all Appurtenances, Improvements, Personal Property, Contracts, Leases, and Intangible Property (all as defined in Section 1.1) (collectively, with the Land, the “Property”).

B. Seller provided Buyer with certain statutory notices pursuant to Education Code sections 17464 and 17485, et seq., regarding the availability of the Property for purchase, and Buyer expressed interest in purchasing the Property, leading to negotiation of this Agreement.

C. In accordance with the terms, provisions, and requirements of the California Surplus Land Act, California Government Code sections 54220 et seq. (the “Act”), Seller’s Governing Board adopted a resolution on December 17, 2024, declaring the Property to be “exempt surplus land” for purposes of the Act, pursuant to section 54221, subdivision (b)(1), and former section 54221, subdivision (f)(1)(L)(i) of the California Government Code. On October 28, 2025, Seller received a determination letter from the Department of Housing and Community Development confirming that the Property qualifies as “exempt surplus land” within the meaning of the Act.

D. Buyer wishes to purchase the Property from Seller, and Seller desires to sell the Property to Buyer, on the terms and conditions set forth herein.

AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, which are hereby incorporated into this Agreement as if set forth in full herein and deemed a contractual part hereof, the mutual covenants and promises hereinafter set forth, and for other good and valuable

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2 consideration, the receipt and sufficiency of which are hereby acknowledged, each intending to be legally bound, the Parties hereto agree as follows:

ARTICLE 1

PURCHASE AND SALE

1.1 Purchase and Sale of the Property. Subject to the terms and conditions that follow, Seller shall sell to Buyer, and Buyer shall purchase from Seller, all of Seller’s right, title and interest in the Land, subject only to the Permitted Exceptions (as defined in Section 4.5) below), and all of the following in respect of the Land:
(A) all rights, privileges, easements, appurtenances, and other estates pertaining or appurtenant to the Land, including, without limitation, all easements, rights, mineral rights, oil and gas rights, water, water rights, water and other utility meters, air rights, off-site parking rights, and any rights-of-way and other appurtenances used or connected with the beneficial use or enjoyment of the Land and all of Seller’s right, title and interest, if any, in and to all roads and alleys adjoining or servicing the Land (collectively, the “Appurtenances”); (B) all existing buildings, improvements and fixtures, if any, located on the Land, including, without limitation, heating, ventilation and air condition, electrical and other utility systems and facilities, if any, serving the existing buildings (collectively, the “Improvements” and together with the Land and Appurtenances, the “Real Property”);
(C) all of Seller’s right, title and interest in any unaffixed personal property that (a) the Parties agree shall remain on the Real Property or (b) the Seller leaves on the Real Property after the Closing Date (collectively, the “Personal Property”); (D) all contracts and agreements, if any, existing on the Effective Date, (collectively, the “Contracts”), in each case to the extent (a) Buyer elects to receive assignment of such Contract by written notice to Seller during the Due Diligence Period, (b) such Contracts are assignable without consent or cost and (c) such Contracts remain in effect subsequent to the Closing;
(E) all leases (including any guaranties thereof), rental agreements, license agreements and other agreements for the occupancy of the Real Property, or other possessory interests by third parties on the Property, if any, existing on the Effective Date (collectively, the “Leases”), in each case to the extent such Leases (a) remain in effect subsequent to the Closing, or (b) relate to a tenant who remains in possession of any portion of the Real Property on the Closing Date (as defined in Section 3.1); and
(F) all of Seller’s right, title and interest in any intangible property used and necessary in connection with the Real Property to the extent assignable, including, without limitation, all warranties, guaranties, development rights, entitlements, governmental permits, licenses, certificates, other governmental approvals, deposits, refund rights and credits with governmental, quasi-governmental or

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3 utility agency, if any, which benefit the Real Property and/or the Personal Property, all surveys, reports, plans, specifications, drawings, appraisals, reports and studies, and all applications, plans, drawings, designs, signs, logos, trade names, trademarks, service marks, styles or similar intellectual property owned by Seller and used exclusively with respect to the Property, all social media accounts (if any) with respect to the Property, all marketing and merchandising materials (including, but not limited to, signs, advertisements, brochures, project names, logos, and all computer source disk materials for the foregoing items) (collectively, the “Intangible Property”).

1.2 Condition of Property. Upon the Close of Escrow, Buyer shall acquire the Property in its “AS-IS” condition by a fully executed Grant Deed as set forth in the form attached as Exhibit B (“Grant Deed”). Except as expressly set forth in this Agreement or any other documents delivered by Seller in connection with the sale of the Property, Seller makes no representation or warranty concerning the physical, environmental, geotechnical, or other condition of the Property, the suitability of the Property for the Buyer’s use, or the present use of the Property, and specifically disclaims all representations or warranties of any nature concerning the Property made by Seller and its employees, agents and representatives. The foregoing disclaimer includes, without limitation, topography, climate, air, water rights, utilities, present and future zoning, soil, subsoil, existence of Hazardous Materials or similar substances, the purpose for which the Property is suited, or drainage. Seller makes no representation or warranty concerning the compaction of soil upon the Property, nor the suitability of the soil for construction. Buyer acknowledges and agrees that it will have, as of the Closing Date, fully inspected the Property and that Seller the Property will be sold to Buyer in an “as is” condition, with all existing defects, whether patent or latent, including, without limitation, the exact area and size of the Property, the physical environmental, and geotechnical condition of the Property, and the existence of any contamination, Hazardous Materials (as defined below), debris, or other structures located on, under or about the Property.

1.3 Purchase Price.
(A) Except as otherwise provided herein, the purchase price of the Property shall be Five Million Three Hundred Thousand Dollars ($5,300,000.00) (“Purchase Price”), which shall be paid through Escrow, as defined below. (B) Within three (3) business days of Effective Date, Buyer shall deposit into Escrow with the Title Company cash in the amount of Five Hundred Thousand Dollars ($500,000.00) (“Deposit”).
(C) Buyer will pay the Purchase Price to Seller through Escrow. Escrow shall be opened at Chicago Title Company (“Escrow Holder” or “Title Company”) at the address specified in Article 5 below.

1.4 Deposit. Upon the expiration of the Feasibility Period, the Deposit shall become nonrefundable to Buyer except in the event of a default by Seller, a failure of Seller to deliver title to the Property as provided in Section 4.5, or as otherwise provided in this

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4 Agreement. The Deposit shall be applied to the Purchase Price due at Closing (as defined below).

1.5 Due Diligence and Feasibility. Buyer shall have the period commencing on the Effective Date and ending on August 31, 2026 (“Feasibility Period”), to review the condition of the Property and conduct any and all appropriate environmental, geological, engineering, safety and other inspections it determines necessary, in Buyer’s sole and absolute discretion, or any such inspections as required by state and local law so as to ensure that the Property complies with all state and local requirements applicable to Buyer’s proposed use of the Property (collectively, “Buyer’s Inspections”). Buyer’s obligation to purchase the Property is conditioned upon the following: (i) Buyer’s approval of and satisfaction with the physical condition of the Property, and all tests, inspections, and studies to be conducted by Buyer, including, without limitation, any environmental assessments; and (ii) Buyer’s determination that the Property is suitable for Buyer’s intended use.
(A) Prior to the end of the Feasibility Period, Buyer shall provide written notice to Seller of either its satisfaction with the condition of the Property (or its waiver thereof) or its determination that the Property does not meet the above stated conditions, in which case this Agreement shall terminate, the Escrow shall be cancelled (with the costs of Escrow to be paid by Buyer) and the Deposit shall be returned to Buyer. Buyer’s failure to provide written notice to Seller within the Feasibility Period shall be deemed Buyer’s disapproval of the condition of the Property.
(B) Within ten (10) days after the Effective Date, Seller shall deliver to Buyer for Buyer’s review copies of the following, to the extent such items are in Seller’s possession or control: all reports related to Hazardous Materials on or under the Property, all soil tests, geological and environmental reports, plans, surveys, engineering studies or other technical reports relating to the Property (collectively, the “Purchase Documents”).
(C) During the Feasibility Period, Seller shall permit Buyer and its authorized agents (“Buyer’s Agents”) to enter onto the Property, at reasonable times and upon reasonable notice, for the purpose of performing Buyer’s Inspections. Buyer shall conduct any such Buyer’s Inspections so as not to unreasonably interfere with Seller’s operation of the Property and otherwise in a manner reasonably acceptable to Seller. In addition, Buyer shall notify Seller, in writing, if it intends to conduct any invasive testing on the Property. In the event Buyer performs invasive testing or destructive investigation of the Property and the sale is not consummated between the Parties, Buyer shall be responsible for returning the Property to the substantially the same condition existing prior to Buyer’s invasive testing or destructive investigation of the Property.
(D) In the event that Buyer discovers the presence of Hazardous Materials, as defined below, on, under or about the Property, in a material amount during the Feasibility Period, which Hazardous Materials were not the result of Buyer’s activities on the

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5 Property, Buyer shall notify Seller of such discovery within seventy-two (72) hours thereof. If the Parties are unable to agree upon a plan for the remediation of the Hazardous Materials or if Seller is unwilling to perform the remediation or pay Buyer to perform the remediation, including the costs to obtain government approvals of the remediation plan and remediation work performed, then Buyer may terminate this Agreement upon written notice to Seller. The Deposit shall be returned to Buyer and the Parties shall equally share to cost of escrow. (E) Buyer shall indemnify, defend, and hold the Real Property and Seller, its governing board, employees, representatives, and agents harmless from and against any and all third-party damages, demands, claims, losses, liabilities, injuries, penalties, fines, liens, judgments, suits, actions, investigations, proceedings, costs or expenses whatsoever (including, without limitation, reasonable attorneys and experts fees and costs and, in the event of any release of Hazardous Materials caused by Buyer, investigation and remediation costs) arising out of or relating to any physical harm, physical damage, or personal injury or death caused by entry on the Property by Buyer or its agents, employees or contractors in the course of performing the Buyer Inspections, but excluding the mere discovery of a pre-existing condition not exacerbated by Buyer, and except to the extent caused by Seller or any of its employees, representatives or agents. Without limiting the generality of the foregoing indemnity, Buyer shall promptly remove any mechanic’s or other lien which may be recorded against the Property by any party providing labor, materials or services at the request of Buyer. The foregoing indemnity shall survive beyond the Close of Escrow, or, if the sale is not consummated, beyond the termination of this Agreement. (F) Buyer and its contractors shall maintain commercial general liability insurance insuring Buyer and its contractors against any liability arising out of or in connection with any entry or inspection of the Property and all areas appurtenant thereto. Such insurance shall be in the amount of One Million Dollars ($1,000,000.00) combined single limit for injury to or death of one or more persons in an occurrence, and for damage to tangible property (including loss of use) in an occurrence, with a general aggregate of Two Million Dollars ($2,000,000.00). Any such policy shall insure the contractual liability of Buyer covering the indemnities herein and shall (a) name Seller as an additional insured, (b) contain a cross-liability provision, and (c) contain a provision that “the insurance provided by Buyer hereunder shall be primary and noncontributing with any other insurance available to Seller.” Buyer shall be required to provide Seller with written evidence of such insurance coverage prior to any entry or inspection of the Property.

1.6 Independent Consideration. Concurrently with the execution of this Agreement, Buyer shall pay and deliver to Seller the sum of One Hundred Dollars ($100.00) as separate and independent consideration (“Independent Consideration”) for Seller’s execution of this Agreement and agreement to sell the Property to Buyer on and subject to the terms and conditions of this Agreement, including, without limitation, Buyer’s right to terminate this Agreement prior to the expiration of the Feasibility Period in connection with its

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6 investigations. The Independent Consideration shall not be applicable to the Purchase Price and is non-refundable to the Buyer in the event this Agreement terminates prior to the Close of Escrow under any and all circumstances.

1.7 Leases; Operation of the Property Prior to the Closing. (A) Seller shall not enter into, amend, or terminate any Lease(s) without obtaining Buyer’s prior written consent, which shall be subject to Buyer’s sole and absolute discretion. In the event that Seller enters into an amendment of any Lease(s), Seller shall require tenant to execute an estoppel certificate in a commercially reasonable form or in a form provided under the Lease. Notwithstanding the foregoing, in no event shall Buyer’s consent be required for Seller to terminate any Lease(s) if a tenant has materially breached the controlling lease agreement between tenant and Seller, provided, however, Seller shall consult with Buyer prior to termination of any Lease.
(B) With regard to any Lease(s) disclosed by Seller, Buyer may elect either to (a) require Seller to terminate such Lease(s) prior to Close of Escrow, or (b) have Seller assign the Lease(s) to Buyer at the Close of Escrow that Seller is able to assign. Buyer shall communicate its election by written notice given prior to expiration of the Due Diligence period. In the event Buyer elects for assignment of any Lease, Seller shall cooperate with Buyer to obtain an estoppel certificate executed by the tenant, which shall be in a commercially reasonable form or in a form provided under the Lease. However, obtaining such estoppel certificate shall not be a Condition of Closing.
(C) Between the Effective Date and the Closing Date, Seller shall continue to operate and maintain the Property in the usual and ordinary course of business in a manner substantially consistent with the operation and maintenance in place on the Effective Date, unless otherwise agreed-to by the Parties in writing. Seller shall take no action that would materially and adversely alter or affect the condition of the Property.
(D) Seller shall terminate, effective prior to the Closing, any Contracts not being assigned to Buyer at the Closing. Seller shall not enter into or amend any contract that is not reasonably necessary for the normal operation of the Property and that cannot be terminated on thirty (30) or fewer days’ notice, or waive, compromise or settle any rights of Seller under any contract or other agreement affecting the Property without, in each case, obtaining Buyer’s prior written consent, which shall be subject to Buyer’s sole and absolute discretion. (E) Seller shall keep in full force and effect all of the existing insurance policies maintained by Seller respecting the Property or policies providing similar coverage to the existing insurance policies.

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7 (F) Notwithstanding the foregoing, nothing in this Section 1.7 is intended to limit any rights by third parties to exercise their right to terminate any Contract or Lease with the Seller.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

2.1 Seller’s Representations and Warranties. Seller represents and warrants the following to Buyer:
(A) No Commitments or Agreements
Except as specifically disclosed to Buyer in writing, Seller has made no written commitments or agreements materially and adversely affecting the Property, or any part thereof, or any interest therein, which will survive the Close of Escrow. (B) Liens
Except as set forth on the Preliminary Title Report, to the best knowledge of Seller, there are no mechanics’, materialmen’s or similar claims or liens presently claimed or which will be claimed against the Property for work performed or commenced for Seller or on Seller’s behalf.
(C) Rights of Possession
Except as specifically disclosed to Buyer in writing, to the best knowledge of Seller, there are not as of the date of this Agreement, nor will there be as of the Close of Escrow, any written or oral leases or contractual right or option to lease, purchase, or otherwise enjoy possession, rights or interest of any nature in and to the Property and no persons shall have any right of possession to the Property as of the Close of Escrow or at any time thereof.
(D) Ownership and Encumbrances
Seller has not and shall not, prior to Close of Escrow without the prior written consent of Buyer, which consent may be given or denied in Buyer’s absolute discretion, enter into any lien, encumbrance, easement or license agreement, or any other agreement permitting others to use the Property, or any portion thereof, or convey any part of the Property.
(E) Full Power and Authority
Neither this Agreement nor anything provided to be done hereunder including the transfer of title to the Property to Buyer violates or shall violate any contract, agreement or instrument to which Seller is a party. Seller has the full power and authority to enter into this Agreement and consummate the transaction contemplated hereby. The execution, delivery and performance of this Agreement has been duly and validly authorized by the Seller’s Governing Board,

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8 and no other action by Seller is requisite to the valid and binding execution, delivery, and performance of this Agreement by Seller.
(F) Litigation
Except as otherwise specifically disclosed to Buyer in writing, to the best knowledge of Seller, there are no claims, proceedings, initiatives, referenda, moratoria, resolutions, governmental investigations or litigations pending or, to the best of Seller’s knowledge, threatened against Seller, which could materially adversely affect Seller’s ability to consummate this transaction and convey the Property to Buyer in accordance with the terms of this Agreement. (G) Reports
To the best knowledge of Seller, Seller has made, or before the expiration of the Feasibility Period will make, available to the Buyer all third-party professional reports within its possession concerning the Property.
(H) Environmental Laws/Hazardous Materials
Except as disclosed in writing by Seller, to the best knowledge of Seller: (i) there has been no production, storage or disposal on the Property of any Hazardous Material (as defined below) by Seller or, to the best of Seller’s knowledge, by any previous owner or tenant of the Property; (ii) Hazardous Materials have not been dumped, buried, leaked, or otherwise released upon, in or under Property or allowed to pass on, under or through the Property at any time during or prior to Seller’s ownership of the Property; (iii) Seller has complied with all laws, regulations, and ordinances (“Environmental Laws”) relating to the use of all Hazardous Materials used on the Property; (iv) there is no proceeding or inquiry by any federal, state or local governmental agency with respect to the use, production, storage, release or migration of Hazardous Materials on, through or across the Property; and (v) there is no contamination of Hazardous Materials on, at, about, or within the Property, except as has been identified through Buyer’s environmental Property assessment work. “Hazardous Material” means any hazardous or toxic substance, material or waste that is: (i) regulated by any governmental authority, the State of California or the United States; (ii) defined as an “acutely hazardous waste,” “extremely hazardous waste,” “hazardous waste,” or “waste” under Sections 25110.02, 25115, 25117, or 25124 of the California Health and Safety Code, or listed pursuant to Sections 25141 and 25141.5 of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control); (iii) defined as a “hazardous material,” “hazardous substance,” or “hazardous waste” under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory); (iv) defined as a “hazardous substance” under Section 25281 of the California Health and Safety Code Division 20 Chapter 6.7 (Underground Storage of Hazardous Substances); (v) petroleum; (vi) asbestos; (vii) listed under Chapter 10 Division 4.5 of Title 22 or defined as hazardous or extremely hazardous

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9 pursuant to Division 21.5 of Title 26 of the California Code of Regulations; (viii) designated as a “hazardous waste” pursuant to Section 6903 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; (ix) defined as a “hazardous substance” pursuant to Section 9601 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.; (x) any flammable substances or explosives; or (xi) any radioactive material.
(I) Notices
To the best knowledge of Seller, Seller has made all disclosures and provided all notices to Buyer which are required by Section 25359.7 of the California Health and Safety Code.
(J) To the best knowledge of Seller, Seller is not in default of any of its obligations or liabilities pertaining to the Property, nor are there any existing facts, circumstances, conditions, or events that would constitute or result in any default on the giving of notice, the passage of time, or both.
(K) Seller has not received written notice from any governmental agency that the Property is in violation of any statute or regulation.
(L) Best Knowledge
For purposes of this Section 2.1, the phrase “best knowledge of Seller” means the actual knowledge of Ryan Pinkerton, Assistant Superintendent of Business Services, in his representative capacity, on behalf of, and for, the Seller only, without any independent investigation having been made, and not based on any implied, imputed or constructive knowledge of Seller, including all of its officers and governing board members.
(M) If between the Effective Date and the Close of Escrow, Seller or Buyer becomes aware of facts or circumstances which would make any of Seller’s representations or warranties hereunder materially incorrect, such fact or circumstance shall not be construed as a breach by Seller of such applicable representation or warranty but Buyer shall have the right to either: (i) terminate this Agreement if such fact or circumstance would have a material and adverse impact on the Property or Buyer’s intended development or use thereof, or (ii) waive such condition and proceed to Close of Escrow in accordance with this Agreement in which case the representations and warranties of Seller hereunder shall be deemed modified and remade to incorporate such fact or circumstance as an exception thereto. In the event that Buyer exercises its right to terminate this Agreement, Seller shall return the Deposit to Buyer.

2.2 Buyer’s Representations and Warranties. Buyer represents and warrants the following to Seller:
(A) Ownership and Encumbrances

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10 Buyer shall not, prior to Close of Escrow without the prior written consent of Seller, which consent may be given or denied in Seller’s absolute discretion, enter into any lien, encumbrance, easement or license agreement, or any agreement permitting others to use the Property, or any portion thereof, except as expressly authorized by Section 1.5, above, or convey any part of the Property. (B) Full Power and Authority
Neither this Agreement nor anything provided to be done hereunder including the transfer of title to the Property to Buyer, violates or shall violate any contract, agreement or instrument to which Buyer is a party. Buyer has the full power and authority to enter into this Agreement and consummate the transaction contemplated hereby. The execution, delivery and performance of this Agreement has been duly and validly authorized by the City Council and no other action by Buyer is requisite to the valid and binding execution, delivery, and performance of this Agreement by Buyer.
(C) Litigation
Except as specifically disclosed to Seller in writing, or otherwise known to the best knowledge of Seller, there are no actions, suits, claims, or legal or other proceedings pending or threatened against Buyer, which does or will materially adversely affect Buyer’s ability to consummate this transaction and to acquire the Property from the Seller.
(D) Change of Representation or Warranty
In the event Buyer acquires knowledge that any such representation or warranty is no longer accurate, Buyer shall advise Seller of same prior to Close of Escrow. (E) Buyer has not:
(1) Made a general assignment for the benefit of creditors; (2) Filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by its creditors;
(3) Suffered the appointment of a receiver to take possession of all or substantially all of its assets;
(4) Suffered the attachment or other judicial seizure of all, or substantially all, of its assets;
(5) Admitted in writing its inability to pay its debts as they come due; or (6) Made an offer of settlement, extension, or composition to its creditors generally.

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11 (F) Environmental Laws and/or Hazardous Materials Release Buyer, upon the Close of Escrow, will have been afforded the opportunity to conduct appropriate environmental tests of the Property. Buyer hereby waives any claim against Seller for any prohibited condition existing on the Property or violation of the Environmental Laws unless the Seller intentionally and knowingly misrepresented any material condition of the Property.

ARTICLE 3

CONDITIONS PRECEDENT AND SUBSEQUENT

3.1 Seller’s Conditions Precedent to Closing of Escrow. The obligation of Seller to complete this transaction pursuant to this Agreement is subject to the satisfaction, at or before the Close of Escrow, of the following conditions precedent (each a “Condition to Closing”):
(A) Buyer must pay the Purchase Price to the Seller by depositing sufficient funds with the Escrow Holder in advance of the time necessary to close escrow pursuant to Section 4.3 of this Agreement;
(B) Prior to the “Closing Date” (as hereinafter defined), Buyer will deposit with the Escrow Holder the title insurance and escrow closing costs for which it is responsible. The Escrow Holder will place all sums deposited into an Escrow account;
(C) Escrow must not have been canceled or this Agreement terminated; (D) Buyer’s covenants, representations, and warranties shown above are true as of the Close of Escrow; and,
(E) Buyer must not be in breach or default of any of its obligations under this Agreement.

The foregoing conditions precedent are for the benefit of Seller and may only be waived in a writing signed by Seller. If any one of the conditions precedent set forth in this Section is not satisfied or waived in writing prior to the Close of Escrow, Seller shall have the right to terminate this Agreement and, absent Seller’s material default, except as otherwise provided herein, retain the Deposit as liquidated damages.

3.2 Buyer’s Conditions Precedent to Closing of Escrow. The obligation of Buyer to complete this transaction pursuant to this Agreement is subject to the satisfaction, at or before the Close of Escrow, of the following conditions precedent (each, a “Condition to Closing”):
(A) The Title Company will be committed to issue the “Title Policy” (as hereinafter defined) in the name of the Buyer for marketable title, free of restrictions, liens, and encumbrances except for those restrictions, liens, and encumbrances specifically allowed by Section 4.4 below, the standard printed exceptions and exclusions contained in the form of the Title Policy commonly used by the

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Morro Bay City CouncilMarch 10, 2026

Morro Bay City Council
March 10, 2026