San Luis Obispo City Council
May 19, 2026

City Council
AGENDA

Tuesday, May 19, 2026, 5:30 p.m.

Council Chambers, 990 Palm Street, San Luis Obispo
Council meetings may be viewed remotely on Channel 20, the City’s YouTube Channel, and on the City’s website under the Public Meeting Agendas web page. Attendees of City Council or Advisory Body meetings are eligible to receive one hour of complimentary parking; restrictions apply, visit Parking for Public Meetings for more details.

INSTRUCTIONS FOR PUBLIC COMMENT:

Public Comment prior to the meeting (must be received 3 hours in advance of the meeting):

Mail - Delivered by the U.S. Postal Service. Address letters to the City Clerk's Office at 990 Palm Street, San Luis Obispo, California, 93401.

Email - Submit Public Comments via email to [email protected]. In the body of your email, please include the date of the meeting and the item number (if applicable). Emails will not be read aloud during the meeting.

Voicemail - Call (805) 781-7164 and leave a voicemail. Please state and spell your name, the agenda item number you are calling about, and leave your comment. Verbal comments must be limited to 3 minutes. Voicemails will not be played during the meeting. *All correspondence will be archived and distributed to councilmembers, however, submissions received after the deadline may not be processed until the following day.

Public Comment during the meeting:

Meetings are held in-person. To provide public comment during the meeting, you must be present at the meeting location.

Electronic Visual Aid Presentation. To conform with the City's Network Access and Use Policy, Chapter 1.3.8 of the Council Policies & Procedures Manual, members of the public who desire to utilize electronic visual aids to supplement their oral presentation must provide display-ready material to the City Clerk by 12:00 p.m. on the day of the meeting. Contact the City Clerk's Office at [email protected] or (805) 781-7114.

Pages

1. CALL TO ORDER
Mayor Erica A. Stewart will call the Regular Meeting of the San Luis Obispo City Council to order.

2. PLEDGE OF ALLEGIANCE
Vice Mayor Emily Francis will lead the Council in the Pledge of Allegiance.

3. PRESENTATIONS

3.a CITY MANAGER REPORT
Receive a brief report from City Manager Whitney McDonald.

4. PUBLIC COMMENT PERIOD FOR ITEMS NOT ON THE AGENDA
The Council welcomes your input. State law does not allow the Council to discuss or take action on issues not on the agenda, except that members of the Council or staff may briefly respond to statements made or questions posed by persons exercising their public testimony rights (Gov. Code sec. 54954.2). Staff may be asked to follow up on such items.

5. CONSENT AGENDA
Matters appearing on the Consent Calendar are expected to be noncontroversial and will be acted upon at one time. A member of the public may request the Council to pull an item for discussion. Pulled items shall be heard at the close of the Consent Agenda unless a majority of the Council chooses another time. The public may comment on any and all items on the Consent Agenda within the three-minute time limit.

Recommendation:

To approve Consent Calendar Items 5a to 5j.

5.a WAIVE READING IN FULL OF ALL RESOLUTIONS AND

ORDINANCES
Recommendation:

Waive reading of all resolutions and ordinances as appropriate.

5.b MINUTES REVIEW - MAY 5, 2026 COUNCIL MINUTES 11
Recommendation:

Approve the minutes of the City Council meeting held on May 5, 2026.

5.c DECLARATION OF SURPLUS EQUIPMENT AND AUTHORIZATION

FOR SALE (FLEET MAINTENANCE, OFFICE, AND WATER

TREATMENT ASSETS)
21 Recommendation:

Adopt a Draft Resolution declaring the listed equipment as surplus and authorizing staff to sell the equipment in accordance with City policies.

5.d AUTHORIZATION FOR FINANCE DIRECTOR TO APPROVE

TRANSFERS FROM OPERATING TO CAPITAL BUDGETS FOR JOB

ORDER CONTRACT PROJECTS
41 Recommendation:

Adopt a Draft Resolution authorizing the Finance Director to Approve Transfers from Public Works Operating Budgets to Capital Budgets for Job Order Contract Projects.

5.e FY 2025-26 Q3 BUDGET REPORT 47
Recommendation:

1. Receive and file the FY 2025-26 Q3 Budget Report; and Authorize a transfer of $30,049 from the South Broad Street Corridor project to the Public Works & Utilities Department staffing budget to pay for the contract Transportation
Planner/Engineer I position assigned to the project; and

2. Authorize a transfer of $110,812 and $55,406 from each of the Prado Bridge Widening and Prado Road Interchange projects to the Public Works & Utilities Department staffing budget to pay for the contract Major City Projects Manager position assigned to the projects; and

3. Authorize an increase in the Transit Fund staffing budget of $30,000.

4. 5.f SECOND AMENDMENT TO LEGAL SERVICES AGREEMENT WITH CIVICA LAW GROUP, APC, RELATED TO 1150 LAUREL CODE

ENFORCEMENT
73 Recommendation:

Authorize the City Attorney to enter into a Second Amendment to the legal services agreement with Civica Law Group, APC, for their work in support of code enforcement actions at the commercial property located at 1150 Laurel Lane.

1. Approve $223,000 as the new contract not-to-exceed amount (an $80,000 increase).

2. 5.g AUTHORIZE ACQUISITION OF REAL PROPERTY LOCATED AT 975

BROAD STREET, SAN LUIS OBISPO
77 Recommendation:

Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, authorizing the acquisition of real property located at 975 Broad Street, San Luis Obispo, California, identified as Assessor Parcel Number 002-412-010.”

1. Authorize the City Manager to sign any and all escrow documents or other associated documents necessary to
complete the transaction.

2. Appropriate $1,387,500 for property acquisition and $300,000 as needed for property maintenance and required
improvements using reimbursement funds received from the Federal Emergency Management Agency from the City’s
Assigned Fund balance.

3. 5.h UPDATE TO THE CITY’S INVESTMENT POLICY AND MANAGEMENT PLAN
95 Recommendation:

Approve a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, Adopting the Updated Investment Policy and Management Plan” as recommended by the Investment Oversight Committee (IOC).

5.i POLICE DEPARTMENT GRANT APPLICATIONS FOR FY 2026-27 141 Recommendation:

Authorize the Police department to submit grant applications to the following agencies for FY 2026-27:
a. California Office of Traffic Safety in an amount not to exceed $190,000.
b. California Department of Alcoholic Beverage Control in an amount not to exceed $93,000.
c. Department of Justice, Office of Justice Programs, Edward Byrne Memorial Justice Assistance Grant in the amount of $17,463.

1. If the grants are awarded, authorize the City Manager and the Chief of Police to execute related grant documents and
authorize the Finance Director to make the necessary budget adjustments upon the award of the grant.

2. 5.j LEASE AMENDMENT WITH PTI US TOWERS II, LLC FOR

TELECOMMUNICATIONS FACILITY LEASE AT SANTA ROSA PARK
145
Recommendation:

Approve a Draft Resolution authorizing the Second Amendment to the Lease Agreement between the City of San Luis Obispo and PTI US TOWERS II, LLC, to extend the lease for
telecommunications facilities at Santa Rosa Park for an additional 20-year term.

1. Authorize the Finance Director to implement any necessary budget adjustments to reflect the amended lease terms.

2. 6. PUBLIC HEARING AND BUSINESS ITEMS

6.a REVIEW OF AN APPEAL OF THE PLANNING COMMISSION’S

DECISION TO REVOKE A USE PERMIT FOR OPERATION OF A
FRATERNITY ORGANIZATION AT 280 CALIFORNIA BLVD (MOD0036-2026, APPL-0174-2026) (90 MINUTES) 191
Recommendation:

Adopt a Draft Resolution entitled, “Resolution of the City Council of the City of San Luis Obispo, California, denying an appeal and upholding the Planning Commission’s decision to revoke the Conditional Use Permit for a fraternity located at 280 California Boulevard. The project is exempt from environmental review under Section 15061(b)(3) (Common Sense Exemption) and Section 15270 (Projects which a Public Agency Rejects or Disapproves) of the California Environmental Quality Act (CEQA) Guidelines as represented in the council agenda report and attachments dated May 19, 2026 (MOD-0036-2026, APPL-0174-2026).”

6.b 2026 VISION ZERO ACTION PLAN (90 MINUTES) 387
Recommendation:

Receive a staff presentation on the 2026 Vision Zero Action Plan and adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, approving the 2026 City of San Luis Obispo Vision Zero Action Plan”; and

1. Provide feedback on suggested Vision Zero project priorities listed in the Council Agenda Report.

2. 7. LIAISON REPORTS AND COMMUNICATIONS
Not to exceed 15 minutes. Council Members report on subcommittee assignments, listed below, and other City activities. At this time, any Council Member or the City Manager may ask a question for clarification, make an announcement, or report briefly on their activities. In addition, subject to Council Policies and Procedures, they may provide a reference to staff or other resources for factual information, request staff to report back to the Council at a subsequent meeting concerning any matter or take action to direct staff to place a matter of business on a future agenda. (Gov. Code Sec. 54954.2) Mayor
Stewart
Vice Mayor
Francis
Council Member
Boswell
Council Member
Marx
Council Member
Shoresman
SLO Council of
Governments
Airport Land Use Community
Action
Partnership
Air Pollution
Control District
CP Campus
Planning
Committee
Regional
Economic Action
Coalition
Nacimiento Water
Project
SLO Climate
Coalition
County Water
Resources
Advisory
Committee
Downtown
Association
Board
CA Men’s
Colony Advisory
Committee
Zone 9 Advisory
Committee
Local Agency
Formation
Commission
Homeless
Services
Oversight
Committee
Performing Arts
Center
Commission
Integrated Waste
Management
Authority
SLO Regional
Transit Authority
Visit SLO
County Advisory
Committee
Central Coast
Clean Energy

8. ADJOURNMENT
A Special Meeting of the City Council will be held on May 26, 2026 at 5:30 p.m. in the Council Chambers at City Hall, 990 Palm Street, San Luis Obispo, San Luis Obispo. The next Regular Meeting of the City Council will be held on June 2, 2026 at 5:30 p.m. in the Council Chambers at City Hall, 990 Palm Street, San Luis Obispo.

LISTENING ASSISTIVE DEVICES for the hearing impaired - see the Clerk.

The City of San Luis Obispo wishes to make all of its public meetings accessible to the public. Upon request, this agenda will be made available in appropriate alternative formats to persons with disabilities. Any person with a disability who requires a modification or accommodation in order to participate in a meeting should direct such request to the City Clerk’s Office at (805) 781-7114 at least 48 hours before the meeting, if possible. Telecommunications Device for the Deaf (805) 781-7410.

City Council meetings are televised live on Charter Channel 20 and the City's YouTube Channel: www.youtube.com/CityofSanLuisObispo. Agenda related writings or documents provided to the City Council are available for public inspection in the City Clerk’s Office located at 990 Palm Street, San Luis Obispo, California during normal business hours, and on the City’s website https://www.slocity.org/government/mayor-and-city-council/agendas-andminutes. Persons with questions concerning any agenda item may call the City Clerk’s Office at (805) 781-7114.

1 Council Minutes
May 5, 2026, 5:30 p.m.

Council Chambers, 990 Palm Street, San Luis Obispo
Council Members

Present:

Council Member Mike Boswell, Council Member Jan Marx,
Council Member Michelle Shoresman, Vice Mayor Emily
Francis, Mayor Erica A. Stewart
City Staff Present: City Manager Whitney McDonald, Christine Dietrick, City Attorney, Teresa Purrington, City Clerk
_____________________________________________________________________

1. CLOSED SESSION (4:30 PM START)

1.a CALL TO ORDER

1.b CONFERENCE WITH REAL PROPERTY NEGOTIATORS
Action: Assistant City Attorney Markie Kersten indicated the Council met in Closed Session on one matter of real property negotiations. The Council provided direction on price and terms, and no further reportable action was taken.

1.c ADJOURNMENT
Closed Session adjourned at 5:05 PM. The Regular meeting of the City Council began at 5:30 PM.

2. LAGUNA MIDDLE SCHOOL COMMUNITY SERVICE AWARDS
PRESENTATION (5:00 PM TO 5:30 PM)
The City Council recognized the students from Laguna Lake Middle School who completed 30 hours or more of community service.

3. CALL TO ORDER
A Regular Meeting of the San Luis Obispo City Council was called to order on May 5, 2026 at 5:03 p.m. in the Council Chambers, 990 Palm Street, San Luis Obispo, by Mayor Stewart.

4. PLEDGE OF ALLEGIANCE
Council Member Boswell led the Council in the Pledge of Allegiance.

2 5. PRESENTATIONS

5.a NATIONAL FOSTER CARE MONTH PROCLAMATION
Mayor Stewart presented a proclamation declaring May as National Foster Care Month to Felipe Gonzales of SLO County Department of Social Services.

5.b PEACE OFFICERS MEMORIAL DAY
Mayor Stewart presented a proclamation declaring May 15, 2026 as Peace Officers Memorial Day to Chief Rick Scott, San Luis Obispo Police Department.

5.c CALIFORNIA TOURISM MONTH
Mayor Stewart presented a proclamation declaring May as National Tourism Month to Dante Specchierla on behalf of the Tourism Business Improvement District Board.

5.d CITY MANAGER REPORT
City Manager Whitney McDonald provided a report on upcoming projects.

6. PUBLIC COMMENT PERIOD FOR ITEMS NOT ON THE AGENDA
Public Comment:

Shawn Harris
Steve Schmidt
--End of Public Comment--

7. CONSENT AGENDA
Council Member Shoresman requested that Item 7c be pulled from Consent.

Public Comment:

Lisa Sperow - Item 7e
Steve Delmartini - Item 7g
--End of Public Comment--
Motion By Vice Mayor Francis
Second By Council Member Boswell
To approve Consent Calendar Items 7a, 7b and 7d to 7g.

3 Ayes (5): Council Member Boswell, Council Member Marx, Council Member Shoresman, Vice Mayor Francis, and Mayor Stewart
Recused (2): Council Member Marx Item 7b, Mayor Stewart recused on Item 7g.

CARRIED (5 to 0)

7.a WAIVE READING IN FULL OF ALL RESOLUTIONS AND ORDINANCES Waive reading of all resolutions and ordinances as appropriate.

7.b MINUTES REVIEW - APRIL 21, 2026 COUNCIL MINUTES
Approve the minutes of the City Council meeting held on April 21, 2026.

Ayes (5): Council Member Boswell, Council Member Marx, Council Member Shoresman, Vice Mayor Francis, and Mayor Stewart CARRIED (4 to 1)

7.d AUTHORIZATION TO ADVERTISE A REQUEST FOR QUALIFICATIONS

FOR HUMAN RESOURCES CONSULTING SERVICES

1. Authorize the issuance of a Request for Qualifications (“RFQ”) for Human Resources consulting services; and

2. Authorize Human Resources to create an On-Call List from the proposals received and deemed to be responsive; and

3. Authorize the City Manager or designee to execute contracts on an as-needed basis, with the agencies in the on-Call List during the five-year period July 1, 2026 – June 30, 2031.

7.e GRANT AGREEMENT FOR THE ESTABLISHMENT OF A MEDIATION

SERVICES PROGRAM
Authorize the City Manager to execute a one-time grant agreement, in a final form satisfactory to the City Attorney, with the Center for Dispute Resolution at San Luis Obispo College of Law for the establishment of a program to provide community mediation services and authorize the disbursement of funds in the amount of up to $10,000.

7.f APPOINTED OFFICIALS’ COMPENSATION

1. Adopt Resolution No. 11642 (2026 Series) entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, amending a Contract of Employment for City Manager,” approving an amendment to the City Manager’s employment contract; and

4 2. Authorize the Mayor to execute the amended contract of employment with the City Manager, adjusting the City Manager’s 401(a) contribution.

3. Adopt Resolution No. 11643 (2026 Series) entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, amending a Contract of Employment for City Attorney,” approving an amendment to the City Attorney’s employment contract; and

4. Authorize the Mayor to execute the amended contract of employment with the City Attorney, adjusting the City Attorney’s salary and expanding flexibility in the use of sick leave to care for a family member.

5. Adopt a Regular and Contract Employee Salary Schedule effective April 9, 2026, as required by California Public Employees Retirement System (CalPERS)

7.g FINAL ADOPTION OF ORDINANCE NO. 1756 (2026 SERIES)
AMENDING MUNICIPAL CODE SECTION 13.08.395 (PRIVATE SEWER LATERALS/SYSTEMS) AND SECTION 13.08.396 (WASTEWATER

FLOW OFFSET)

1. Adopt Ordinance No. 1756 (2026 Series) entitled “An Ordinance of the City Council of the City of San Luis Obispo, California, Amending Section 13.08.395 (Private Sewer Laterals/Systems) and Section 13.08.396 (Wastewater Flow Offset) of the City of San Luis Obispo Municipal Code”, which modifies the Citywide Sewer Lateral Inspection Program to include repair or replacement of poor or failed condition laterals as determined through the Inspection Upon Sale process and dissolves the mandatory Wastewater Flow (Private Sewer Lateral) Offset Program requirements.

2. Find the action exempt from the California Environmental Quality Act (CEQA).

CARRIED (4 to 1)
Item 7s pulled from Consent by Council Member Shoresman

7.c CONSIDERATION OF THE 2026-27 HUMAN SERVICES GRANT

FUNDING RECOMMENDATIONS

5 Public Comments:

Molly Kern
---End of Public Comment---
Motion By Council Member Shoresman
Second By Council Member Marx

1. As recommended by the Human Relations Commission, approve the 2026-27 Human Services Grant funding allocations in the amount of $150,000; with the following change:
 Take $10,000 from Family Care Network
 Add $10,000 to CAPSLO

2. Authorize the City Manager to execute agreements with each grant recipient; and
Authorize staff to negotiate the insurance terms with the grant recipients as needed, in consultation with the City Attorney’s Office and the City's Risk Manager.

8. PUBLIC HEARING AND BUSINESS ITEMS

8.a INTRODUCE AN ORDINANCE AMENDING TITLE 5 (PERMITS,
LICENSES, AND REGULATIONS), TITLE 16 (SUBDIVISION
REGULATIONS), AND TITLE 17 (ZONING REGULATIONS) OF THE
MUNCIPAL CODE.

Senior Planner David Amini and Assistant Planner Ethan Estrada provided an in-depth staff report and responded to Council questions.

Public Comments:

None
---End of Public Comment---
Motion By Vice Mayor Francis
Second By Council Member Shoresman
To introduce Ordinance No. 1757 (2026 Series) entitled, “An Ordinance of the City Council of the City of San Luis Obispo, California, Amending Title 16 (Subdivision Regulations), Title 17 (Zoning Regulations), and Title 5 (Licenses, Permits, and Regulations) of the Municipal Code regarding Accessory Dwelling Units, Junior Accessory Dwelling Units, Urban Lot Splits, Mobile Homes, and other Clarifications and Changes to

6 Regulations Associated with Housing, with an Exemption from Environmental Review (CEQA).”
Ayes (5): Council Member Boswell, Council Member Marx, Council Member Shoresman, Vice Mayor Francis, and Mayor Stewart CARRIED (5 to 0)

8.b AUTHORIZATION TO ADVERTISE 2026 ROADWAY SEALING
PROJECT, SPECIFICATION NO. 2000617 (90 MINUTES)
Transportation Manager Luke Schwartz and Transportation Planner Justin Wong provided an in-depth staff report and responded to Council questions.

Public Comments:

Garrett Otto
---End of Public Comment---
Motion By Council Member Shoresman
Second By Vice Mayor Francis

1. Approve the project plans and special provisions, plans and special provisions plans and special provisions for the 2026 Roadway Sealing Project, Specification Number 2000617; removing Johnson Avenue from the 2026 Roadway Sealing Project and,

2. Authorize staff to advertise for bids for the 2026 Roadway Sealing Project; and,

3. Authorize the City Manager to award the construction contract for the 2026 Roadway Sealing Project pursuant to Section 3.24.190 of the Municipal Code for the bid total, if the lowest responsible bid is within the Publicly Disclosed Funding Limit of $3,932,000; and,

4. Appropriate $236,542 from the unreserved SB1 Fund balance to the project; and,

5. Adopt Resolution No. 11644 (2026 Series) entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, Authorizing Appropriation of $236,542 from unreserved SB1 Fund Balance to support the 2026 Roadway Sealing Project,
Specification Number 2000617; and,

7 6. Authorize the Finance Director to make the following transfers to the 2026 Roadway Sealing Project Account (2000617):
a. Transfer $62,000 of Capital Outlay LRM from Bridge
Maintenance (2000029); and,
b. Transfer $100,000 of Capital Outlay LRM from the Traffic Maintenance and Replacement Project Account (No. 2001003); and,
c. Transfer $150,000 from Completed Projects; and,

7. Authorize the City Engineer to approve Contract Change Orders up to the available project budget, including any amendments authorized by the City Manager.

Ayes (5): Council Member Boswell, Council Member Marx, Council Member Shoresman, Vice Mayor Francis, and Mayor Stewart CARRIED (5 to 0)
Motion By Council Member Marx
Second By Mayor Stewart
To approve staff's recommendation for Johnson Road as presented in the 2026 Roadway Sealing Project and the Bids and Specifications.

Ayes (4): Council Member Boswell, Council Member Marx, Vice Mayor Francis, and Mayor Stewart
Noes (1): Council Member Shoresman
CARRIED (4 to 1)

8.c AMENDMENTS TO COUNCIL’S POLICIES AND PROCEDURES TO
IMPLEMENT SENATE BILL 707 UPDATES TO THE BROWN ACT
Motion By Vice Mayor Francis
Second By Council Member Shoresman
Adopt Resolution No. 11645 (2026 Series) approving amendments to the Council Policies and Procedures for the implementation of Senate Bill 707, including the adoption of Disruption of Telephonic and/or Internet Services Policy.

Ayes (5): Council Member Boswell, Council Member Marx, Council Member Shoresman, Vice Mayor Francis, and Mayor Stewart

8 CARRIED (5 to 0)

9. LIAISON REPORTS AND COMMUNICATIONS
Mayor Stewart
 Attended the Cal Cities League Leaders Summit
 Attended the Coast Rail Conference in Sacramento on behalf of SLOCOG  Attended the City Selection Committee Meeting
 Attended the Lumina Alliance Dancing with the Stars event  Attended Sip N Saunter in Downtown SLO
Vice Mayor Francis
 Attended the Cal Cities League Leaders Summit
 Participated in Advisory Body Interviews
 Attended the Central Coast Performing Arts Commission Meeting  Attended the Women in Politics meeting at Cal Poly
 Attended the Better Together Luncheon
 Helped set up a unit at Welcome Home Village
 Attended the Birding by Ear event.

Council Member Boswell
 Attended the San Luis Obispo Airport Ribbon Cutting for their solar panels  Attended the SLOCOG Board Workshop on behalf of Mayor Stewart  Presented a Proclamation at the Armenian Genocide Remembrance Day Event
Council Member Marx
 Attended the Air Pollution Control District (APCD) - Executive Committee Meeting
 Participated in Advisory Body Interviews
 Attended the Community Foundation Yearly Awards Event Council Member Shoresman

9  Attended the Integrated Waste Management Authority - Budget Committee Meeting
 Provided Welcome at the International Film Festival Opening Night  Attended Good Morning SLO
 Attended the City/University Quarterly lunch
 Attended the Arab/American Festival
 Attended Angel Con Pitch Fest

10. ADJOURNMENT
The meeting was adjourned at 10:05 p.m. The next Regular City Council Meeting is scheduled for May 19, 2026 at 5:30 p.m. in the Council Chambers at City Hall, 990 Palm Street, San Luis Obispo.

APPROVED BY COUNCIL: XX/XX/202X

Item 5c
Department: Utilities
Cost Center: 4001, 5008, 6003
For Agenda of: 5/19/2026
Placement: Consent
Estimated Time: N/A
FROM: Aaron Floyd, Public Works & Utilities Director
Prepared By: Shane Whittington, Utilities Business Manager SUBJECT: DECLARATION OF SURPLUS EQUIPMENT AND AUTHORIZATION FOR

SALE (FLEET MAINTENANCE, OFFICE, AND WATER TREATMENT

ASSETS)

RECOMMENDATION
Adopt a resolution declaring the listed equipment as surplus and authorizing staff to sell the equipment in accordance with City policies.

POLICY CONTEXT
Charter Section 906 states that “The City Council, by ordinance or resolution, shall adopt policies and procedures that shall be applicable to the sale or lease of City property.” On January 20, 2009, the City Council adopted policies and procedures governing the disposition of surplus City property through Resolution No. 10052, as reflected in Sections 480-A and 480-B of the Financial Management Manual.

Consistent with these policies, the items identified in this report are no longer needed for City operations and are recommended for designation as surplus. Several items have an estimated value exceeding $1,000 and therefore require City Council approval by Resolution (Attachment A) prior to sale.

DISCUSSION
Background
The City has established policies and procedures governing the designation and disposal of surplus property. This report identifies items from the Community Development and Public Works and Utilities Departments that are no longer needed, retain value, and require City Council approval prior to sale.

Surplus Items
The items being requested for surplus designation are summarized in Table 1 below.

Photographs and brief descriptions of these items are provided in Attachment B.

Item 5c
Table 1. Item for Surplus Designation
These assets include approximately $10,750 in fleet maintenance equipment and $2,450 in office equipment. The four water treatment assets have an indeterminate market value due to their specialized applications, system compatibility considerations, and regulatory requirements in California.

CONCURRENCE
The City’s Finance Department concurs with the staff recommendation.

PREVIOUS COUNCIL ACTION
On September 19, 2023, the Public Works and Utilities Department brought Item 6c to Council for disposing of surplus assets. Council approved this item.

ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) does not apply to the recommended action in this report, because the sale of surplus property is not a “project” as defined by CEQA Guidelines Section 15378.
# Equipment Name Category Program Quantity Amount Per Unit Total Expected Amount 1 Autocrane (Truck
Mounted Portable Crane)
Fleet
Maintenance 5008-Fleet (General Fund) 3 $ 2,500.00 $ 7,500.00 2 Miller Welder
(MillerMatic 251)
Fleet
Maintenance 5008-Fleet (General Fund) 1 $ 1,500.00 $ 1,500.00 3 Miller Welder (Miller
Thunderbolt XL)
Fleet
Maintenance 5008-Fleet (General Fund) 1 $ 750.00 $ 750.00 4 Baldor Chopsaw
(Industrial Chop Saw)
Fleet
Maintenance 5008-Fleet (General Fund) 1 $ 1,000.00 $ 1,000.00 5 Plan Depth (36") Filing
Cabinet Office Equipment
4001-Community Development
Administration (General Fund) 4 $ 300.00 $ 1,200.00
6 Locking File Cart Office Equipment
4001-Community Development
Administration (General Fund) 1 $ 100.00 $ 100.00
7 Metal 2 Drawer filing
cabinet Office Equipment
4001-Community Development
Administration (General Fund) 2 $ 400.00 $ 800.00
8 Metal 3 Drawer filing
cabinet Office Equipment
4001-Community Development
Administration (General Fund) 1 $ 350.00 $ 350.00
9 Portable Transfer Switch
Water Treatment
Equipment
6003-Water Treatment (Water
Fund) 1 TBD TBD
10 Cummins/Onan
Generator
Water Treatment
Equipment
6003-Water Treatment (Water
Fund) 1 TBD TBD
11 Pulsafeeder Shadow
Chemical Pump
Water Treatment
Equipment
6003-Water Treatment (Water
Fund) 1 TBD TBD
12 Portable Hepa Air Filter
Water Treatment
Equipment
6003-Water Treatment (Water
Fund) 1 TBD TBD
Total $ 13,200.00

Item 5c

FISCAL IMPACT
Budgeted: No Budget Year: 2025-26
Funding Identified: N/A
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $ $ $ $
State
Federal
Fees
Other:

Total $ $ $ $
Proceeds from the sale of surplus items will be returned to the originating funds (General Fund and Water Fund). Staff anticipates the sale of these surplus items will generate approximately $13,200 in General Fund revenue. The water treatment assets have an indeterminate market value. Consequently, the amount of revenue to be generated for the Water Fund is uncertain.

ALTERNATIVE
Deny surplus designation and sale. The City Council could reject the proposed surplus designation and direct staff to retain the items. The identified items are no longer needed for City operations. If the Council rejects the proposed surplus designation, then the items would be retained in storage with no identified use.

ATTACHMENTS
A – Draft Resolution Declaring Certain City Property as Surplus and Authorizing Its Sale B – Surplus Asset Photographs and Descriptions

R ______
RESOLUTION NO. _____ (2026 SERIES)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS

OBISPO, CALIFORNIA, DECLARING CERTAIN CITY PROPERTY AS

SURPLUS AND AUTHORIZING ITS SALE
WHEREAS, on January 20, 2009, the City Council adopted policies and procedures governing the disposition of surplus City property through Resolution No. 10052, as reflected in Sections 480-A and 480-B of the Financial Management Manual; WHEREAS, the equipment identified in this report is no longer needed for City operations, retains value, and, in certain instances, requires City Council approval prior to sale in accordance with City policies.

NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo that the equipment identified in Table 1 attached as Exhibit A. Item for Surplus Designation is hereby declared surplus, and staff is authorized to sell such equipment in accordance with City policies. Proceeds from the sale of surplus items will be returned to the originating funds (General Fund and Water Fund).

Upon motion of Council Member ___________, seconded by Council Member ___________, and on the following roll call vote:

AYES:

NOES:

ABSENT:

The foregoing resolution was adopted on 19th day of May 2026. ___________________________
Mayor Erica A. Stewart
ATTEST:
______________________
Teresa Purrington
City Clerk
APPROVED AS TO FORM:
______________________
J. Christine Dietrick
City Attorney

Resolution No. _____ (2026 Series) Page 2
Exhibit A
R ______
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. ___________________________
Teresa Purrington
City Clerk

Resolution No. _____ (2026 Series) Page 3
Exhibit A
R ______
Table 1. Item for Surplus Designation
# Equipment Name Category Program Quantity Amount Per Unit Total Expected Amount 1 Autocrane (Truck
Mounted Portable Crane)
Fleet
Maintenance 5008-Fleet (General Fund) 3 $ 2,500.00 $ 7,500.00 2 Miller Welder
(MillerMatic 251)
Fleet
Maintenance 5008-Fleet (General Fund) 1 $ 1,500.00 $ 1,500.00 3 Miller Welder (Miller
Thunderbolt XL)
Fleet
Maintenance 5008-Fleet (General Fund) 1 $ 750.00 $ 750.00 4 Baldor Chopsaw
(Industrial Chop Saw)
Fleet
Maintenance 5008-Fleet (General Fund) 1 $ 1,000.00 $ 1,000.00 5 Plan Depth (36") Filing
Cabinet Office Equipment
4001-Community Development
Administration (General Fund) 4 $ 300.00 $ 1,200.00
6 Locking File Cart Office Equipment
4001-Community Development
Administration (General Fund) 1 $ 100.00 $ 100.00
7 Metal 2 Drawer filing
cabinet Office Equipment
4001-Community Development
Administration (General Fund) 2 $ 400.00 $ 800.00
8 Metal 3 Drawer filing
cabinet Office Equipment
4001-Community Development
Administration (General Fund) 1 $ 350.00 $ 350.00
9 Portable Transfer Switch
Water Treatment
Equipment
6003-Water Treatment (Water
Fund) 1 TBD TBD
10 Cummins/Onan
Generator
Water Treatment
Equipment
6003-Water Treatment (Water
Fund) 1 TBD TBD
11 Pulsafeeder Shadow
Chemical Pump
Water Treatment
Equipment
6003-Water Treatment (Water
Fund) 1 TBD TBD
12 Portable Hepa Air Filter
Water Treatment
Equipment
6003-Water Treatment (Water
Fund) 1 TBD TBD
Total $ 13,200.00

Item # 1 - Autocrane (Truck Mounted Portable Crane)
Estimated Value per Unit: $2,500
Quantity: 3

Item # 2 - Miller Welder (MillerMatic 251)
Estimated Value per Unit: $1,500
Quantity: 1

Item # 3 - Miller Welder (Miller Thunderbolt XL)
Estimated Value per Unit: $750
Quantity: 1

Item # 4 - Baldor Chopsaw (Industrial Chop Saw)
Estimated Value per Unit: $1,000
Quantity: 1

Item # 5 - Plan Depth (36") Filing Cabinet
Estimated Value per Unit: $300
Quantity: 4

Item # 6 - Locking File Cart
Estimated Value per Unit: $100
Quantity: 1

Item # 7 - Metal 2 Drawer filing cabinet
Estimated Value per Unit: $400
Quantity: 2

Item # 8 - Metal 3 Drawer filing cabinet
Estimated Value per Unit: $350
Quantity: 1

Item # 9 - Portable Transfer Switch
Estimated Value per Unit: TBD
Quantity: 1

Item # 10 - Cummins/Onan Generator
Estimated Value per Unit: TBD
Quantity: 1

Item # 11 - Pulsafeeder Shadow Chemical Pump
Estimated Value per Unit: TBD
Quantity: 1

Item # 12 - Portable Hepa Air Filter
Estimated Value per Unit: TBD
Quantity: 1

Item 5d
Department: Public Works
Cost Center: 9501
For Agenda of: 5/19/2026
Placement: Consent
Estimated Time: N/A
FROM: Aaron Floyd, Public Works & Utilities Director
Prepared By: Madeline Kacsinta, Assistant Director of Public Works Brendan Pringle, Senior Business Analyst
SUBJECT: AUTHORIZATION FOR FINANCE DIRECTOR TO APPROVE

TRANSFERS FROM OPERATING TO CAPITAL BUDGETS FOR JOB

ORDER CONTRACT PROJECTS

RECOMMENDATION
Adopt a Draft Resolution authorizing the Finance Director to Approve Transfers from Public Works Operating Budgets to Capital Budgets for Job Order Contract Projects (Attachment A).

POLICY CONTEXT
Section 3.24.145 of the Municipal Code provides that the City may perform maintenancerelated construction projects, including repairs, remodeling, or other repetitive work, under a unit-price Job Order Contract. Such contracts are competitively procured; do not allow new construction; provide unit-price terms for all work performed under individual task orders; may establish limits on individual task orders or on minimum or maximum cumulative amounts of work; and include Council-established limits on the Finance Director’s authority to approve task orders.

Section 415 of the Financial Management Manual defines Fixed Assets, for capitalization purposes, as long-lived tangible items costing $25,000 or more. These include infrastructure, buildings and structures, improvements other than buildings, computer equipment, vehicles, and equipment additions or improvements that significantly extend useful life or substantially increase operating efficiency.

Accordingly, individual Job Order Contract projects totaling $25,000 or more must be capitalized and funded through the capital budget.

Section 540 of the Financial Management Manual discusses amendments to the adopted budget and provides direction that requires Council approval for situations where transfers between operating and capital funds would occur. This is to ensure transparency, proper appropriation, and fiscal oversight.

Item 5d

DISCUSSION
Background
Job Order Contracts (JOCs) provide an efficient mechanism to deliver small, timesensitive projects compared to traditional procurement methods. These projects commonly include repairs within the public right-of-way, electrical repairs, storm damage response, and other priority maintenance activities.

Unforeseen or urgent maintenance projects that arise throughout the year may be funded through either Public Works operating budgets or capital project accounts, depending on the nature and cost of the work. In practice, many of these projects are delivered using JOCs due to their flexibility and efficiency.

The key distinction between funding sources is the $25,000 capitalization threshold.

Projects below this threshold are typically funded and expensed through operating budgets, while projects that meet or exceed this threshold must be capitalized and recorded in the capital budget for accounting purposes, even when the work is maintenance in nature.

In recent years, project costs have increased, and more routine maintenance activities are approaching or exceeding the capitalization threshold. As a result, projects that would historically be handled entirely within operating budgets now require capital budget treatment for accounting purposes.

Under current policy, transferring funds from operating to capital budgets requires City Council approval. This requirement can delay project delivery for time-sensitive work. The proposed authorization establishes a streamlined process to address these situations while maintaining appropriate fiscal oversight.

Proposed Authorization
This action authorizes the Finance Director to approve transfers from operating to capital budgets for qualifying JOC projects exceeding $25,000, provided sufficient operating budget savings are available.

This authority is intended for limited use in situations involving urgent or unanticipated maintenance needs that meet capitalization requirements.

To ensure accountability and fiscal oversight, the following controls will apply:
• Annual Cumulative Limit: Total transfers shall not exceed $100,000 per fiscal year.
• Project Justification: Each transfer must include written justification from the Public Works & Utilities Director, or designee, confirming the urgent or timesensitive nature of the work. • Finance Review: The Finance Director will verify funding availability and compliance with capitalization requirements prior to approval.

Item 5d
• Council Reporting: A summary of all transfers will be provided to Council annually.

This approach improves administrative efficiency, supports timely project delivery, and reduces the risk of cost escalation due to delays. It does not increase total spending authority, modify existing JOC approval thresholds, or authorize new appropriations.

Public Engagement
This item is a consent item for the May 19, 2026, City Council meeting and will follow all required noticing and posting requirements. The public will have an opportunity to comment on the item at or before the meeting.

CONCURRENCE
The Finance Department has reviewed the proposed policy and concurs.

ENVIRONMENTAL REVIEW
This action is not a project under the California Environmental Quality Act (CEQA) pursuant to Section 15378(b)(5) of the CEQA Guidelines, as it involves administrative and fiscal activities that will not result in a direct or indirect physical change to the environment.

FISCAL IMPACT
Budgeted: Yes Budget Year: 2025-26
Funding Identified: Yes
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund N/A N/A N/A N/A
Enterprise Funds N/A N/A N/A N/A
Total N/A N/A N/A N/A
There is no direct fiscal impact associated with this action, and no new appropriations are requested. Any transfer would require identification of sufficient operating budget savings within the Public Works department and approval by the Finance Director. This action establishes a funding mechanism only and does not increase total expenditures.

Item 5d

ALTERNATIVES

1. Council may elect not to authorize the Finance Director to approve transfers from operating to capital budgets for JOCs. In that case, each transfer would require separate Council action, which may extend timelines for implementation of certain time-sensitive improvement projects.

2. Council may direct changes to the draft resolution and its terms. Council may direct modifications to the proposed resolution, including changes to the thresholds, approval authority, or reporting requirements associated with the authorization for the Finance Director to approve transfers from Public Works operating budgets to capital budgets for Job Order Contract (JOC) projects.

ATTACHMENTS
A - Draft Resolution Authorizing the Finance Director to Approve Transfers from Public Works Operating Budgets to Capital Budgets for Job Order Contract Projects

R ______
RESOLUTION NO. _____ (2026 SERIES)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS

OBISPO, CALIFORNIA, AUTHORIZING THE FINANCE DIRECTOR TO

APPROVE TRANSFERS FROM PUBLIC WORKS OPERATING

BUDGETS TO CAPITAL BUDGETS FOR JOB ORDER CONTRACT

PROJECTS
WHEREAS, the City of San Luis Obispo utilizes Job Order Contracts (JOCs) to efficiently deliver small, time-sensitive maintenance and repair projects, including work within the public right-of-way, electrical repairs, storm damage response, and other priority maintenance activities; and
WHEREAS, such projects may be funded through Public Works operating budgets or capital project accounts depending on the nature and cost of the work; and WHEREAS, projects with costs exceeding $25,000 must be capitalized and recorded in the City’s capital budget for accounting purposes in accordance with City financial policies; and
WHEREAS, under current City policy, transfers between operating and capital budgets require City Council approval, which may delay the timely execution of eligible Job Order Contract projects; and
WHEREAS, the City Council desires to improve administrative efficiency while maintaining appropriate fiscal oversight and budgetary control.

NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows:

SECTION 1. Action. The Finance Director is authorized to approve transfers from Public Works operating budgets to capital budgets for Job Order Contract (JOC) projects exceeding $25,000, in accordance with the provisions of this Resolution.

SECTION 2. The cumulative amount of transfers approved under this authority shall be limited to One Hundred Thousand Dollars ($100,000) per fiscal year.

SECTION 3. All transfers approved under this authority shall:
a) Be supported by available operating budget within the Public Works Department;
b) Include written justification from the Public Works & Utilities Director, or designee, confirming the urgent or time-sensitive nature of the work; and c) Be reviewed and approved by the Finance Director to ensure compliance with City financial policies and capitalization requirements.

Resolution No. _____ (2026 Series) Page 2
R ______
SECTION 4. A summary of all transfers executed under this authority shall be provided to the City Council on an annual basis.

SECTION 5. This Resolution does not increase total spending authority, does not modify existing Job Order Contract approval thresholds, and does not authorize new appropriations.

Upon motion of Council Member ___________, seconded by Council Member ___________, and on the following roll call vote:

AYES:

NOES:

ABSENT:

The foregoing resolution was adopted this _____ day of _______________ 2026. ___________________________
Mayor Erica A. Stewart
ATTEST:
______________________
Teresa Purrington
City Clerk
APPROVED AS TO FORM:
______________________
J. Christine Dietrick
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. ___________________________
Teresa Purrington
City Clerk

Item 5e
Department: Finance
Cost Center: 2002
For Agenda of: 5/19/2026
Placement: Consent
Estimated Time: N/A
FROM: Emily Jackson, Finance Director
Prepared By: Riley Kuhn, Principal Budget Analyst
SUBJECT: FY 2025-26 Q3 BUDGET REPORT

RECOMMENDATION

1. Receive and file the FY 2025-26 Q3 Budget Report; and

2. Authorize a transfer of $30,049 from the South Broad Street Corridor project to the Public Works & Utilities Department staffing budget to pay for the contract Transportation Planner/Engineer I position assigned to the project; and

3. Authorize a transfer of $110,812 and $55,406 from each of the Prado Bridge Widening and Prado Road Interchange projects to the Public Works & Utilities Department staffing budget to pay for the contract Major City Projects Manager position assigned to the projects; and

4. Authorize an increase in the Transit Fund staffing budget of $30,000.

POLICY CONTEXT
The City’s budget policies require that the City Council review the City’s budget and financial condition at least every six months. City Charter Code Section 804 states that at any meeting after the adoption of the budget, the Council may amend or supplement the budget by motion adopted by a majority vote of the Council.

The Q3 Budget Report is part of the ongoing reporting process to fulfill these requirements.

DISCUSSION
Budget Report Organization
The budget report follows a standard format in line with recent quarterly budget updates and is intended to provide a high-level overview of the year to date fiscal performance for the General Fund, the four major enterprise funds, and the special revenue funds. The report includes the following sections:

General Fund Summary: Three quarters through the year, no new risks to budget attainment have emerged. Development fees and investment income are trending above

Item e
budget and revenue overall is expected to modestly exceed budget. Expenditures broadly are in line with expectations despite several areas of risk as detailed in the report.

Water Fund Summary: Results after three quarters are largely as expected.

Sewer Fund Summary: Results after three quarters are largely as expected.

Parking Fund Summary: Results after three quarters are largely as expected. Staff note that revenue may underperform if parking activity, particularly at meters, does not pick up in the fourth quarter in line with typical seasonal trends.

Transit Fund Summary: Grants revenue is trending below budget due to timing of capital projects and reimbursements, but no impact to fund balance is expected and fee revenues are in line with budget.

Staffing expenditures are trending above budget, largely because the newly created Assistant Director of Public Works and Director of Public Works and Utilities positions are partially allocated to the Transit Fund but the Director of Public Works position they replaced was not. Staff’s recommendation is to increase the FY 2025-26 budget accordingly, and the proposed FY 2026-27 budget will reflect the new position allocations.

Special Revenue & Other Fund Summaries: All other funds results are generally in line with expectations and staff do not expect significant variances to budget at year end. 2023 Winter Storm Update: Staff continue to work through the Federal Emergency Management Agency’s (FEMA) process to obtain reimbursement for damages incurred in the 2023 winter storms. To date, the City has received $1.9 million in reimbursement and expect additional reimbursement, although timing is uncertain.

CIP Update: The report provides an update on the tasks ongoing or completed during the third quarter of the year. Notable projects completed in Q3 include the Cultural Arts District Parking Structure, Mid-Higuera Bypass Project, and the 2025 Roadway Paving Project. Major ongoing projects include the Mission Plaza Enhancements and the Righetti Community Park.

Major City Goals Update: The report includes an update on Major City Goal tasks with an original or updated expected completion in Q3. Seven tasks were completed as expected and eight are behind schedule.

Previous Council or Advisory Body Action
The report makes reference to the 2025-27 Financial Plan adopted by Council on June 17, 2025.

Item e
Public Engagement
Public engagement on the item can be provided to the City Council through written correspondence prior to the meeting or through public testimony at the meeting. The report will also be posted on the City’s website for public review.

ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) does not apply to the recommended action in this report because the action does not constitute a “Project” under CEQA guidelines Sec. 15378.

FISCAL IMPACT
Budgeted: Yes Budget Year: 2025-26
Funding Identified: Yes
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $ $ $ $
Capital Outlay
Fund
140,861 N/A
Transit Fund 30,000 30,000
Fees
Other:

Total $ $170,861 $ $N/A
The recommendation to receive and file the Q3 report has no fiscal impact.

The recommendations to transfer funds from Prado Bridge Widening, Prado Road Interchange, and South Broad Street Corridor project budgets from the General Capital Outlay fund to the Public Works and Utilities Department’s staffing budget is aligned with the initial plan to fund the Transportation Planner/Engineer I and Major Projects Manager contract positions for the duration of FY 2025-26. These temporary positions are not funded by the department’s staffing budget and additional transfers will be required in FY 2026-27, however, as contracts are temporary in nature there is no ongoing cost.

The recommendation to increase the Transit Fund’s staffing budget is necessary to accommodate the increased staffing costs of the Assistant Director of Public Works and the Director of Public Works & Utilities. These positions were created after Financial Plan adoption and are allocated partially to the Transit Fund. The Public Works Director position they replaced was budgeted entirely within the General Fund and costed to various funds through the Cost Allocation Plan.

Item e

ALTERNATIVES
Council could decide not to approve the recommended transfers from project budgets to staffing budgets. Should Council pursue this alternative, the Public Works and Utilities Department may be able to offset the unbudgeted expenditures with savings from other vacant positions.

Council could decide not to approve the recommended increase for the Transit Fund staffing budget. Should Council pursue this alternative, the Transit Fund should be expected to exceed its staffing budget for the year.

ATTACHMENTS
A - FY 2025-26 Q3 Budget Report

1 FY 2025-26 Third Quarter Budget Report
Introduction
This report provides an overview of the City’s revenues and expenditures through the third quarter of FY 2025-26 (July 1, 2025 – March 31, 2026). It also provides an update on the status of the City’s Capital Improvement Plan (CIP) projects and progress on Major City Goal tasks.

Throughout the document, reference will be made to the data available as of the time the report was drafted. Revenues are often not available for up to two months after month-end and in some cases, revenues are not received evenly throughout the year. Expenditures are often recorded in advance for annual costs or for purchase orders opened at the beginning of the year. The net impact is that actual results booked three quarters into the year should not always be expected to equal three quarters of budgeted amounts. Commentary will be provided only when analysis suggests that full-year results may differ significantly from budget.

Table of Contents
General Fund Summary……………………………………
Water Fund Summary………………………………………
Sewer Fund Summary……………………………………..

Parking Fund Summary…………………………………….

Transit Fund Summary……………………………………..

Special Revenue Summaries……………………………
2023 Winter Storm Recovery Update………………
CIP Update………………………………………………………
Major City Goal Update……………………………………
2 5
7 9
10 12
16 17
19

2 General Fund Summary
Three quarters through the year, staff expect that revenue targets will be attained and expenditures will finish the year on budget. The tables below detail year-to-date (YTD) results as compared to budget and prior year actuals. Commentary is provided where results are not in line with expectations.

Revenue:

Tax Revenue:

Sales Tax (including Local Revenue Measure & Prop 172 Safety Tax): The budget for sales tax revenue was developed in February 2025, prior to the announcement of significant new and increased federal import taxes. The City’s sales tax consultants advised staff in May 2025 that these tariffs would have a negative impact on sales tax revenue and presented a risk of up to $1.3 million to the revenue budget. This impact has yet to appear in sales tax data, which includes results through December. As of April 2026, the City’s consultants now expect the City to meet or exceed its sales tax budget. Staff will continue to closely monitor results for signs of impacts.

Property Tax: The City participates in the Teeter Plan, which means that it is not exposed to delinquent payments and can reasonably expect to collect 100% of budgeted amounts. Staff expect to meet or modestly exceed budget by year-end.

FY 2024-25 FY 2025-26
General Fund Actuals Budget YTD Actuals % Received
Tax & Franchise Revenue
Sales Tax $ 54,357,111 $ 55,470,441 $ 29,310,570 53%
Property Tax 24,923,847 25,944,966 16,053,233 62%
Transient Occupancy Tax 11,417,888 11,099,705 6,962,182 63% Utility User Tax 7,501,436 6,605,306 4,233,843 64%
Business Tax 3,138,271 3,230,170 3,178,252 98%
Franchise Fees 2,622,351 2,242,429 1,160,790 52%
Cannabis Tax 814,502 1,000,000 642,109 64%
Total Tax & Franchise Revenue 104,775,406 105,593,017 61,540,979 58% User Fees
Development Review 5,697,332 4,606,812 5,417,677 118%
Parks & Recreation 2,643,907 2,280,283 2,139,002 94%
Fire 3,331,998 1,950,305 1,736,223 89%
Police 834,584 690,200 659,554 96%
Business Licenses 792,548 632,470 335,890 53%
Total User Fees 13,300,370 10,160,069 10,288,346 101%
General Government 7,778,702 1,669,077 5,128,518 307%
2023 Storm Reimbursement 909,090 - 760,702
Total Revenue $ 126,763,568 $ 117,422,163 $ 77,718,544 66%

3 Transient Occupancy Tax: The City has benefited from strong local tourism spending and this line is trending above budget year to date. Staff expect to exceed budget by year-end.

Business Tax: This line should be largely collected for the year and any remaining revenue will be from collections on delinquent renewals. Approximately 95% of businesses renewed on time and staff continues efforts to bring others into compliance with Municipal Code requirements.

Cannabis Tax: This revenue stream experienced a significant decline in FY 2024-25 that shows no signs of inflection in the current year. Staff has adjusted the budget for FY 2026-27 to this new, lower level.

While other tax revenue categories show year to date results higher or lower than 75%, staff do not expect significant variances for the full year.

Fee & Other Revenue:

Development Review Fees: FY 2025-26 revenues are trending above projections. Three quarters into the year, the Community Development Department has collected 118% of the total annual budget. This overrealization of fee revenue was due in large part to a conservative budget. The FY 2025-26 revenue budget was based on annualized revenues from the first half of FY 2024-25, a period marked by slowing development activity and macroeconomic uncertainty driving historically low fee revenues. While overall development remains below historical highs, the ongoing build-out of Avila Ranch and steady Accessory Dwelling Unit (ADU) and commercial development are anticipated to support consistent revenue for the department for the next several years. Staff has increased the budget for Development Review Fees in FY 2026-27.

Parks & Recreation Fees: Parks and Recreation revenues are cyclical in nature, driven primarily by program registration timelines and enrollment patterns. Within Youth Services, the Kinder Gap Care program has generated nearly $450,000 in unanticipated additional revenue due to its implementation after the development of the 2025-27 Financial Plan. This program is a collaborative partnership with the school district in which the district reimburses the City for care of 495 children across five school sites for approximately six hours per day. As a result, the Department is trending above budget expectations for FY 2025-26; however, this increase is offset by corresponding staffing costs required to support program delivery. Revenue activity within Youth Services is expected to normalize in the next fiscal year as the Kinder Gap Care program returns to its traditional operating structure where the school district is providing direct care for longer, resulting in less care needed by Youth Services staff.

Fire Department Fees: Three quarters through the year, the Fire Department has collected 89% of its budgeted revenue. This is primarily due to the agreement to provide fire services to Cal Poly for which revenue has been recognized for the full year. Fire Department Permits are also trending above budget and prior year actuals from the same period. Staff expect a modestly favorable result at year-end.

Police Department Fees: Revenue is trending above budget primarily due to administrative citations. The department conservatively budgets $150,000 annually and collected $262,300 through the end of the third quarter. Collections are strongly seasonal and the highest revenue months coincide with holidays like Halloween and St. Patrick’s Day, when doubled fines were in effect.

Business Licenses: Revenue is trending below budget due to timing of license fee collection. After collection of Cannabis Operator Licenses in the Fourth Quarter, this line should finish on budget.

4 General Government: This line includes earnings on cash and investment balances which have benefited greatly from elevated interest rates in recent years. Staff expect investment income to outperform budget once again, although to a lesser degree than years past due to recent policy actions by the Federal Reserve.

Geopolitical tensions and volatility in global markets could cause yields to increase rapidly before year end, which would negatively impact investment income.

Though other fee categories show year-to-date results other than 75% of budget, staff do not expect significant variances for the full year.

Operating Expenditures: Year-to-date results for the General Fund are largely as expected at this point in the year.

Staffing: The General Fund is trending towards 3% salary savings at year-end, which is lower than the 4% assumption built into the long-term forecast for the General Fund. This is in large part due to lower vacancy rates Citywide which may be attributable to a deteriorating labor market. Other more distinct drivers are detailed in the departmental sections below. Staff expect that the primary impact of lower salary savings will be that unassigned fund balance at year-end will be slightly lower than in recent years.

Other Operating Expenditures: Based on year-to-date actuals this line item is expected to finish on budget.

The table below details the budget and year-to-date actuals for both staffing and other operating expenditures by department:

While the General Fund as a whole is expected to finish the year on budget, staff note several departmental level variances:

Fire: The Department’s staffing expenditures are trending above budget. Several vacant positions and two long-term injury vacancies are driving significant unbudgeted overtime expenditures. Four firefighter positions are currently vacant, requiring a minimum of one shift daily to be FY 2024-25 FY 2025-26
General Fund Actuals Budget YTD Actuals % Expended
Staffing $ 75,489,526 $ 78,840,346 $ 57,986,273 74%
Other Operating Expenditures 18,291,470 21,699,819 16,301,290 75% Total $ 93,780,996 $ 100,540,165 $ 74,287,563 74%
FY 2024-25 FY 2025-26
Department Actuals Budget YTD Actuals % Expended
Police $ 24,657,118 $ 25,611,245 $ 19,928,388 78%
Fire 18,787,150 18,134,272 14,052,294 77%
Public Works 16,581,895 18,140,176 13,643,873 75%
Administration & IT 11,565,191 12,655,801 8,776,034 69% CDD 7,864,816 9,059,766 6,725,194 74%
Parks & Rec 6,014,160 6,231,512 4,526,014 73%
Finance 2,686,591 2,850,096 2,123,366 75%
Non-Departmental 350,542 2,399,772 359,608 15%
HR 2,085,986 2,061,730 1,513,953 73%
City Attorney 1,652,744 1,863,615 1,484,298 80%
Utilities 1,534,804 1,532,180 1,154,542 75%
Total $ 93,780,996 $ 100,540,165 $ 74,287,563 74%

5 filled at overtime rates. The next recruit academy to hire new firefighters is planned for FY 2026-27 and shift coverage overtime will persist until then. The savings from these vacant positions will partially offset overtime costs, as will reimbursements for mutual aid. Despite these offsets, staff expect that the department will exceed its staffing budget at year-end.

Police: The Department’s staffing expenditures are trending high mainly due to overtime expenditures.

Overtime hours increased by about 9% compared to the same time period last year. This has been mostly attributed to mandatory training that occurs every other year, shift coverage due to vacancies or worker’s compensation leave, Cal Poly events, and significantly increased investigative hours. It is likely, even with vacancies, the department will exceed the total staffing budget at year end.

Parks and Recreation: The Department is projected to exceed its staffing budget by 2-3% at year-end driven largely by additional youth services staffing for Kinder Gap Care, as described above in the department’s revenue explanation. Staff plan to address this through an administrative budget adjustment at year-end.

Non-Departmental: This budget includes a contingency for labor negotiations ongoing at the time of budget adoption. Adjustments for cost of living, benefits, and other compensation changes were budgeted for in a non-departmental cost center during negotiations as is typical City practice, but no transactions are charged to this account, leading to a very low percent of budget expended.

City Attorney: As of the third quarter, the department was trending over budget due to unanticipated legal expenditures. These have since been addressed by an administrative budget adjustment and the department is expected to finish the year under budget.

Enterprise Fund Summaries
The City uses Enterprise funds to account for operations that are financed and operated in a manner similar to private business enterprises, where the intent is that the costs of providing certain services is recovered primarily through user charges. This section of the report includes a write up on the budget status of the City’s four enterprise funds (Water, Sewer, Parking, and Transit) through the third quarter of FY 2025-26.

Water Fund Summary
The Water Fund’s actuals through the third quarter for revenues and expenditures are generally in line with expectations and anticipated trends. Observed variances are primarily attributable to seasonal revenue patterns, timing of receipts, and standard budget administration practices, rather than structural changes to the fund.

6 Revenue:

Water Sales: Actuals through the third quarter of FY 2025–26 are at 64% of budget. This is primarily due to timing differences in receipts and standard accrual accounting practices. Specifically, the table above does not include receipts from the March billing cycle. Also, under accrual accounting, revenue is recognized in the period in which the service is provided rather than when payment is received. As a result, a portion of the July billing cycle (typically 65–75%) is recorded in June of the prior fiscal year. After adjusting for timing differences, water sales are trending modestly ahead of expected levels.

Base Charges: Actuals through the third quarter of FY 2025–26 are at 58% of budget. This is primarily due to timing differences in receipts and standard accrual accounting practices. Specifically, the table above does not include receipts from the March billing cycle. Also, under accrual accounting, revenue is recognized in the period in which the service is provided rather than when payment is received. As a result, a portion of the July billing cycle (typically 65–75%) is recorded in June of the prior fiscal year. After adjusting for timing differences, base charges are trending at expected year-to-date levels.

Setup Fees: Actuals through the third quarter of FY 2025–26 are at 90% of budget. Setup fee revenues are trending above budget and include a one-time $36,000 payment resulting from a settlement agreement with the developer of Avila Ranch. Because setup fees are driven by the timing of development activity, they are inherently variable and fluctuate throughout the fiscal year.

Other Revenue: Actuals through the third quarter of FY 2025–26 are at 27% of budget. This category includes grant reimbursements, investment earnings, and other miscellaneous revenues. The variance is primarily due to the timing of reimbursements associated with the Proposition 1B grant, which funds the Groundwater Well Development project. Of the $4.1 million budgeted for this grant, approximately $176,000 has been received to date. Staff anticipate more significant drawdowns once construction activities are underway.

Strong investment performance has partially offset lower-than-anticipated revenues in other areas of this category. Investment income was budgeted at $50,000 for the fiscal year, while actuals total approximately $770,000. However, investment earnings are inherently variable and should not be relied upon as a consistent or ongoing source to offset revenue shortfalls.

FY 2024-25 FY 2025-26
Water Fund Actuals Budget YTD Actuals % Received
Water Sales $ 21,379,368 $ 21,449,631 $ 13,717,204 64%
Base Charges 7,650,544 8,448,140 4,910,333 58%
Setup Fees 125,561 160,000 144,237 90%
Other Revenue 6,972,868 4,351,680 1,157,788 27%
Total Revenue $ 36,128,340 $ 34,409,451 $ 19,944,762 58%

7 Expenditures:

Staffing: Actuals through the third quarter of FY 2025–26 are at 67% of budget. Staffing expenditures are trending below expectations primarily due to vacancies within the Utility Billing and Water Distribution teams.

Operating Expenditures: Actuals through the third quarter of FY 2025–26 are at 83% of budget.

Approximately $14.9 million of these costs are attributable to Source of Supply expenses. A significant portion of these costs are incurred on a lump-sum basis, resulting in higher expenditures earlier in the fiscal year relative to a linear spending pattern.

Source of Supply costs primarily include expenses related to dam operations, maintenance, and capital infrastructure for the City’s raw water supplies. Staff expect overall Water Fund expenditures to finish the fiscal year within budget.

Sewer Fund Summary
The Sewer Fund’s actuals through the third quarter are generally in line with expectations. Variances are primarily driven by the timing of receipts and standard budget administration practices rather than changes in underlying financial drivers.

Revenue:

Service Charges: Actuals through the third quarter of FY 2025–26 are at 69% of budget. This is primarily due to timing differences in receipts and standard accrual accounting practices. Specifically, the table above does not include receipts from the March billing cycle. Also, under accrual accounting, revenue is recognized in the period in which the service is provided rather than when payment is received. As a result, a portion of the July billing cycle (typically 65–75%) is recorded in June of the prior fiscal year. After adjusting for timing differences, service charges are trending modestly ahead of expected year-to-date levels.

Base Charges: Actuals through the third quarter of FY 2025–26 are at 62% of budget. This is primarily due to timing differences in receipts and standard accrual accounting practices. Specifically, the table above does not include receipts from the March billing cycle. Also, under accrual accounting, revenue is recognized in the period in which the service is provided rather than when payment is received. As a result, FY 2024-25 FY 2025-26
Water Fund Actuals Budget YTD Actuals % Expended
Staffing $ 5,495,997 $ 6,225,377 $ 4,151,611 67%
Other Operating Expenditures 15,015,367 20,974,582 17,375,234 83% Total Expenditures $ 20,511,364 $ 27,199,960 $ 21,526,845 79% FY 2024-25 FY 2025-26
Sewer Fund Actuals Budget YTD Actuals % Received
Service Charges $ 15,201,167 $ 15,229,215 $ 10,538,669 69% Base Charges 5,942,531 6,329,610 3,919,067 62%
Other Revenue 3,748,643 210,000 2,095,731 998%
Total Revenue $ 24,892,342 $ 21,768,825 $ 16,553,466 76%

8 a portion of the July billing cycle (typically 65–75%) is recorded in June of the prior fiscal year. After adjusting for timing differences, base charges are trending at expected YTD levels.

Other Revenue: Actuals through the third quarter of FY 2025–26 are at 998% of budget. This category includes grant reimbursements, investment earnings, and other miscellaneous revenues. The significant variance is primarily due to strong investment earnings, one-time reimbursements from regional partners, and the timing of grant revenues.

Investment income was budgeted at $50 thousand for the fiscal year, while YTD actuals total approximately $1.35 million. Additionally, approximately $208 thousand was received from Cal OES grant funding for the Water Resource Recovery Facility (WRRF) upgrade that was originally anticipated in FY 2024–25, and $353 thousand was received from one-time reimbursements from regional partners for a shared project.

These revenues are largely one-time or timing-related in nature. Investment earnings are inherently variable, and staff do not expect these elevated revenue levels to continue or serve as a reliable source to offset future revenue shortfalls.

Expenditures:

Staffing: Staffing expenditures are trending below expectations primarily due to vacancies within the Utility Billing team and Engineering and Planning Section.

Other Operating Expenditures: While the Sewer Fund is expected to finish the fiscal year within budget, staff are monitoring two key operational considerations.

First, the Water Resource Recovery Facility’s (WRRF) regulatory sampling requirements are currently being evaluated by the Regional Water Quality Control Board. Performance during baseline testing will inform ongoing sampling requirements and may have a material impact on future operating costs.

Second, the WRRF biogas cogeneration system is at the end of its useful life and staff are evaluating options for continued maintenance or potential replacement of this asset. This system currently offsets electrical and natural gas usage at the facility, reducing operating costs and supporting implementation of the City’s Lead by Example Climate Action Plan.

In addition, the WRRF’s post-construction operating budget will be evaluated in the coming year to assess whether forecasted operating conditions and allocated resources remain sufficient.

FY 2024-25 FY 2025-26
Sewer Fund Actuals Budget YTD Actuals % Expended
Staffing $ 5,552,235 $ 6,042,596 $ 4,214,902 70%
Other Operating Expenditures 3,905,154 4,828,711 3,859,689 80% Total Expenditures $ 9,457,388 $ 10,871,306 $ 8,074,591 74%

9 Parking Fund Summary
The Parking Fund’s actuals through the third quarter are generally in line with expectations. Revenue variances, primarily in Fines and Other Revenue, are due to delayed receipt of payments that will be realized by year-end. Year-to-date expenditures reflect a minor variance due to annual upfront payments and purchase orders opened at the beginning of the fiscal year.

Revenue:

The revenue budget is based on projections from the 2024 Parking Rate Study, reflecting reduced rates effective July 1, 2024. Technology upgrades recommended in the Technology Roadmap, including new payment equipment in parking garages and at on-street locations, were installed during the current fiscal year and are operating as anticipated.

Meters: Parking meter revenue includes hourly parking sessions from on-street and surface parking lot areas, including mobile app payments. New payment equipment was installed on-street and in surface parking lot areas in November 2025. While the equipment is functioning as intended, meter revenue is currently tracking slightly below budget due to fewer parking transactions compared to the same period in the prior fiscal year. If on-street parking activity does not increase, staff anticipate a modest negative variance to budget by year-end.

Structures: New parking structure gating equipment recommended by the Technology Roadmap was installed at the beginning of the fiscal year. The equipment is functioning as intended, resulting in higher revenue compared to the prior fiscal year when equipment failures occurred, and is meeting budget expectations. Staff do not anticipate a variance to budget by year-end.

Long-Term Parking: Long-term parking revenue includes sales of on-street permits, residential district permits, and garage parking permits. Garage parking permit rates were reduced from $85 per month to $45 per month effective July 1, 2024. Since the rate reduction, garage permit sales have steadily increased and are expected to continue to grow with the opening of the Cultural Arts District Parking Garage that occurred in March 2026. In addition, the digital permit platform was expanded in April 2026 to include 10- Hour On-Street Permits, which is anticipated to further support permit sales. Staff expect this increased adoption will lead to budget attainment at year-end.

Fines: Parking Fines revenue includes all revenue collected from paid parking citations. In March 2025, the City implemented a new citation management system consistent with recommendations from the Technology Roadmap. Under the new system, citation payments are temporarily held in an escrow account and reconciled monthly once mailed check payments are received. This change has resulted in a slight FY 2024-25 FY 2025-26
Parking Fund Actuals Budget YTD Actuals % Received
Meters $ 4,589,728 $ 4,312,367 $ 2,719,185 63%
Structures 1,886,338 2,860,504 1,986,486 69%
Long-Term Parking 522,895 500,000 302,531 61%
Fines 1,113,016 1,231,100 549,773 45%
Other Revenue 2,671,989 671,984 283,143 42%
Total Revenue $ 10,783,966 $ 9,575,955 $ 5,841,118 61%

10 delay in revenue recognition, contributing to the year-to-date variance. Staff expect these funds to be received and does not anticipate a material variance to budget by fiscal year-end.

Other Revenue: Other Revenue in FY 2024-25 included $1.7 million generated through higher returns on investments. Elevated interest rates during FY 2024–25 produced stronger earnings on pooled cash balances from the Cultural Arts District Parking Structure (CADPS) bond issuance, while budget assumptions remained conservative. Investment interest is based on available cash, and as the CADPS construction closes out, cash balance will dwindle; therefore, staff expects minimal investment income and budgeted accordingly. This line also includes Other Rent & Lease Revenue which is budgeted based on current lease agreements, for which most of the revenue is collected toward the end of the fiscal year.

Staff expect this line to finish on budget once all lease payments are collected.

Expenditures:

Staffing: Staffing expenditures are forecasted to continue tracking as anticipated and staff do not project any variance to the budget by year-end.

Other Operating Expenditures: Expenditures are currently on track. Staff will continue to monitor expenditures closely and anticipate the fund will finish the fiscal year under budget.

Transit Fund Summary
The Transit Fund’s actuals through the third quarter are generally consistent with expectations. The Transit Fund is heavily subsidized by Federal grants which are reimbursement-based; as a result, revenues are realized after expenses are incurred and draw down requests are submitted. Grant funds that are budgeted but not expended during the current fiscal year will remain available for reimbursement in future fiscal years. Through the first nine months of the current fiscal year, overall transit ridership has increased by 14% compared to the same period in the prior fiscal year, which significantly exceeds the 2% annual growth forecasted in the recently adopted Short-Range Transit Plan.

Revenue:

FY 2024-25 FY 2025-26
Parking Fund Actuals Budget YTD Actuals % Expended
Staffing $ 2,109,475 $ 2,198,513 $ 1,598,414 73%
Other Operating Expenditures 1,707,291 1,750,531 1,249,937 71% Total Expenditures $ 3,816,767 $ 3,949,044 $ 2,848,351 72% FY 2024-25 FY 2025-26
Transit Fund Actuals Budget YTD Actuals % Received
Bus Fares $ 234,855 $ 260,000 $ 189,230 73%
Cal Poly Transit 750,000 750,000 562,500 75%
Federal Grants 8,859,273 8,254,281 641,382 8%
State Grants 1,360,509 2,733,722 1,189,324 44%
Other 998,813 30,455 635,058 2085%
Total Revenue $ 12,203,449 $ 12,028,458 $ 3,217,493 27%

11 Local (Bus Fare): Local bus fare revenue includes fares collected on board buses, as well as revenue from physical and digital pass sales. Revenue is expected to meet targets based on the first three quarters of actuals.

Cal Poly Transit Payments: Cal Poly transit payment revenue is generated through a three-year agreement between the City and Cal Poly for transit services. Payments are received quarterly, and three payments have been received to date. Staff do not anticipate a variance to budget by year-end.

Federal Grants: Federal grant revenue consists of both capital and operating funds from formula and discretionary programs. These funds are dependent on the timing of eligible capital expenditures and operating costs reimbursements. The City continues to draw down on the American Rescue Plan Act (ARPA) operating funds awarded in 2022. These funds are drawn down quarterly (October, January, April, and July) in alignment with federal reporting requirements. To date, one drawdown is reflected in the table above. Several federally funded capital projects are currently underway. Reimbursement requests for eligible expenses are expected to be submitted by year-end. Any federal funds budgeted to these projects but not expended this fiscal year will remain available for reimbursement in future fiscal years.

State Grants: State grant revenue primarily consists of Transportation Development Act (TDA) funds, which are generated by statewide sales tax and administered by the San Luis Obispo Council of Governments (SLOCOG). Because the City adopts its budget prior to the final calculation of TDA allocations, actual funding amounts may differ from budgeted assumptions. Based on revised allocation amounts provided by SLOCOG, the final calculation was less than previously estimated. Staff anticipate a negative variance of $385,000 by year-end. This reduction in funding is not expected to impact service levels or the delivery of capital projects because the Transit Fund has sufficient TDA fund reserves from prior fiscal years that can be drawn upon to cover any eligible operating or capital expense shortfalls resulting from the negative variance.

Other Revenue: Other revenue includes earnings on cash and investment balances, as well as other grants and subventions. During the fiscal year, the City applied for and received a $400,000 rebate from Central Coast Community Energy (3CE) related to the purchase of six new electric buses. In addition, interest earnings are currently exceeding budget by approximately $235,000 due to higher than anticipated investment returns driven by the continued elevated interest rate environment. As a result, staff anticipate a significant positive variance by year-end.

Expenditures
Staffing: Staffing is trending higher than budget as of the end of the third quarter, due to the additional position costing of a small portion of the Director and Assistant Director positions, related to the consolidation of the Public Works and Utilities departments earlier in the fiscal year. These increased costs to the Transit Fund are partially mitigated by salary savings, and as a result staff anticipate a variance of FY 2024-25 FY 2025-26
Transit Fund Actuals Budget YTD Actuals % Expended
Staffing $ 393,432 $ 391,095 $ 329,336 84%
Other Operating Expenditures 4,992,796 5,612,975 4,959,878 88% Total Expenditures $ 5,386,228 $ 6,004,069 $ 5,289,215 88%

12 around $30,000 to the staffing budget by year-end. Staff recommend an additional appropriation to cover this variance in the current year and will adjust the budget accordingly going forward.

Other Operating Expenditures: Actuals through the third quarter include purchase orders established at the beginning of the fiscal year. While these amounts are reflected as obligations, only 50% of the budget has been expended to date. Staff will continue to monitor expenditures closely particularly as fuel costs continue to sharply rise.

Special Revenue and Other Fund Summaries
Tourism Business Improvement District
The Tourism Business Improvement District (TBID) assessment is set at 2% of the lodging industry’s gross receipts. The program annually aligns its operating budget with its anticipated revenues, and any difference is due to open purchase orders carried over from the prior year.

Revenue:

Revenue is recorded on a more than one month delay and staff expect to collect at least the budgeted amount for the full year. As of the end of February (the most recent month available), revenue collections were pacing 6.2% higher than the previous fiscal year.

Expenditures:

Staffing expenditures are pacing below budget because a staff member was on leave for a portion of the fiscal year. The TBID procures many of its services in advance, leading to a high percent of other operating expenditures budget expended early in the year. The fund is expected to finish on budget for the full year.

Boysen Ranch Conservation Fund
Boysen Ranch consists of approximately 116 acres bounded by Los Osos Valley Road, Foothill Boulevard, and O’Connor Way. The City holds a series of conservation easements that protect approximately 25 acres of the Ranch to mitigate impacts to wetlands and waters caused by the nearby commercial development projects on Los Osos Valley Road. As part of the original easement agreement, Boysen Ranch’s owners provided the City with an endowment to fund required monitoring activities.

FY 2024-25 FY 2025-26
TBID Actuals Budget YTD Actuals % Received
Assessments $ 2,304,764 $ 2,219,941 $ 1,300,972 59%
Total Revenue $ 2,304,764 $ 2,219,941 $ 1,300,972 59%
FY 2024-25 FY 2025-26
TBID Actuals Budget YTD Actuals % Expended
Staffing 241,390 $ 262,464 $ 150,378 57%
Other Operating Expenditures 1,911,188 2,109,984 1,973,119 94% Total Expenditures $ 2,152,578 $ 2,372,448 $ 2,123,498 90%

13 Revenue:

The Boysen Ranch Conservation Fund is an endowment fund, and budgeted revenue is provided by investment income. As in prior years, the fund has benefited from elevated interest rates and is expected to exceed its budget for the full year. Any unspent funds will earn additional income eligible for expenditure in future years.

Expenditures
The fund has made its budgeted payment for authorized conservation activities. Staff expect no further payments and the fund will finish on budget.

Insurance Fund
The Insurance Fund serves to pay the City’s annual costs for liability, workers’ compensation, pollution, volunteer, and property insurance needed to protect the City, as well as claims-related expenses. It is also intended to maintain adequate reserves for future claims and unpredictable increases in insurance costs.

Revenue:

Insurance Fund revenues are transfers in from the General Fund and will finish on budget.

Expenditures:

Expenditures include annual premiums, member contributions to California Joint Powers Insurance Authority and claims expenses within the self-insured retention limit. All are expected to finish on budget.

Policy calls for funding the reserve at 150% of the trailing five-year average claims cost, or the Historical Claims Basis level, and as called for by the City’s actuaries, or the Actuarial Basis level. Based on the most FY 2024-25 FY 2025-26
Boysen Ranch Actuals Budget YTD Actuals % Received
Investment Income $ 20,157 $ 7,500 $ 8,136 108%
Total Revenue $ 20,157 $ 7,500 $ 8,136 108%
FY 2024-25 FY 2025-26
Boysen Ranch Actuals Budget YTD Actuals % Expended
Authorized Expenditures 5,023 $ 12,535 $ 12,535 100%
Total Expenditures $ 5,023 $ 12,535 $ 12,535 100%
FY 2024-25 FY 2025-26
Insurance Fund Actuals Budget YTD Actuals % Received
Transfers in $ 6,000,000 $ 6,000,000 $ 4,500,000 75%
Total Revenue $ 6,000,000 $ 6,000,000 $ 4,500,000 75%
FY 2024-25 FY 2025-26
Insurance Fund Actuals Budget YTD Actuals % Expended
Workers Comp 774,732 $ 2,069,183 $ 1,769,313 86%
Liability & Other 3,020,344 3,457,975 2,685,816 78%
Total Expenditures $ 3,795,076 $ 5,527,158 $ 4,455,128 81%

14 recent actuarial study dated October 10, 2025, the City should maintain a reserve of $5,129,000 for liability claims and $3,222,000 for workers’ compensation claims, totaling $8,351,000 if funding at a 75% probability level. The insurance fund reserve was $5,982,492 as of March 31, 2026. This is $633,765 above the Historical Claims Basis level, and $2,368,508 below the Actuarial Basis level.

Staff plan to recommend additional contributions from unassigned fund balance over the next five years to meet the reserve level recommended by the City’s actuaries, which is $3.0 million higher than the Historical Claims Basis level as detailed in the table below:

Public Safety Equipment Replacement Fund
The Public Safety Equipment Fund (PSEF) was created with the 2019-21 Financial Plan to help budget and forecast the replacement of public safety equipment that has expired or become damaged. The Fund had received an original seed amount with the FY 2019-20 budget and, going forward, an annual allocation is made from the General Fund.

Revenue:

The fund receives revenue in the form of transfers in from the General Fund and will finish on budget.

Expenditures:

The fund budgets for replacement of public safety equipment currently in service and is expected to finish the year on budget. Any unspent funds remain available for future scheduled replacements of critical public safety equipment.

FY 2024-25 FY 2025-26
Public Safety Actuals Budget YTD Actuals % Received
Transfers in $ 387,334 $ 236,226 $ 177,170 75%
Total Revenue $ 387,334 $ 236,226 $ 177,170 75%
FY 2024-25 FY 2025-26
Public Safety Actuals Budget YTD Actuals % Expended
Equipment Purchases 307,329 $ 222,889 $ 117,605 53%
Total Expenditures $ 307,329 $ 222,889 $ 117,605 53%

15 San Luis Ranch CFD
A Mello-Roos Community Facilities District (CFD) was established and approved by City Council on April 16, 2019 (Ordinance No 1661) pursuant to section 5.02 of the San Luis Ranch Development Agreement.

The boundaries of the CFD are identical to the San Luis Ranch Specific Plan and includes 131.4 acres approved for up to 580 dwelling units and commercial development, a 200-room hotel, 100,000 square feet of office space, 150,000 square feet of retail space, 7.8 acres of parks/ open space, and 52.3 acres of farmed agriculture land. The purpose of the CFD is to fund major road improvements, potable and nonpotable water system improvements, drainage system improvements, wastewater system improvements, solid waste improvements, park and paseo improvements, open space improvements, and utilities.

Revenue:

The fund collects property tax from residents under the Teeter Plan with the County and is expected to finish the year on or above budget.

Expenditures:

The fund budgets for authorized expenditures, largely debt service, and is expected to finish the year on budget.

Avila Ranch CFD
A Mello-Roos Community Facilities District was established and approved by City Council on October 24, 2017 (Resolution No 10844) pursuant to section 5.02.1 of the Avila Ranch Development Agreement. The CFD boundaries are identical to those of the Avila Ranch Development project and located at the northeast corner of Buckley Road and Vachell Lane. The Avila Ranch Project will include up to 720 dwelling units, 15,000 square feet of office and retail, 18 acres of parks, 53 acres of open space, riparian corridors and farmed agricultural land. The CFD was formed with purpose of funding services as well as facilities of the CFD. Services to be funded can include the maintenance and lighting of parks, parkways, streets, roads, and open space; flood and storm protection services; police & fire protection services; maintenance and operation of real property. Facilities to be funded can include park, recreation, parkway, and open space facilities; construction and undergrounding of utilities (water, natural gas, telephone lines, electric, cable television); for the acquisition, improvement, or rehabilitation of real property.

FY 2024-25 FY 2025-26
San Luis Ranch CFD Actuals Budget YTD Actuals % Received Tax Revenue $ 1,911,925 $ 1,368,152 $ 771,661 56%
Total Revenue $ 1,911,925 $ 1,368,152 $ 771,661 56%
FY 2024-25 FY 2025-26
San Luis Ranch CFD Actuals Budget YTD Actuals % Expended Authorized Expenditures 181,313 $ 339,417 $ 194,273 57% Transfers 245,664 207,243 155,432 75%
Debt Service 927,450 946,700 946,700 100%
Total Expenditures $ 1,354,427 $ 1,493,360 $ 1,296,405 87%

16 Revenue:

The fund collects property tax from residents under the Teeter Plan with the County and is expected to finish the year on budget or better. Year-to-date results include accruals for tax payments to be made in April and are subject to change.

Expenditures:

The fund budgets for authorized services expenditures including maintenance, utilities, and supplies, and is expected to finish the year on or under budget. Because the development is new, maintenance costs are currently lower than revenues. At full buildout it is expected that costs to serve this neighborhood will exceed revenue and the General Fund will provide services above and beyond what the CFD pays for. All unexpended funds fall to fund balance and are available for expenditure in future years 2023 Winter Storm Recovery Update
Staff continues to work through the Federal Emergency Management Agency’s (FEMA) process to obtain reimbursement for the 2023 Winter Storms. In early March, the Assistant City Manager, Finance staff and Public Works staff met with Congressman Carbajal’s office to provide an update on 2023 Winter Storm recovery efforts and seek assistance from the Congressman and his staff on moving some of the City’s projects forward in FEMA’s process. City staff has also provided this information to Senator Schiff’s office.

The FEMA review process continues to move slowly, but the City’s efforts are paying off. To date, the City has received $1.9M in reimbursement from FEMA and the California Office of Emergency Services (CalOES). In addition, at the end of April staff was notified that the City’s appeal of FEMA’s initial determination that the work the City did to mitigate against additional damage at the Marsh Street Bridge was ineligible for reimbursement. FEMA’s initial determination was due in part to FEMA having incorrectly entered GPS coordinates for the project, which led them to determine that the project work was located on a Federal Highway. Staff provided a lot of evidence to the contrary, and after 12 months of review, FEMA determined that the City was correct. While the Marsh Street Bridge project has not yet been obligated for reimbursement, staff expects that obligation is very likely once FEMA completes their review of the project documentation.

FY 2024-25 FY 2025-26
Avila Ranch CFD Actuals Budget YTD Actuals % Received
Tax Revenue $ 560,516 $ 767,253 $ 775,917 101%
Total Revenue $ 560,516 $ 767,253 $ 775,917 101%
FY 2024-25 FY 2025-26
Avila Ranch CFD Actuals Budget YTD Actuals % Expended
Authorized Expenditures 50,435 $ 99,011 $ 87,488 88%
Transfers 386,517 234,122 175,592 75%
Total Expenditures $ 436,952 $ 333,133 $ 263,079 79%

17 Capital Improvement Program Update
During the third quarter of the fiscal year, the City continued to make significant progress in delivering its Capital Improvement Program (CIP) projects. The capital summary table below provides detail on completed and ongoing projects during this period, showcasing ongoing work to maintain and enhance infrastructure and improve community spaces.

Key projects completed during this period include the Cultural Arts District Parking Structure, Mid-Higuera Bypass Project, and the 2025 Roadway Paving Project. These accomplishments underscore the City's commitment to providing high-quality public facilities and ensuring long-term reliability and durability of essential infrastructure.

In addition to completed projects, the City continues to dedicate resources to active construction efforts, including the Mission Plaza Enhancements Project, which will activate the west side of Mission Plaza with a kiosk café and patio area, and the Righetti Community Park Project, which will provide a wide range of amenities for all ages, including pickleball courts, a bike pump track, play fields, and playground structures.

Project Number Project Total Budget Estimated Construction Completion Date Additional Comments
2090649 Mid-Higuera Bypass $ 11,550,000 Q3 FY 25-26 Completed 2091439 Mission Plaza Enhancements $ 3,729,574 Q3 FY 25-26 Construction Ongoing. 2000577-04 1106 Walnut TI $ 1,887,843 Q3 FY 25-26 Construction Ongoing. 2000616 Roadway Paving 2025 $ 9,117,000 Q3 FY 25-26 Completed 2000577-04 1106 Walnut Fence $ 512,734 Q3 FY 25-26 Construction Ongoing. 2000615-01 Grand Ave Striping and Signage
Modifications $ 429,000 Q3 FY 25-26 Completed
2000117 Cultural Arts District Parking Structure $ 47,000,000 Q3 FY 25-26 Completed 2000402_403 EV Bus Charging Infrastructure $ 1,103,225 Q4 FY 25-26 Ongoing 2000054-01 Righetti Community Park $ 13,668,912 Q2 FY 27-28 Construction Started in Q3 FY25-26
2001059 South & King Crossing $ 632,816 Q2 FY 26-27 Construction Started in Q3 FY25-26
1000025 Fire Station 1 Solar Installation $ - Q1 FY 26-27 Construction Started in Q3 FY25-26
2091506-1
Groundwater Project -
Tetrachloroethylene Plume
Characterization Project Drilling and
Construction of Monitoring Wells
$ 443,562 Q1 FY 26-27 Construction Started in Q3
FY25-26
Completed & Ongoing Construction Capital Projects (January 2026 - March 2026)

18 Project Number Project

TOTAL ESTIMATED

PROJECT COST
(Construction Phase)
Estimated Construction
Start Date Additional Comments
2091503 California and Taft Roundabout $ 6,800,000 Q1 FY 26-27 Right of way acquisition in
progress and finalizing design
documents. Construction start
pending right-of-way
resolution, could slip into Q2
FY27.
2091252 Prado Road Bridge and Road Widening $ 33,100,100 Q2 FY 27-28 Regulatory permits secured.
90% constuction documents
under development. A value
analysis of this project in
coordination with the Prado
Interchange is under
development.
2091613 Prado Road Interchange $ 99,000,000 Q2 FY 29-30 Construction cost reduced by
Council on November 4, 2025
from $124M to $99M. The
consultant team is currently
developing a supplemental
project report and advancing
construction documents.

Supplemental project report is
planned to be considered by
Council in mid-calendar year
2026.

Status of Major and Legacy Projects in Design

19 Major City Goals Update
This report includes an update on all Major City Goal tasks from the 2025-27 Financial Plan with an original or revised completion date in the third quarter of FY 2025-26. During the third quarter, seven Major City Goal tasks have been completed or are on track and eight have been delayed. Additional detail on how each task was completed or why it was delayed can be found in the tables that follow:

MCG Major City Goal Task Estimated Completion Date Status Update On track tasks:

CV,ER,&FS 2 - Support the cultural arts, including the Cultural Arts District: b. Complete the construction of the Cultural Arts District Parking Structure. FY 2026 Q3 Completed. Construction of the Cultural Arts District Parking Structure project is complete, with the formal ribbon cutting held on March 16, 2026. The facility officially opened to the public on March 17, 2026.CV,ER,&FS 5 - Balance operational needs and infrastructure investments with consideration of the long-term fiscal sustainability of the City organization: f. Complete a fiscal analysis of the golf operations at the Laguna Lake Golf Course and conduct a Council Study Session to evaluate fiscal impacts, capital needs, and potential reuse options prior to major infrastructure investments.

FY 2026 Q3 Completed. Study Session held on February 3, 2026

HNL-HSA
3 - Ensure housing is safe, healthy, and affordable, while facilitating stronger protections for renters: b. Conduct a study session with the City Council on potential Rental Housing Registry. This study session would discuss parameters of potential registry and discussion of resources needed for establishment and ongoing maintenance of registry.

FY 2026 Q3 Completed. Study Session held on February 24, 2026 IST
1 - Advance street safety improvements and support Vision Zero goals for all road users: c. Start construction of the South/King Signalized Crossing FY 2026 Q3 Underway and ontime. Construction initiated March 2026. Completion expected fall (FY 2027 Q2), pending delivery of traffic signal equipment.

IST 3 - Ensure public spaces, roads, and utilities support future growth and development: b. Complete the WRRF Upgrade Project. FY 2026 Q2 Completed. The WRRF project was completed and the Ribbon Cutting Ceremony was conducted in October 2025. This project completed under budget and has resulted in a drastic reduction in offsite odor. Public tours are occurring.

IST
5 - Support policies and programs aimed at expanding mass transportation and public transit: b. Reinstate transit services to prepandemic levels. FY 2026 Q3 Partially Completed. As of January 2026, all fixed-route services have been reinstated. Two tripper services suspended during the pandemic are scheduled to be reinstated in August 2026.

OS,CA,&R
1 - Continue implementation of the OS,CA,&R Plan (CAP) and Lead by Example (LBE) Plan Work Programs: j. Install publicly accessible EV charging projects at the Cultural Arts District Parking Structure.

FY 2026 Q3 Completed. EV charging infrastructure installation at CADPS is complete, and the stations are available for public use as of March 17, 2026.

MCG Major City Goal Task Estimated Completion Date Status Update Delayed tasks:

CV,ER,&FS
2 - Support the cultural arts, including the Cultural Arts District: a. Complete the construction of the Mission Plaza Project to enhance the experience of the plaza and downtown.

FY 2026 Q2
FY 2026 Q4
Delayed, but near complete. Overall completion is behind schedule due to weather and contractor delays. The restrooms are open, and tenant improvements to the Kiosk are currently being reviewed by City Staff.

HR
2 - Leverage external funding to expand crisis response and continuum of shelter and housing programs with regional partners: a. Homekey - Utilize State Homekey funding to implement Calle Joaquin Homekey project, providing 75 permanent supportive housing units.

FY 2026 Q1
FY 2027 Q4
Underway and ontime. People's Self Help Housing (PSHH), the City's development partner, was awarded a Tax Credit for the project in September 2025. Due to the additional scope of work that will be completed with the Tax Credit funding, the construction and occupancy timelines have been delayed to Q2 of 2027. PSHH closed on their tax credit funding on April 7th and the phase two construction began on April 10, 2026.

OS,CA,&R
1 - Continue implementation of the OS,CA,&R Plan (CAP) and Lead by Example (LBE) Plan Work Programs: g. Develop and adopt internal polices focused on zero emissions buildings, facilities, and vehicles (LBE) FY 2026 Q3
FY 2026 Q4
An internal review draft has been written and is currently under review. The project is behind schedule because the time to draft the policy was greater than expected. Staff expects the internal policies to be completed and enforced by FY 2026 Q4.

DEI
4 - Foster an inclusive organizational culture with equitable practices in recruiting, hiring, and retention: e. Annually report out in Q3 on demographic data collected in NeoGov for City job applicants and identify targeted strategies to address potential equity gaps. The Council Compensation Committee will review data regarding advisory body members and make recommendations to Council in FY 2026 Q4.

FY 2026 Q3
FY 2027 Q3
Underway and ontime. Human Resources has pulled applicant demographic data for calendar year 2025. This is the first year of data so we will be able to compare it in future years to understand trends. This item is behind schedule due to not having a DEI Manager in place and managing the multiple iniaitives within the DEI Strategic Plan.

HNL-HSA
2 - Promote the expansion and diversification of housing opportunities for all: c. Annually, or as needed for compliance, and by obtaining information from housing partners, complete updates to the Zoning Regulations to implement state law and to address identified barriers to affordable housing and housing production.

FY 2026 Q3
FY 2026 Q4
Near Complete. Updates scheduled for City Council on May 5, 2026. This item was delayed slightly due to staffing vacancies in the Housing Team.

HNL-HSA
4 - Foster diverse, connected, and safe neighborhoods that are livable for all: d. Create a project plan and standard operating procedures for Community Development enforcement of zoning code regulations pertaining to Greek houses. Consider potential updates to zoning code to facilitate efficient regulation of Greek houses.

FY 2026 Q3
FY 2027 Q1
Delayed. Completion date is recommended to be adjusted to FY 2027 Q1 in order to allow additional input from the Community and City Council through the Code Enforcement Study Session and due to staffing constraints in Building and Safety.

IST
2 - Continue implementation of the Active Transportation Plan, including expansion of multimodal transportation networks to improve connectivity, advocating for regional financial support as necessary. : a. Start construction of the Higuera Complete Streets Project.

FY 2026 Q3
FY 2027 Q1
Delayed. Date for start of construction updated to FY 2027 Q1. Project will be advertised and contract awareded FY 2026 Q4, assuming responsive bids are within approved budget. Some delays were incurred due to the time required finalize of the project contract documents following Council's policy input at the February 17th meeting.

IST
4 - Build out park infrastructure to support community recreation and accessibility: b. Start construction of Devaul Ranch Playground Replacement Project.

FY 2026 Q3
FY 2027 Q3
Delayed. Plans have achieved the 100% milestone and are under review by City Staff. Project delay due to staffing constraints and building code compliance requirements.

Item 5f
Department: Attorney
Cost Center: 1501
For Agenda of: 5/19/2026
Placement: Consent
Estimated Time: N/A
FROM: Christine Dietrick, City Attorney
Prepared By: Kelly Holcomb, Senior Legal Analyst
SUBJECT: SECOND AMENDMENT TO LEGAL SERVICES AGREEMENT WITH CIVICA LAW GROUP, APC, RELATED TO 1150 LAUREL CODE

ENFORCEMENT

RECOMMENDATION

1. Authorize the City Attorney to enter into a Second Amendment to the legal services agreement with Civica Law Group, APC, for their work in support of code enforcement actions at the commercial property located at 1150 Laurel Lane.

2. Approve $223,000 as the new contract not-to-exceed amount (an $80,000 increase).

POLICY CONTEXT
In accordance with the City Purchasing Policy, City Council approval is necessary for professional services agreements of more than $150,000. A Request for Proposals is also required for this approval threshold but was waived in this matter by submission and approval of a Specialized Services Justification form at the time of initial contracting with outside counsel.

DISCUSSION
Background
In May 2025, after the commercial property at 1150 Laurel Lane had several years of code violations, substandard building conditions, and failure to make progress following the issuance of an extensive notice of violation and order to abate, the City Council made the decision to file, in the name of the City, a civil complaint seeking the appointment of a receiver to take control of the property. Due to the expected complexity of the matter, and the significant number of financial interest holders and liens against the property, compared to the receiverships for residential properties that in-house attorneys have petitioned for in recent years, outside counsel with extensive, relevant experience was contracted to take lead on the matter. The law firm chosen, Civica Law Group, APC, (“Civica”), almost immediately learned the matter was even more complex than anticipated with two separate pending lawsuits involving the property, a pending bankruptcy proceeding, and more than 18 lienholders with more than 40 liens. The

Item 5f
noticing alone to all these parties took several months longer than anticipated due to the need to negotiate subordination agreements and/or stipulations with various interest holders and due to difficulty in completing legal process service in some instances.

The City’s Verified Complaint for Violation of Health & Safety Code and Receivership; Nuisance; Nuisance per se; and Unfair Business Practices was filed in October of 2025.

Since then, Civica attorneys and staff have been navigating communications and formal responses from the numerous defendants and interested parties. In March, in order to keep the litigation moving forward, the City filed an ex parte application for the motion seeking appointment of a receiver. At the March 12th hearing on the application, the court declined to appoint a receiver ex parte, but did grant in the alternative a request to shorten time (moving up the regularly scheduled hearing to May 6, 2026).

Looking forward, Civica expects the following work will be needed through Fall 2026:
 Review and respond to any and all oppositions to the City’s motion  Prepare for and attend the May 2026 hearing
 Post-hearing notices and respond to opposition to proposed order  Coordinate with receiver for implementation of order (if granted); filings and hearings related to the rehabilitation plan
 Continued meet and confers with various defendants
 Research and respond to any new variables that arise
Previous Council or Advisory Body Action
On May 5, 2025, the Construction Board of Appeals held a hearing for the appeal of the property owner contesting the validity of the notice of violation and order to abate. City Council then held a closed session on May 20, 2025, during which approval was granted to file the initial complaint in the name of the City. After that, the initial contract with Civica was increased by the City Manager on December 11, 2025.

Public Engagement
When the various tenants at 1150 Laurel were forced to vacate their leased spaces due to the un-remediated hazardous conditions of the property, City Council and staff engaged in written and verbal communication with members of the public about the necessity of the action. There was also public comment at the May 2025 Construction Board of Appeals hearing.

For the current item, public comment can be provided to the City Council through written correspondence prior to the meeting and through public testimony at the meeting.

Item 5f

ENVIRONMENTAL REVIEW
The California Environmental Quality Act (“CEQA”) does not apply to the recommended action in this report, because the action does not constitute a “Project” under CEQA Guidelines Sec. 15378.

FISCAL IMPACT
Budgeted: No Budget Year: 2025-26
Funding Identified: Yes
Fiscal Analysis:

The Community Development Department (“CDD”) reviewed its staffing budget for the current fiscal year and determined there are salary savings sufficient to cover the $80,000 increase being recommended to the not-to-exceed amount of the agreement with Civica.

The previous $143,000 for the agreement came from City Attorney legal and other contract services, and CDD Code Enforcement contract services budgets.

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $230,000 $80,000 $150,000 $0
State
Federal
Fees
Other:

Total $230,000 $80,000 $150,000 $0

ALTERNATIVES

1. Approve a different not-to-exceed amount. If $80,000 seems too much to add to this matter, a lesser amount could be selected. However, with the work forecast through Fall of 2026, approving a lesser amount now may require another request be made for additional funding as soon as July. As there is currently $80,000 available in CDD salary savings, it is strongly recommended that the full amount be approved.

2. Decline to increase the contract with Civica. The work to continue litigation in pursuit of the appointment of a receiver would then fall on in-house attorneys. With the other existing workload and priorities being managed in-house at this time, and the title and lien complexities involved, selection of this alternative would also require further direction from City Council as to which work efforts should be deprioritized. If no work efforts can be removed from or made lower priority in the City Attorney workload, then this option is not recommended.

Item 5f

3. Dismiss the complaint. Should City Council now deem this matter fruitless, the complaint in the name of the City could be dismissed. However, the complaint in the name of the People of the State of California, that was concurrently filed by the City Attorney as City Prosecutor, could continue and still require funding and/or staff time.

City of San Luis Obispo, Council Memorandum
City of San Luis Obispo
Council Agenda Correspondence
DATE: May 19, 2026
TO: Mayor and Council
FROM: Greg Hermann, Deputy City Manager
Prepared By: Robert Hill, Sustainability & Natural Resources Official VIA: Whitney McDonald, City Manager
SUBJECT: ITEM # 5g - AUTHORIZE ACQUISITION OF REAL PROPERTY LOCATED AT 975 BROAD STREET, SAN LUIS OBISPO, CA, IDENTIFIED AS ASSESSOR PARCEL NO. 002-412-010
On May 13, 2026, at its regularly scheduled meeting, the Planning Commission approved a Resolution determining General Plan Conformance for the acquisition of property located at 975 Broad Street (GENP-0248-2026). This action was taken pursuant to California Government Code § 65402, wherein the Planning Commission is required to make a determination regarding the consistency of the proposed acquisition of 975 Broad Street with the City’s General Plan. Specifically, Section 65402 requires that the location, purpose, and extent of real property acquisition (and disposition) be submitted to and reported upon by the planning agency having jurisdiction as to conformity with the City’s adopted General Plan (Cal. Govt Code § 65402(c)). This item was on the Planning Commission’s consent agenda and there was no Commissioner or public comment.

As noted in the Council Agenda Report for this item on the City Council’s agenda for the meeting on May 19, 2026, due to the timing of the escrow established for this transaction, the Planning Commission’s review could not occur until after the publication of the City Council Agenda on May 12th for the meeting occurring on May 19th. Staff are, therefore, providing this separate Council Agenda Correspondence as notification of the outcome of the Planning Commission determination.

Item 5g
Department: Administration
Cost Center: 1001
For Agenda of: 5/19/2026
Placement: Consent
Estimated Time: N/A
FROM: Greg Hermann, Deputy City Manager
Prepared By: Robert Hill, Sustainability & Natural Resources Official Natalie Harnett Policy and Project Manager
SUBJECT: AUTHORIZE ACQUISITION OF REAL PROPERTY LOCATED AT 975

BROAD STREET, SAN LUIS OBISPO, CA, IDENTIFIED AS ASSESSOR PARCEL NO. 002-412-010

RECOMMENDATION

1. Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, authorizing the acquisition of real property located at 975 Broad Street, San Luis Obispo, California, identified as Assessor Parcel Number 002- 412-010.” (Attachment A).

2. Authorize the City Manager to sign any and all escrow documents or other associated documents necessary to complete the transaction.

3. Appropriate $1,387,500 for property acquisition and $300,000 as needed for property maintenance and required improvements using reimbursement funds received from the Federal Emergency Management Agency from the City’s Assigned Fund balance.

POLICY CONTEXT
The purchase of the 975 Broad Street property is recommended in furtherance of implementation of the City’s Downtown Concept Plan (2017). This parcel is uniquely situated as the only residential property specifically noted in Block 10 of the Downtown Concept Plan as a future community-serving space (defined as government facilities, museums, churches, and schools). Block 10 is the anchor location of the Cultural Arts District.

The City’s Financial Management Manual outlines criteria for Real Property Acquisition and Disposal based on adopted plans and policies at Section 475. The acquisition of 975 Broad Street is consistent with the City’s long‑ range vision for the downtown area, which is specifically contemplated at Section 475. Because property acquisitions by the City are infrequent, when opportunities do arise, they are considered on a case‑ by‑ case basis and undertaken with a multi‑ departmental team approach as directed by the City Manager.

Item 5g

DISCUSSION
Background – 975 Broad Street
Purchase Considerations
On March 20, 2026, the property at 975 Broad Street was listed for sale. The seller is the Mello Family Trust. The listing agent is Denise Silva Topham with Better Homes and Gardens Real Estate in San Luis Obispo. The property was listed for $1.75 million. The property contains an existing single-family home built in 1961 with the listing indicating three bedrooms and three baths.

Following Council direction received in closed session on April 7, 2026, staff engaged a local real estate agent to learn more about the property, assess value and current market conditions, facilitate due diligence inspections, and negotiate an offer to purchase the property. Following a productive series of offers and counter-offers, the City has reached an agreement with the sellers to purchase the property at a price of $1,387,500. This agreement is expressly contingent on a finding of General Plan Conformity with the Planning Commission (scheduled for May 13th) and final approval by the City Council.

To inform negotiations and to serve as a basis for determining fair value for the property, a total of ten comparable sales were located within downtown and the nearby surrounding area. These sales ranged between $580 per square foot and $1,043 per square foot, with an average of $767 per square foot. The listing for 975 Broad Street indicates that the home is 1,809 square feet; at a purchase price of $1,387,500, the cost is $767 per square foot, falling at exactly the midpoint of the expected range.

Staff reviewed existing general home inspection reports, a termite inspection report, and an existing sewer lateral inspection report. In addition, an additional home inspection report was conducted on behalf of, and addressed to, the City to confirm the findings of the existing reports. Staff also procured a foundation inspection report. In summary, the general inspection reports show that the structure has normal wear and tear for the age, although there are quite a few areas where actions should be taken to repair older equipment, safely secure the home, and prevent modest water damage and drainage issues along the westerly and rear sides of the building. The foundation inspection, life expectancy of the roof, and sewer lateral reports were all favorable. Accordingly, due diligence inspection contingencies were waived after the agreed upon review period following the opening of escrow and in coordination with the sellers.

Staff have also reviewed a current preliminary title report prepared by First American Title Company. Staff’s review of the report indicates that all taxes are current, there are no prior easements or other problematic exceptions to title, no judgments or liens, and no other observable title defects. A prior mortgage will need to be paid in full and the Deed of Trust securing that loan will need to be reconveyed and removed from title, although this is customary during the escrow process.

Item 5g
Planning Considerations
Planning staff in the Community Development Department have prepared a Fact Sheet for the property (Attachment B). Key points include:

1. The site is a 5,000‑ square‑ foot parcel containing a one‑ story, 1,809‑ square‑ foot residence reportedly built in 1961, located at the edge of the Downtown Commercial zone and directly across from the Mission and Mission Plaza along the “dogleg” portion of Broad Street.

2. It is within the Historic Preservation (H) Overlay Zone and adjacent to two listed historic resources—the Manderscheid House (a Mills Act property) and the Carnegie Library/History Center.

3. The parcel is zoned Medium‑ High Density Residential (R‑ 3‑ H), allowing a range of residential, community‑ serving, and hospitality uses, and is identified in the Downtown Concept Specific Plan as a potential community‑ serving site.

4. The site could be developed with residential units in a variety of ways, with the potential to add three 2-bedroom units, four 1-bedroom units (between 600 and 1,000 square feet), or another combination within the allowed density.

5. Any redevelopment or major alteration is subject to the City’s Historic Preservation Ordinance, review for impacts on adjacent historic resources and historic context, and associated findings.

Background – Downtown Concept Plan
While the City does not typically intervene in private real estate transactions, the listing of 975 Broad Street represents a unique and extraordinarily rare opportunity for the City to advance the goals and objectives of the Downtown Concept Plan and the Cultural Arts District. The 975 Broad Street parcel is uniquely situated as the only residential property specifically noted in Block 10 of the Downtown Concept Plan (Figure 3.1 and narrative description page 3.6) as a future community-serving space (defined as government facilities, museums, churches, and schools). More specifically, Block 10 is described as follows:
“A new parking structure on the corner of Palm and Nipomo Streets is envisioned to include office mixed use along Nipomo Street, the Theatre relocated along Monterey Street, and public use of the rooftop. An expansion of the History Center is shown on the City-owned parking lot on Monterey Street, wrapping around the building to the property on Broad Street. If it is not all needed for the History Center, then it may be used for other community-serving use in the Cultural District.” It should also be noted that the area around Block 10 is identified for the treatment of Monterey Street and Broad Street as “Street Type D” (see Figure 4.1 Street Types Diagram, pg. 4.2 and narrative description, pg. 4.8) wherein the modal priorities are 1.

Pedestrians, 2. Bicycles, and 3. Slow Automobiles.

Item 5g
Whether for short-term Mission Plaza special events and activations, long-term conversion of this area to Street Type D features, or consideration of possible future treatment of the “dogleg”, 975 Broad Street represents a key property insofar as it is the only private property with a driveway fronting this block of Broad Street. Over the years, the City has only been able to provide short-term closures of this block for Mission Plaza special events with cooperation from the owner of the 975 Broad Street property.

Next Steps – Interim and Future Uses
If the transaction to acquire 975 Broad Street is successful, it is envisioned that interim, non-public uses of the property and existing structure by the City would be enacted to ensure basic maintenance and an ongoing, visible pattern of use to ensure safety and prevent trespass and vandalism. Staff recommend a future Council-directed process for engaging with community stakeholders and partners to identify a long-term use for the property be undertaken as a work program item during the 2027-29 Financial Plan period.

Annual maintenance costs are expected to be relatively modest, including normal replacement costs, landscape, utilities, and waste collection. It should be noted that the property is located within a Cal Fire designated High Fire Hazard Severity Zone and, therefore, is subject to the City’s Wildland Urban Interface (WUI) Code. The property is not located in a FEMA designated flood zone.

Previous Council Action
The City Council conducted a closed session conference in accordance with the Brown Act to discuss real property price and terms for the subject property on April 7, 2026, and May 5, 2026. At the beginning of the regularly scheduled City Council meetings that immediately followed, the City Attorney reported that the City Council had provided staff with directions to work towards acquisition of the property.

The Downtown Concept Plan was approved by Resolution No. 10829 (2017 Series) on September 5, 2017. The approving Resolution notes the plan’s consistency with other General Plan policies, including the Land Use Element and the Circulation Element, as well as the role that the Downtown Concept Plan in serving as a guide for both public and private investment in the Downtown.

Figure 3.1 from the Downtown Concept Plan, Block 10

Item 5g
Public Engagement
The Downtown Concept Plan was supported by the Council-appointed Creative Vision Team (CVT). The approving Resolution notes that the Downtown Concept Plan reflects public engagement and input stakeholder focus groups, an open house, two project workshops, two neighborhood meetings, an online survey, and 13 CVT meetings. The Downtown Concept Plan also received input from the Planning Commission, Parks and Recreation Commission, and Architectural Review Commission, as well as the Mass Transportation Committee, Bicycle Advisory Committee (currently titled the Active Transportation Committee), and the Cultural Heritage Committee.

Any member of the public may provide written comment or public testimony pertaining to this specific item at the May 19th City Council Meeting.

CONCURRENCE
An inter-disciplinary and inter-departmental team have been assembled to support the recommended action to purchase 975 Broad Street resulting in concurrence from the Community Development Department, Public Works and Utilities Department, and Finance Department.

The City Attorney’s Office has reviewed the purchase and sale agreement and associated transaction documents and provided their concurrence as to the form and content of those documents.

The Planning Commission will review this item for General Plan Conformity in accordance with California Government Code Section 65402 on May 13, 2026. Due to the timing of the escrow established for this transaction, the Planning Commission’s review will occur after the publication of the City Council Agenda on May 12th for the meeting occurring on May 19th. Staff will, therefore, provide a separate Council Memorandum indicating the outcome of the Planning Commission determination.

ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) does not apply to the recommended actions in this report because the actions do not constitute a “Project” under CEQA Guidelines Sec. 15378, as it does not commit the City to a specific project or result in a direct or reasonably foreseeable physical change in the environment. The action can be considered an organizational or administrative activity of government that will not result in direct or indirect physical changes in the environment (CEQA Guidelines § 15378(b)(5)). This project is also exempt pursuant to Section 15301 of the CEQA Guidelines, which applies to the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of existing or former use. Any future development or change in use of the property would be subject to separate environmental review in accordance with CEQA.

Item 5g

FISCAL IMPACT
Budgeted: No Budget Year: 2025-26
Funding Identified: Yes
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $ $ $ $
State
Federal
Fees
Other: FEMA
Reimbursement
Funds from
2023 Storm
Events
$1,900,000 $1,687,500 $212,500
$10,000-
15,000
estimate
Total $1,900,000 $1,687,500 $212,500 $10,000-
15,000
The City has recently received reimbursement funds from the Federal Emergency Management Agency (FEMA) associated with damages sustained to City infrastructure during the January and March 2023 storms in the amount of $1.9 million which is in the City’s Assigned Fund Balance. Additional, future reimbursement is also anticipated.

Because the timing and amount of reimbursement has been uncertain, receipt of funding is no longer assumed in the budget and Council has discretion to direct the use of these funds in accordance with Council policies and procedures.

Of the total $1,687,500 million recommended for appropriation, $1,387,500 would be used for property acquisition. The remaining $300,000 would be used as needed to maintain the property in its current state or for required improvements as an interim, nonpublic use as previously described. Any changes in use would be subject to applicable land use approvals, and any remaining funds would be returned to the City’s Unassigned Fund Balance.

Annual ongoing costs will be determined after initial property maintenance occurs and incorporated into the development of the 2027–29 Financial Plan but are currently estimated at $10,000–15,000 per year including utilities.

ALTERNATIVES
The City Council has several alternatives it may choose. Council may identify another funding source to complete the transaction. Council may identify a specific interim use

Item 5g
and / or process for identification of a long-term use of the property at this time. Council may also elect not to proceed with the final acquisition of the property.

ATTACHMENTS
A - Draft Resolution authorizing the acquisition of 975 Broad Street B - Property Fact Sheet for 975 Broad Street

R ______
RESOLUTION NO. _____ (2026 SERIES)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN

LUIS OBISPO, CALIFORNIA, AUTHORIZING THE ACQUISITION OF REAL PROPERTY LOCATED AT 975 BROAD STREET, SAN LUIS

OBISPO, CALIFORNIA, IDENTIFIED AS ASSESSOR PARCEL NUMBER 002-412-010
WHEREAS, the City of San Luis Obispo has adopted policies and procedures for the acquisition and management of real property for public purposes through its Financial Management Manual, Section 475, Real Property Acquisition and Disposal Policy, adopted by City Council Resolution No. 10175 (2010 Series); and WHEREAS, the City of San Luis Obispo adopted the Downtown Concept Plan by Resolution No. 10829 (2017 Series), which set forth a future vision for the downtown area on a block-by-block basis, identifying commercial, residential, cultural, and public uses, as well as a suite of transportation and circulation goals and policies; and WHEREAS, property located at 975 Broad Street was recently listed for sale, opening an opportunity for the City of San Luis Obispo to purchase the property in furtherance of implementation of the Downtown Concept Plan, specifically communityserving uses within Block 10 and the Cultural Arts District, as identified and described in the Downtown Concept Plan; and
WHEREAS, following Council direction received in closed session on April 7, 2026, a local real estate agent was engaged to learn more about the property, assess value and current market conditions, facilitate due diligence inspections, and negotiate an offer to purchase the property; and
WHEREAS, the City has reached an agreement with the sellers to purchase the property at a price of $1,387,500. This agreement is expressly contingent on an affirmative finding of General Plan Conformity with the City’s Planning Commission in accordance with California Government Code section 65402, which took place on May 13th, and final approval by the City Council; and
WHEREAS, if the transaction to acquire 975 Broad Street is successful, it is envisioned that interim, non-public uses of the property and existing structure by the City would be enacted to ensure basic maintenance and an ongoing, visible pattern of use to ensure safety and prevent trespass and vandalism, followed by a future Council-directed process engage with community stakeholders and partners to identify a long-term use for the property.

NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows:

Resolution No. _____ (2026 Series)
R ______
SECTION 1. Recitals. The recitals set forth above are hereby adopted as findings of the City in approving the real property transaction described herein.

SECTION 2. Environmental Review. The City of San Luis Obispo is the lead agency for the environmental determination necessary under the California Environmental Quality Act and has determined that an action to acquire the real property at 975 Broad Street does not constitute a “Project” under CEQA Guidelines Sec. 15378, as it does not commit the City to a specific project or result in a direct or reasonably foreseeable physical change in the environment. The action can be considered an organizational or administrative activity of government that will not result in direct or indirect physical changes in the environment (CEQA Guidelines § 15378(b)(5)). Once acquired, an interim, non-public use of the property and existing structure by the City of San Luis Obispo would also be exempt pursuant to Section 15301 of the CEQA Guidelines, which applies to “the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of existing or former use.” Interim uses of the property will include operation, repair, and maintenance of the structure and any changes to the structure or use will be negligible.

Because a long-term use has not yet been identified, there is no reasonably foreseeable project that can be evaluated at this time.

SECTION 3. 975 Broad Street – Real Property Acquisition. The City Council hereby approves the contingent purchase and sale agreement and authorizes the purchase of real property located at 975 Broad Street San Luis Obispo, California, identified as Assessor Parcel Number 002-412-101, based on the following findings:
a) The purchase of 975 Broad Street is in furtherance of the City’s Downtown Concept Plan (2017), which, in turn, has been found consistent with various City of San Luis Obispo policy documents including the Land Use and Circulation Elements of the General Plan (2014).
b) The purchase of 975 Broad Street is consistent with the City of San Luis Obispo’s policies and procedures for real property acquisition and disposal found at Section 475 of the Financial Management Manual, which further incorporates City Charter Article IX, Section 906 and City Council Resolution No. 10052 (2009 Series) and Resolution No. 10175 (2010 Series). Specifically, acquisition of property in the Downtown area and identification of both interim and long-term uses are consistent with Section 475 acquisition and management real property.
c) The purchase price of $1,387,500 million for 975 Broad Street is supported by ten comparable sales within the downtown and nearby surrounding area and represents the midpoint of the expected value range for similar properties, and therefore the expenditure to purchase the property at the agreed upon contract price represents a prudent use of City assets.

Upon motion of Council Member ___________, seconded by Council Member ___________, and on the following roll call vote:

Resolution No. _____ (2026 Series)
R ______
AYES:

NOES:

ABSENT:

The foregoing resolution was adopted this _____ day of _______________ 2026. ___________________________
Mayor Erica A. Stewart
ATTEST:
______________________
Teresa Purrington
City Clerk
APPROVED AS TO FORM:
______________________
J. Christine Dietrick
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. ___________________________
Teresa Purrington
City Clerk

975 BROAD STREET FACT SHEET
Prepared by: Community Development Department
Prepared for: City Council
ADDRESS: 975 Broad Street (R-3-H)

SUMMARY

1.1 Site and Setting
The project site is a residential parcel at the edge of the Downtown Commercial (C-D-H) zone, across Broad Street from the Mission and Mission Plaza (see Figure 1, Aerial View). The parcel is approximately 5,000 square feet and contains a one-story 1,809 square foot residence. The adjacent property located north of the site is zoned Medium-High Density Residential Mixed Use (R-3-H-MU), and the two properties located south of the property are zoned Public Facilities (PFH) (see Figure 2, Zoning Map).

The property is located within the Historical Preservation (H) Overlay Zone and is located adjacent to one Mills Act property (Manderscheid House, 963 Broad) on the north property line, and the Landmark Historic Carnegie Library (History Center of San Luis Obispo County, 696 Monterey Figure 1 - Aerial View Figure 2 - Zoning Map

975 Broad St Page 2
Fact Sheet –March 25, 2026
Street) on the south property line.

1.1 Allowed Uses
975 Broad Street is identified in the Downtown Concept Plan as a potential Community Serving use, which includes schools, places of worship, museums, and government facilities, or Hospitality use, which includes hotels and convention/conference centers The allowed uses on the R-3 zoned site are as follows, those in italics could be considered Community Serving/Hospitality uses:

Allowed Minor Use Permit Required Conditional Use Permit Required
Community Garden Religious Assembly Facilities Bed and Breakfast Establishment
Park and Recreation
Facilities
Schools – Primary and
Secondary
Hostel
Homeless Shelter Continuing Care Community Boarding House Single-Unit Dwellings,
Detached
Elderly and Long-Term Care Hospice In-Patient Facility
Figure 3 - Downtown Concept Plan

975 Broad St Page 3
Fact Sheet –March 25, 2026
Allowed Minor Use Permit Required Conditional Use Permit Required
Multi-Unit Residential Residential Care Facilities – 7
or More Residents
Cemetery
Caretakers Quarters Day Care Center Safe Parking
Family Day Care (Small and
Large)
Convenience Store
Mobile Home Park Educational Conference
Housing (Temporary Use)
Residential Care Facilities – 6
or Fewer Residents
Supportive and/or
Transitional Housing, with
On- or Off-Site Services

1.2 Medium-High Density Residential Zone Development Standards The R-3 zone is intended to provide housing opportunities for attached dwellings, with common outdoor areas (Municipal Code Section 17.20.010). The R-3 zone has a maximum residential density of 20 units per net acre, with three density units allowed on the parcel regardless of acreage.

The maximum building height is 35 feet, with a maximum lot coverage of 60% (Municipal Code Section 17.20.020). Based upon the Municipal Code, this site is eligible for up to 3 density units (DU) as currently zoned.

1.3 Density
The site could be developed with residential units in a variety of ways, with the potential to add three 2-bedroom units, four 1-bedroom units (between 600 and 1,000 square feet), or another combination within the allowed density. As specified in Municipal Code Section 17.70.040, density units are calculated based on the net area of a property subject to thresholds established per zone. Density units in the R-3 zone as calculated as follows:

Dwelling Type Density Units
Studio and one-bedroom dwellings under 600 square feet .50 One-bedroom dwellings between 600 and 1,000 square feet .66 Two-bedroom dwelling 1.00

975 Broad St Page 4
Fact Sheet –March 25, 2026

1.4 Historical Background
975 Broad St. is a “Local Register” historic resource and was added to the City’s inventory of historic resources in 1983. Local Register Resources are defined as “an individual local designation that may be applied to a historic resource that has been found significant at the local level under one or more of the criteria described in Section 14.01.060, and that retains sufficient integrity to convey its significance.” Based upon the Sanborn Map from April 1926 (Figure 4), it appears that prior to the existing residence the parcel contained a smaller residential unit. It does not appear that any historical uses of interest were located on the property, although a complete understanding of the property’s historicism is not yet known.

The property is included in the historical overlay zone, which serves to identify and preserve and enhance the setting of historical resources so that surrounding land uses and structures do not detract from the historic or architectural integrity of designated historical resources (Municipal Code Section 14.01.080). For the property to be re-developed or significantly altered the property would have to be evaluated for potential delisting or any new development or alterations would have to be found consistent with the City’s Historic Preservation Ordinance including the Secretary of Interior Standards and Historic Preservation Program Guidelines.

Three-bedroom dwelling 1.50
Dwelling with four or more bedrooms 2.00
Figure 4 - Sanborn Map (April 1926)

Item 5h
Department: Finance
Cost Center: 2001
For Agenda of: 5/19/2026
Placement: Consent
Estimated Time: N/A
FROM: Emily Jackson, Finance Director
SUBJECT: UPDATE TO THE CITY’S INVESTMENT POLICY AND MANAGEMENT PLAN

RECOMMENDATION
Approve a Draft Resolution entitled, “A Resolution of the City Council of the City of San Luis Obispo, California, Adopting the Updated Investment Policy and Management Plan” as recommended by the Investment Oversight Committee (IOC). (Attachment A)

POLICY CONTEXT
The City’s Investment Policy and Management Plan provides that the City “shall invest public funds in such a manner as to comply with state and local laws; ensure prudent money management; provide for daily cash flow requirements; and meet the objectives of the Investment Policy & Management Plan in priority order of Safety, Liquidity, and Return on Investment.”
Government Code Section 53646 provides that the Treasurer or Chief Fiscal Officer and the Investment Oversight Committee (IOC) may review the Investment Policy & Management Plan annually. If changes to the Policy are recommended, the Council may review the Investment Policy & Management Plan at a public meeting when changes in strategies, practices or procedures are proposed by the Investment Oversight Committee.

In the interim, the City Treasurer is responsible for keeping the Investment Policy & Management Plan up to date to reflect changes in legislation, organizational structure, and other policies and administrative procedures approved by the Council.

DISCUSSION
Background
The City’s Investment Policy and Management Plan (Policy) was adopted by the City Council in June 2015 and substantive changes to the Policy were adopted in 2018 and 2020. In 2024, staff made non-substantive changes to the Policy to address language inconsistencies created by the 2018 and 2020 updates. The 2024 updates reflected changes previously approved by the City Council in 2018 and 2020 and as a result, the updates were not formally brought to the City Council for adoption.

Item 5h
The City’s investment portfolio for longer-term investments is managed by the City’s investment advisor PFM Asset Management (PFMAM) and overseen by the City’s Investment Oversight Committee (IOC), which consists of the Mayor, City Manager, Finance Director/Treasurer, Deputy Director of Finance/Controller, Principal Budget Analyst, and a member of the public. The IOC is responsible for:

1. Reviewing the City’s portfolio at least quarterly to determine compliance with the Investment Policy & Management Plan; and

2. Reviewing and making recommendations as appropriate regarding the City’s investment policies and practices at least annually.

Prior Updates to Investment Policy and Management Plan
A summary of prior changes to the Policy is included below:

On February 20, 2018 the Policy was revised to increase flexibility of the City’s investment mechanisms by:
• Requiring that all medium-term notes are rated “A” or equivalent or better by one or more National Recognized Statistical Rating Organizations (NRSROs) rather than two NRSROs;
• Changing the credit rating from “AA” to “A” or “A-1” or equivalent or better for negotiable certificates of deposit;
• Allowing investments in asset backed securities.

The 2018 update also updated IOC membership to replace the Assistant City Manager with the Budget Manager (now Principal Budget Analyst).

On August 18, 2020 the Policy was revised to incorporate an Environmental, Social, Governance (ESG) investing approach which focuses on investing in companies that have a focus on environmental issues, are socially engaged, and govern their business in a sustainable and conscientious manner.

In February 2024, staff updated the Policy to address a discrepancy identified by the City’s independent auditor (Badawi and Associates) during the FY 2022-23 audit. In the course of the FY 2022-23 audit, the independent auditor identified that the City was making investments in asset backed securities, despite the policy they had been provided not allowing for this type of investment. The Deputy Director of Finance immediately contacted PFMAM, the City’s contracted investment manager, to determine why investments were being made in asset backed securities. PFMAM staff reviewed this issue and determined that when the 2020 policy updates were made to incorporate an ESG investing approach, the updates had been made to the 2015 version of the policy, rather than the 2018 policy which enabled investments in asset backed securities, as noted above.

Finance Department staff worked with PFMAM to update the policy consistent with the City Council’s intent, based upon approval of incremental changes to the policy, as outlined above. The inconsistencies in the policy updates were discussed with the IOC at its February 15, 2024 meeting, as part of the annual review of the Policy. As a part of

Item 5h
that discussion, the IOC determined that the Policy did not need to return to Council for formal adoption and directed that the Finance Director send a memorandum to Council to highlight the administrative changes to address the inconsistencies.

Recommended Changes
The Policy requires that the IOC review the Investment Policy and Management Plan at least annually. The IOC reviewed recommended changes to the Policy at its regularly scheduled meeting on Thursday, October 30, 2025, and due to new legislation signed by the Governor in October 2025, the IOC had a second discussion on Thursday, November 20, 2025, to review and approve additional changes to the Policy in order to incorporate requirements related to the newly signed legislation in addition to the changes discussed in the October 2025 meeting. Following is a summary of the recommended changes by section. A redline copy of the Policy is attached as Attachment B – Exhibit A to the Draft Resolution. Additional information can be found in the memos from PFMAM in Attachments C and D.
1- Introduction
Primary Investment Objective: Additions are recommended to clarify existing practices by: Identifying that maturities of investments will be selected based on liquidity requirements to minimize interest rate risk and maximize earnings; and clarifying that the City will not directly invest in securities maturing more than five years from the date of purchase, unless otherwise directed by the City Council, pursuant to Government Code 53601.
2- Investment Authority and Responsibilities
Internal Controls: Additions are recommended to reflect the passage of SB 827, which expands fiscal and financial training requirements.

Investment Management Resources: Additions are recommended to clarify that exceptions to custodial safekeeping (use of qualified third-party financial institutions to securely hold, settle and report on investment securities to ensure asset segregation, reduce risk, and comply with fiduciary duties) must be approved by the City Treasurer (Finance Director) in writing and included in quarterly reporting to the City Council.

Responsibilities of an Investment Advisor: Additions to ensure compliance with Government Code 56301.8 which clarifies that State law limits the City to placing no more than 30% of its funds in certain privately assisted deposit programs through 2031, requires statewide data collection on local agency investments, and obligates the City to submit a report to the Legislature on any surplus fund deposits made under this program by January 1, 2030.
4- Eligible Financial Institution
Certification and Reporting Requirements: Addition of language to clarify that the investment officer (Finance Director) shall submit a monthly report of

Item 5h
investment transactions (if any) to the City Council, in accordance with Government Code 53607.
5- Investment Vehicles
Suitable and Authorized Investment: Additions are recommended due to the passage of Senate Bill 595 and Senate Bill 858 in October 2025, which provided revisions to eligible investments for local agencies. These bills increase permissible commercial paper maturity from 270 days to 397 days. The legislation also provides that agencies with less than $100,000,000 in investment assets are permitted to invest no more than 40% of the portfolio until January 1, 20231. After January 1, 2031, local agencies with less than $100,000,000 in investment assets will be permitted to invest no more than 25% of investment assets in eligible commercial paper.

City Policies: Addition of language to clarify that equity investments (purchase of stocks) are a prohibited investment vehicle.
7- Sustainability and ESG Investing: At its meeting on September 24, 2020, the IOC voted to add private prisons to the list of industries that the City should be excluded from investing in, under its Socially Responsible Investment Policy. Following the IOC’s action, the Policy was not amended to incorporate this change, but PFMAM has been excluding private prisons from the City’s investments, through an addendum to the Policy. At this time, the IOC is recommending that private prisons (corrections) be formally added to the list of excluded industry types also newly listed in the Policy.

In addition to incorporating this previously directed modification into the Policy, the IOC is also recommending that the Sustainability and ESG section of the Policy be modified to include additional industry types that the City is excluded from investing in, including E-Cigarettes, Racetracks and Gambling/Casinos. 9- Evaluation of Investment Performance: Addition of language to confirm that the City intends to hold all investments to maturity to safeguard principal, while recognizing that market fluctuations may occasionally result in measured losses within a diversified portfolio. To responsibly enhance long-term returns within prudent risk limits, the City utilizes active portfolio management, strategic maturity planning, security swaps when beneficial to quality or liquidity, and credit reviews when securities are downgraded.

Technical and Editorial Clean-Up: Numerous technical and editorial clean-ups are recommended throughout the document to correct typos from prior updates, increase consistency, address formatting issues and correct outdated references. All of these changes are non-substantive and have no material impact on the City’s investment strategy.

Previous Council or Advisory Body Action

Item 5h
The City Council approved the Investment Policy and Management Plan on June 23, 2015, and approved updates to the Policy on February 20, 2018, and August 18, 2020, as summarized in this report. The Investment Oversight Committee meets quarterly each year and reviewed and approved the recommended changes at the October 30, 2025, and November 20, 2025, meetings.

Public Engagement
Investment Oversight Committee meetings are open to the public for attendance and/or public comment. No members of the public attended the meetings on October 30, 2025, or November 20, 2025, to provide comment. Public comment on this item can be provided to the City Council through written correspondence prior to the meeting and through public testimony at the meeting.

CONCURRENCE
The City’s Investment Oversight Committee reviewed recommended changes to the Investment Policy and Management Plan at its meetings on October 30, 2025, and November 20, 2025, and concurs with the recommended changes.

ENVIRONMENTAL REVIEW
The recommended actions are not considered a “Project” under California Environmental Quality Act (CEQA) Guidelines Section 15378.

FISCAL IMPACT
Budgeted: N/A Budget Year: 2025-26
Funding Identified: N/A
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $0 $0 $0 $0
State
Federal
Fees
Other:

Total $0 $0 $0 $0
The recommended changes to the Policy will not change the underlying goals of the City’s investment portfolio, nor its potential rate of return. The portfolio will be changed over time when securities mature, requiring new investment vehicles that will align with the adopted strategy and ESG investing goals.

Item 5h

ALTERNATIVES

1. The City Council could direct staff to work with the Investment Oversight Committee to update the industry types that the City is excluded from investing in. If Council would like staff to revisit the industries that the City is excluded from investing in, Council would need to provide direction to staff on the types of industries to consider excluding and staff would work with the Investment Oversight Committee and investment advisors at PFM Asset Management to modify the Policy and bring it back to the City Council for adoption at a later date.

2. The City Council could direct staff to make other updates to the Investment Policy and Management Plan. If Council would like staff to make other updates to the Investment Policy and Management Plan, the Council would need to provide direction to staff on the desired updates and staff would work with the Investment Oversight Committee and investment advisors at PFM Asset Management to modify the Policy and bring it back to the City Council for adoption at a later date.

ATTACHMENTS
A - Draft Resolution adopting updates to the City’s Investment Policy and Management Plan
B - Exhibit A to the Draft Resolution updating the Investment Policy and Management Plan May 2026- Redline
C - PFMAM Memo- October 2025
D - PFMAM Memo- November 2025

R _____
RESOLUTION NO. ____ (2026 SERIES)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS

OBISPO, CALIFORNIA, ADOPTING THE UPDATED INVESTMENT

POLICY AND MANAGEMENT PLAN
WHEREAS, the City of San Luis Obispo (“City”) is committed to the prudent stewardship of public funds and the maintenance of a comprehensive Investment Policy and Management Plan that safeguards assets, ensures liquidity, and provides a reasonable rate of return; and
WHEREAS, California Government Code Sections 53600 et seq. establish the legal framework under which local agencies may invest public funds, and require periodic review an agency’s investment policy; and
WHEREAS, the City’s Investment Policy and Investment Management Plan is reviewed at least annually to ensure compliance with state law, alignment with industry best practices, and consistency with the City’s financial objectives; and WHEREAS, City staff have completed a thorough evaluation of the existing Investment Policy and Investment Management Plan and are recommending updates to reflect current regulatory requirements, update the list of industries that the City is excluded from investing in, and enhance clarity of Policy requirements; and WHEREAS, the City’s Investment Oversight Committee reviewed the proposed updates at its meetings on October 30, 2025, and November 20, 2025, and recommends adoption of the updates by the City Council; and
WHEREAS, the updated Investment Policy and Investment Management Plan support the City’s long-term financial sustainability, promotes transparency, and ensures accountable management of public funds.

NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows:

SECTION 1. The City Council hereby adopts the updated City of San Luis Obispo Investment Policy and Investment Management Plan, as presented by staff and attached hereto as Exhibit A.

SECTION 2. The City Council affirms the City’s commitment to the principles of safety, liquidity, and yield, in that order of priority, in the investment of public funds.

Resolution No. _____ (2026 SERIES) Page 2
R _____
SECTION 3. The City Manager, Finance Director, and Investment Oversight Committee are hereby directed to implement the updated policy and plan, and ensure ongoing compliance with applicable local, state, and federal regulations.

Upon motion of Council Member _____________, seconded by Council Member _____________, and on the following roll call vote:

AYES:

NOES:

ABSENT:

The foregoing resolution was adopted this _____ day of __________ 2026. _____________________
Mayor Erica A. Stewart
ATTEST:
_______________________
Teresa Purrington
City Clerk
APPROVED AS TO FORM:
_______________________
J. Christine Dietrick
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. _______________________
Teresa Purrington
City Clerk

INVESTMENT POLICY
& MANAGEMENT PLAN
February 2024May 2026

INVESTMENT MANAGEMENT PLAN
Table of Contents
I. INTRODUCTION 1
• Policy Statement
• Primary Investment Objective
• Scope of Investment Management Plan
• Use of State Guidelines
• Preparation and Administration of the Plan
• Ethics and Conflict of Interest
II. INVESTMENT AUTHORITY AND RESPONSIBILITIES 5
• Authorized Investment Officers
• Internal Controls
• Investment Management Resources
• Evaluation of Investment Officer Actions
• Responsibilities of an Investment Advisor
III. CAPITAL PRESERVATION AND RISK 9
• Overview
• Portfolio Diversification Practices
IV. ELIGIBLE FINANCIAL INSTITUTION 10
• Portfolio Diversification and Credit-Worthiness Standards • Certification and Reporting Requirements
• Individual Placement of Investments
• Individual Placement of Deposits
V. INVESTMENT VEHICLES 12
• State of California Limitations
• Suitable and Authorized Investments
• Review of Investment Portfolio
• City Policies
• Authorized Investments Summary
VI. INVESTMENT MATURITY 18
VII. SUSTAINABILITY & ESG INVESTING 19
VIII. CASH MANAGEMENT PRACTICES 20
IX. EVALUATION OF INVESTMENT PERFORMANCE 21
X. INVESTMENT REPORTING 22
XI. INVESTMENT POLICY AND MANAGEMENT PLAN REVIEW 24
XII. GLOSSARY 25

1 I. INTRODUCTION

POLICY STATEMENT
The City of San Luis Obispo shall invest public funds in such a manner as to comply with state and local laws; ensure prudent money management; provide for daily cash flow requirements; and meet the objectives of the Investment Policy & Management Plan in priority order of Safety, Liquidity, and Return on Investment.

The purpose of the investment management plan is to establish strategies, practices and procedures to be used in administering the City's portfolio in accordance with the City's Statement of Investment Policy. Included in the Appendix is a copy of the City’s most recently adopted Investment Policy.

PRIMARY INVESTMENT OBJECTIVE
The City's primary investment objective is to achieve a reasonable rate of return on public funds while minimizing the potential for capital losses arising from market changes or issuer default. Although the generation of revenues through interest earnings on investments is an appropriate City goal, the primary consideration in the investment of City funds is capital preservation in the overall portfolio.

As such, the City's yield objective is to achieve a reasonable rate of return on City investments rather than the maximum generation of income, which could expose the City to unacceptable levels of risk.

In determining individual investment placements, the following factors shall be considered in priority order:

1. Safety

2. Liquidity

3. Yield – (Return on Investment)
Safety. Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the City will diversify its investments so that the impact of potential losses from any one type of security or from any one individual issuer will be minimized. The objective is to mitigate credit risk and interest rate risk summarized as follows:

Credit Risk. Credit risk is the risk that a security or a portfolio will lose some or all its value due to a real or perceived change in the ability of the issuer to repay its debt. The City shall mitigate credit risk by adopting the following strategies:

1. Limiting investments to the safest types of securities.

2. Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisors with which the City will do business. If the City has an investment advisor, the investment advisor may use its own list of authorized broker/dealersto conduct transactions on behalf of the City.

3. It is the intent of the City to diversify the investments within the portfolio to avoid incurring unreasonable risks inherent in over-investing in specific instruments, individual financial institutions or maturities. The asset allocation in the portfolio should, however, be flexible

2 depending upon the outlook for the economy, the securities market, and the City’s anticipated cash flow needs.

4. No more than 5% of the total portfolio may be invested in securities of any single issuer, other than the United States Government, its agencies and instrumentalities, approved local agency investment pools, LAIF, money market funds, and the City’s main financial institution.

5. The City may elect to sell a security prior to its maturity and record a capital gain or loss in order to improve the quality, liquidity or yield of the portfolio in response to market conditions or the City’s risk preferences.

6. If securities owned by the City are downgraded by either Moody’s or S&P Global to a level below the quality required by this Investment Management Plan, it shall be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio.
a. If a security is downgraded below the level required by this policy, the City Treasurer will determine whether to sell or hold the security based on its current maturity, the economic outlook for the issuer, and other relevant factors.
b. If a decision is made to retain a downgraded security in the portfolio, it will be monitored and reported monthly to the City Council.

MarketInterest Rate Risk. Interest rate risk is the risk that the portfolio will decline in value (or will not optimize its value) due to changes in the general level of interest rates. The City recognizes that, over time, longer-term portfolios achieve higher returns. On the other hand, longer-term portfolios have higher volatility of return.

The City will mitigate interest rate risk by providing adequate liquidity for short-term cash needs, and by making some longer-term investments only with funds that are not needed for current cash flow purposes. The City further recognizes that certain types of securities, including variable rate securities, securities with principal pay downs prior to maturity, and securities with embedded options, will affect the market risk profile of the portfolio differently in different interest rate environments. The City, therefore, adopts the following strategies to control and mitigate its exposure to interest rate risk:

1. The maximum stated final maturity of individual securities in the portfolio shall be five years, except that up to 10% of the portfolio can be invested in Treasury and GSE securities maturing over 5 years.

2. The City shall maintain a minimum of three months of budgeted operating expenditures in shortterm investments. The level of operating expenses shall be measured once per year and shall be based on the most recently adopted budget.

3. The duration of that part of the portfolio that is not needed for liquidity purposes shall typically be approximately equal to the duration of an index of US Treasury and Federal Agency Securities with maturities which meet the City’s needs for cash flow and level of risk tolerance (the Benchmark Index) plus or minus 10%.

4. Maximum Maturities: Maturities of investments will be selected based on liquidity requirements to minimize interest rate risk and maximize earnings. Current and expected yield curve analysis

3 will be monitored and the portfolio will be invested accordingly.

3.5.The City will not directly invest in securities maturing more than five years from the date of purchase. Per California Government Code Section 53601, the City may invest in maturities beyond five years after the City Council has granted express authority to make that investment either specifically or as part of an investment program approved by the City Council no less than three months prior to the investment. For purposes of compliance with this Policy, an investment’s term or remaining maturity shall be measured from the settlement date to final maturity.

4 Liquidity. The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity).

Alternatively, a portion of the portfolio may be placed in money market mutual funds or local government investment pools which offer same-day liquidity for short-term funds. Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets(dynamic liquidity).

Yield: Return on Investments. The City’s investment portfolio shall be designed with the objective of attaining a market benchmark rate of return throughout budgetary and economic cycles, commensurate with the City’s investment risk constraints and the cash flow characteristics of the portfolio. Return on investment is of least importance compared to the safety and liquidity objectives described above. The core of investments is limited to relatively low risk securities in anticipation of earning a reasonable return relative to the risk being assumed.

SCOPE OF INVESTMENT MANAGEMENT PLAN
Included in the scope of the City's Investment Policy & Management Plan are the following major guidelines and practicesto be used in achieving the City's primary investment objective:

1. Investment authority and responsibilities

2. Capital preservation and risk

3. Eligible financial institutions

4. Allowable investment vehicles

5. Investment maturity

6. Cash management

7. Evaluation of investment performance

8. Investment reporting

9. Investment management plan review

10. Environmental, social, and governance (“ESG”) Socially responsible investment guidelines These guidelines apply to all cash-related assets included within the City’s audited financial statements and held either directly by the City or held and invested by trustees or fiscal agents.

The only exception isfunds invested in the City's deferred compensation plan, which are controlled by federal law, specific provisions of the City's adopted plan and individual employee decisions.

USE OF STATE GUIDELINES
The California Government Code (including sections 16429.1, 16481.2, 53600-53609, 53630- 53634, 53635, 53635.2, 53635.3, 53635.8, 53637-53638 and 53684) regulates public agency investment and investment reporting practices. It is the policy of the City of San Luis Obispo to use the State's provisions for local government investments in developing and implementing the City's investment policies and practices.

5 PREPARATION AND ADMINISTRATION OF THE PLAN
As set forth in the Statement of Investment Policy, the City Treasurer is responsible for developing and monitoring the Investment Policy & Management Plan.

As recommended by Government Code Section and 53646, the Investment Oversight Committee will review the Investment Policy & Management Plan annually. The Council will review the Investment Policy & Management Plan at a public meeting when changes in strategies, practices or procedures are proposed by the Investment Oversight Committee. In the interim, the City Treasurer is responsible for keeping the Investment Policy & Management Plan up to date to reflect changes in legislation, organizational structure, and other policies and administrative procedures approved by the Council.

ETHICS AND CONFLICT OF INTEREST
Investment Officials shall refrain from personal business activity that could conflict with proper execution and management of the policy and the investment management plan, or which could impair their ability to make impartial decisions. Investment Officials must provide a public disclosure document by April 1st of each year or when material interest in financial institutions or personal investment positions require it. Furthermore, Investment Officials must refrain from undertaking personal investment transactions with the same individuals(s) employed by the financial institution with which business is conducted on behalf of the City.

6 II. INVESTMENT AUTHORITY AND RESPONSIBILITIES

AUTHORIZED INVESTMENT OFFICERS
Authority to manage the investment portfolio is granted to the Finance Director/City Treasurer pursuant to Resolution No. 8477. Responsibility for the day-to-day operation of the investment program may be delegated to the Deputy Director of Finance/Controller, who is responsible for carrying -out established written procedures and internal controls for the operation of the investment program consistent with this plan. These procedures should include references to safekeeping, delivery vs payment, investment accounting, repurchase agreements, wire transfer agreements, collateral/depository agreements and banking services contracts.

Transactions Directed by City Staff. No person may engage in an investment transaction except as provided under the terms of this plan and the procedures established by the F i n an ce Finance Director/City Treasurer. Although the Finance Director/City Treasurer may delegate these duties to another official in the Department of Finance, every investment transaction must be reviewed and approved by the Finance Director/City Treasurer. Additionally, the Finance Director/City Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

Transaction Directed by an Investment Advisor. The City may engage the services of an external investment adviser to assist in the management of the City’s investment portfolio in a manner consistent with the City’s objectives. The external investment adviser may be granted discretion to purchase and sell investment securities in accordance with the City’s Investment Policy and this Investment Management Plan. The investment adviser must be registered under the Investment Advisers Act of 1940. The investment advisor shall be required to provide a certification that theyit haves read and understands the applicable sections of the California Government Code relating to municipal investments, this Investment Management Plan and the City’s Investment Policy.

INTERNAL CONTROLS
The Finance Director/City Treasurer is responsible for ensuring compliance with the City's Investment Policy as well as for establishing systems of internal control designed to prevent losses due to fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by City officers and employees. Additionally, the Finance Director/City Treasurer is responsible for the physical security of City investments and shall use custodial safekeeping for negotiable and bearer instruments whenever possible.

Additionally, Section 53238.2 of the Code states:

1. Every local agency official who is in a local agency’s service as of January 1, 2026, and commenced that service prior to January 1, 2026, shall receive the fiscal and financial training required by this article before January 1, 2028, unless that official’s term ends before January 9,2028.

1.2.Every local agency official who commences service with a local agency on or after January 1, 2026, shall receive the fiscal and financial training required by this article no later than six months from the first day of service with the local agency. Thereafter, the local agency official shall receive the training at least once every two years.

7 INVESTMENT MANAGEMENT RESOURCES
The concept of reasonable assurance recognizesthat the:

1. Cost of a control procedure should not exceed the benefitslikely to be derived.

2. Valuation of costs and benefits requires estimates and judgments by management. Accordingly, the Finance Director/City Treasurer shall establish a process for annual independent review by an external auditor to assure compliance with policies and procedures.

8 Internal controls shall address the following points:

1. Separating transaction authority from accounting and record keeping. By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved.

2. Custodial safekeeping. Securities purchased from any bank or dealer including appropriate collateral (as defined by State Law) shall be placed with an independent third party for custodial safekeeping as evidenced by safekeeping receipts in the City of San Luis Obispo’s name. All exceptions to this safekeeping policy must be approved by the City Treasurer in written form and included in quarterly reporting to the City Council. GASB Statement No. 3 establishes numerical categories of risk relating to the custody and safekeeping of deposits and investments held by third part custodians. Under this Investment Policy, the City’s requirements for the safekeeping of deposits and investments fall into Category 1, the safest category. However, it is possible that if the City Treasurer approves an exception to this safekeeping policy, the City’s safekeeping policy would no longer quality as Category 1.

3. Avoiding physical delivery securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities.

4. Delivery versus payment. All trades where applicable will be executed by delivery vs payment (DVP). This ensures that securities are deposited in the eligible financial institution before the release of funds. Securities will be held by a third-party custodian as evidenced by safekeeping receipts.

5. Clearly delegating authority to subordinate staff members. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preservesthe internal controlstructure that is contingent on the various staff positions and their respective responsibilities.

6. Confirming telephone transactions for investments and wire transfers in writing. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written communications and approved by the appropriate person. Written communications may be via fax if on letterhead or e-mail and the safekeeping institution has a list of authorized signatures.

7. Developing wire transfer agreements with the lead bank or third-party custodian. This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers.

EVALUATION OF INVESTMENT OFFICER ACTIONS
The standard of prudence to be applied by the Finance Director of Finance/City Treasurer shall be the "prudent investor" standard, as defined under Government Code Section 53600.3 which states:

When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public

9 funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the Agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law.

10 Investment officers acting in accordance with written procedures and this Investment Policy & Management Plan, and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this plan.

Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio. Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the City.

In accordance with Government Code Section 53607, the Finance Director/City in a n c e D i r e c t o r /C it y Treasurer shall prepare a report of monthly investment transactions for the City Council’s review. In addition, the City Council shall determine each year whether the delegation of investment authority to the Treasurer shall be renewed.

RESPONSIBILITIES OF AN INVESTMENT ADVISOR
When the services of an investment advisor are contracted for by the City, the responsibilities and obligations of the investment advisor shall be identified within the terms of the contract and shall, at a minimum, include the following:

I. Investment Advisor will provide investment research and supervision of the managed assets and conduct a continuous program of investment, evaluation and, when appropriate, sale and reinvestment of the managed assets.

II. Investment Advisor shall continuously monitor investment opportunities and evaluate investments of the managed assets. Investment Advisor shall furnish City with statistical information and reports with respect to investments of the managed assets.

III. Investment Advisor shall place all orders for the purchase, sale, or exchange of portfolio securities for City's account with brokers or dealers recommended by Investment Advisor and/or City, and to that end Investment Advisor is authorized as agent of City to give instructions to the custodian designated by City (the “Custodian”) as to deliveries of securities and payments of cash for the account of City.

III.IV. Section 53601.8 of the Code states that, local agencies are permitted to place no more than 30% of funds as deposits at a commercial bank, savings bank, savings and loan association, or credit union that uses a private sector entity that assists in the placement of deposit, subject to certain conditions until January 1, 2031. Existing law until January 1, 2026, prohibits deposits placed pursuant to the provisions from exceeding 50% of the agency’s funds. Additionally, under amendments to section 53601.8, in effort to identify ways to reduce the costs and improved credit ratings of state and local issues, the California Debt and Investment Advisory Commission is commissioning studies that require collecting, maintaining, and providing information on local agency investments of public funds for local agency investments. The City will be required to

11 submit a prescribed report ot the appropriate policy committees of the legislature on the deposit of surplus funds on or before January 1, 2030, pursuant to existing law by local agencies.

IV.V.

V.VI. In connection with the selection of such brokers and dealers and the placing of such orders, Investment Advisor is directed to seek for City the most favorable execution and price, the determination of which may take into account, subject to any applicable laws, rules and regulations, whether statistical, research and other information or services have been or will be furnished to Investment Advisor by such brokers and dealers.

VI.VII. Investment Advisor shall not take possession of or act as custodian for the cash, securities or other assets of City and shall have no responsibility in connection therewith.

12 VII.VIII. Authorized investments shall include only those investments which are currently authorized by the state investment statutes, and City’s investment policy, and as supplemented by such other written instructions as may from time to time be provided by City to Investment Advisor.

VIII.IX. Investment Advisor shall be entitled to rely upon City's written advice with respect to anticipated drawdowns of managed assets.

IX.X. Investment Advisor will observe the instructions of City with respect to broker/dealers who are approved to execute transactions involving the managed assets and in the absence of such instructions will engage broker/dealers who Investment Advisor reasonably believes to be reputable, qualified and financially sound.

13 III. CAPITAL PRESERVATION AND RISK

OVERVIEW
Some level of risk is inherent in any investment transaction. Losses may be incurred due to issuer default, market price changes or technical cash flow complications such as investments in nonmarketable certificates of deposit. Diversification of the City's portfolio by institution, investment vehicle and maturity term is the primary tool available to the City in minimizing investment risk and capital losses by safeguarding the overall portfolio from any individual loss.

PORTFOLIO DIVERSIFICATION PRACTICES
The following sections summarize the City's major portfolio diversification practices and guidelines in determining:

1. Eligible financial institutions

2. Investment vehicles

3. Investment maturity
Portfolio limitations included in these guidelines are to be based on the portfolio composition and Investment Management Plan policies in effect at the time of placement; the actual composition of the City's investments may vary over time from plan limitations due to overall portfolio changes from when the individual placement was made as well as changes in the City's Investment Management Plan.

Credit criteria listed in these guidelinesrefer to the credit rating at the time the security is purchased. If an investment’s credit rating falls below the minimum rating required at the time of purchase, the Finance Director/City Treasurer will consult with the Investment Advisor and perform a timely review to decide whether to sell or hold the investment.

14 IV. ELIGIBLE FINANCIAL INSTITUTION

PORTFOLIO DIVERSIFICATION AND CREDIT-WORTHINESS STANDARDS The following general criteria relating to portfolio diversification and creditworthiness will be used in selecting depositories and broker/dealers (financial institutions) in the placement of City investments:

1. The financial capacity and creditworthiness of the financial institution shall be considered before the placement of City investments.

2. Current financial statements shall be maintained for each institution in which or through which cash is invested.

3. No more than 5% of the City's portfolio (exclusive of the US Government, its agencies and instrumentalities, approved local agency investment pools and money market funds government agency issues, or LAIF and money market funds, and the City’s main financial institution) shall be placed with any financial institution.

4. No more than 25% of the City's portfolio shall be invested in collateralized certificates of deposit issued by savings and loan institutions.

5. Certificates of deposit placed by the City shall not constitute more than 15% of the total assets of the institution; and the institution must have total assets in excess of $200 million.

CERTIFICATION AND REPORTING REQUIREMENTS
Unless the City has engaged an investment advisor, the City shall establish a list of qualified securities dealers based on a certification submitted by all financial institutions with which the City has an investment relationship. The certification shall state that the institution has reviewed the City's Investment Policy & Management Plan and that it will:

1. Exercise due diligence in monitoring the activities of its officers and employees engaged in transactions with the City.

2. Ensure that all of its officers and employees offering investments to the City are trained in the precautions appropriate to public sector investments.

3. Submit audited financial statements prepared by an independent certified public accountant to the City on an annual basis within 180 days after the end of the institution's fiscal year.

3.4.In accordance with California Government Code 53607, the investment officer shall submit a monthly report of investment transactions, if any, to the legislative body.

INDIVIDUAL PLACEMENT OF INVESTMENTS
A list will be maintained of financial institutions and depositories authorized to provide investment services. In addition, a list will be maintained of approved security broker/dealers selected by creditworthiness (e.g., a minimum capital requirement of $10,000,000 and at least five years of operation). These may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1 (uniform net capital rule).

15 All financial institutions and broker/dealers who desire to become qualified for investment transactions must supply the following as appropriate:

1. Audited financial statements demonstrating compliance with state and federal capital adequacy guidelines

2. Proof of National Association of Securities Dealers (NASD) certification (not applicable to Certificate of Deposit counterparties)

3. Proof of state registration

4. Certification of having read and understood and agreeing to comply with the applicable sections of the California Government Code and the City’s Investment Policy and that all securities recommended shall be suitable for the City of San Luis Obispo.

The investment advisor (or City staff if applicable) will strive to obtain competitive bids from at least three brokers or financial institutions on all purchases and sales of investment instruments whenever possible.

INDIVIDUAL PLACEMENT OF DEPOSITS
Individual placement of collateralized certificates of deposit with eligible financial institutions shall be based on the following practices and procedures:

1. Deposits shall only be placed with financial institutions maintaining offices within the City of San Luis Obispo.

2. Unless collateralized by eligible securities as provided in Sections 53651 and 53652 of the Government Code, the maximum number of Certificates of Deposit to be placed with any single institution is the amount up to the Federal Deposit Insurance Corporation (FDIC) limit.

3. Reasonable efforts will be made to place deposits of less than the FDIC limit with each eligible institution. Any deposits in excess of this amount shall be awarded based on competitive bids.

Documentation relating to rate quotesshall be maintained by Finance forsix months.

4. Within the context of the City's policies regarding competitive bidding and portfolio limitations, deposits shall be distributed as evenly as possible between financial institutions.

16 V. INVESTMENT VEHICLES

STATE OF CALIFORNIA LIMITATIONS
As provided in the applicable sections of the Government Code (53601 + 53601.6), the State of California limits the investment vehicles available to local agencies.

SUITABLE AND AUTHORIZED INVESTMENTS
City funds may be invested to diversify the investments by security type and institutionssubject to the following restrictions:

1. No more than 5% of the total portfolio may be invested in securities of any single issuer, other than the US Government, its agencies and instrumentalities, approved local agency investment pools, LAIF, money market funds, and the City’s main financial institution.

2. The maximum stated final maturity of individual securities in the portfolio shall be five years, except that up to 10% of the portfolio can be invested in Treasury, municipal, and GSE securities maturing over 5 years.

3. The City shall maintain a minimum of three months of budgeted operating expenditures in short term investments. The level of operating expenses shall be measured once per year and shall be based on the most recently adopted budget.

4. The duration of that part of the portfolio that is not needed for liquidity purposes shall typically be approximately equal to the duration of an index of US Treasury and Federal Agency Securities with maturities which meet the Authority’s needs for cash flow and level of risk tolerance (the Benchmark Index) plus or minus 10%.

5. Treasury Obligations: Treasury bills, Treasury notes, Treasury bonds and Treasury STRIPS with maturities not exceeding five years from the date of purchase.

6. Federal Agency or Government Sponsored Enterprise (GSE) Securities: Federal agency or United States government-sponsored enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises with maturities not exceeding five years from the date of purchase. Additionally, the City is authorized to invest in United States government securities that could result in zero-interest accrual if held to maturity, with a repeal date of January 1, 2031, at which time, securities that could result in zero-interest accrual will no longer be permitted.

7. Municipal Securities: include obligations of the City, the State of California, any of the other 49 states, and any local agency within the State of California, provided that the securities are rated in a rating category of “A” or its equivalent or higher by at least one nationally recognized statistical rating organization (NSRO). No more than 30% of the portfolio may be invested in these securities and no more than 5% of the portfolio may be invested in any issuer.

8. Commercial Paper: With “prime” quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical-rating organizations

17 (NRSRO). The entity that issues the commercial paper must meet all of the following conditions in either paragraph a or paragraph b:
a. The entity meetsthe following criteria: (i) is organized and operating in the United States as a general corporation, (ii) has total assets in excess of five hundred million dollars ($500,000,000), and (iii) has debt other than commercial paper, if any, that is rated in a rating category of “A” or its equivalent or higher by a NRSRO.
b. The entity meets the following criteria: (i) is organized within the United States as a special purpose corporation, trust, or limited liability company, (ii) has programwide credit enhancements including, but not limited to, over collateralization, letters of credit, or surety bond, and (iii) has commercial paper that is rated in a rating category of “A-1” or higher, or the equivalent, by a NRSRO. c. Eligible commercial paper will have a maximum maturity of 270 days or less. No more than 40% of the City’s portfolio may be invested in commercial paper. The City may purchase no more than 10% of the outstanding commercial paper of any single issuer. Eligible commercial paper will have a maximum maturity of 397 days or less. California Code 53601 authorized local agencies that have less than $100,000,000 of investments under management to invest no more than 40% of their moneys in eligible commercial paper with a sunset clause of January 1, 2031.

After this date, the limit for local agencies with less than $100,000,000 of investment assets under management to invest no more than 25% in eligible commercial paper.

9. Medium Term Notes: Issued by corporations organized and operating in the U.S. or by depository institutions licensed by the U.S. or any state and operating within the U.S., except financial institutions shall not be considered. At the time of purchase, the notes must mature within five years and must be rated in a rating category of “A” or its equivalent or better by one or more NRSRO. At the time of purchase, no more than 30% of the City’s portfolio may be invested in medium term notes and no more than 5% of the City’s portfolio may be invested in any one issuer.

10. Bankers’ Acceptances: Not exceeding 180 days to maturity. At the time of purchase, no more than 40% of the City’s surplus funds may be invested in bankers’ acceptances and no more than 5% of the City’s surplus funds may be invested in bankers’ acceptances from any one bank.

11. Repurchase Agreements: With a term of the agreement not exceeding one year, collateralized by U.S. Treasury and agency securities listed in items 1 and 2 above. The value of the collateral underlying the agreement shall be 102%. The market value of the collateral shall be marked-tothe-market at least weekly based on the bid price and adjustments made when the value falls below 102%. Collateral shall be held in the City’s custodial bank as safekeeping agent.

Repurchase Agreements shall be entered into only with dealers who have executed a Master Repurchase Agreement with the City and who are recognized as Primary Dealers with the Market Reports Division of the Federal Reserve Bank of New York. There are no limitations on the amount that can be invested in repurchase agreements. No more than 25% of the portfolio can be invested with any one financial institution.

12. Asset-Backed Securities (ABS). A mortgage passthrough security, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certificate,

18 consumer receivable passthrough certificate, or consumer receivable-backed bond. At the time of purchase, asset-backed securities must be issued by an issuer rated in a rating category of “A” or its equivalent or better by an NRSRO unless issued or guaranteed by federal agencies and GSEs. for the issuer’s debt as provided by an NRSRO and rated in a rating category of “AAA” or its equivalent or better by an NRSRO. At the time of purchase, no more than 15% of the City’s portfolio may be invested in asset-backed securities and no more than 2.5% of the City’s portfolio may be invested in any one issuer.

13. Local Agency Investment Fund (LAIF): A local government investment pool established by the State Treasurer of California for the benefit of California local agencies. City funds can be invested in LAIF up to the maximum permitted by State Law.

14. Negotiable Certificates of Deposit: Issued by a nationally or state-chartered bank, a savings association or a federal association (as defined by Section 5102 of the Financial Code), a state or federal credit union, or by a federally or state-licensed branch of a foreign bank. At the time of purchase, the maturity of the certificate may not exceed five years, must be rated in a rating category of “A” or “A-1” or its equivalent or better by one or more NRSRO, no more than 30% of the City’s surplus funds may be invested in certificates of deposit and no more than 5% of the City’s surplus funds may be invested in certificates from any one bank.

15. Collateralized Bank Deposits: Shall be evaluated in terms of Federal Deposit Insurance Corporation (FDIC) coverage. For deposits in excess of the FDIC insured limit, approved collateral at the percentage above market value as specified by California Government Code, Sections 53651 et seq. and Sections 53652 et seq. shall be required. No more than 25% of the portfolio can be placed with any one financial institution. This limit may be exceeded if necessary, to allow the City to meet its short-term operational needs.

16. Money Market Mutual Funds: Shall be registered under the Investment Company Act of 1940.

To be eligible for investment pursuant to this subdivision, these companies will either:
i. attain the highest-ranking letter or numerical rating provided by at least two NRSROs or ii. have retained an investment advisor registered or exempt from registration with the Securities and Exchange Commission with not less than five years of experience managing money market mutual funds and with assets under management in excess of $500,000,000.

At the time of purchase, no more than 20% of the City’s surplus funds may be invested in money market mutual funds and no more than 10% of the City’s surplus funds may be invested in any one fund.

17. Local Government Investment Pools: Shares of beneficial interest issued by a joint powers authority (Local Government Investment Pools) organized pursuant to Government Code Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (o) of California Government Code Section 53601, inclusive. Each share will represent an equal proportional interest in the underlying pool of securities owned by the joint powers’ authority.

The Pool will be rated in a rating category “AAA” or its equivalent by a NRSRO. To be eligible under this section, the shares will maintain a stable net asset value (NAV) and the joint powers authority issuing the shares will have retained an investment adviser that meets all of the following criteria:

19 a. The adviser is registered or exempt from registration with the Securities and Exchange Commission.
b. The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (o) Government Code Section 53601, inclusive.
c. The adviser has assets under management in excess of five hundred million dollars ($500,000,000).

18. Investments in Community Banks: Provided that the requirements of these guidelines and California Code sections 53630-53653 are adhered to, funds may be invested in community banks within the San Luis Obispo County service area under the following criteria:
a. The bank must be based and have its headquarters in San Luis Obispo County, with at least one branch within the City of San Luis Obispo. b. As indicated by Government Code Section 53635.2, the bank must receive an overall rating of not less than “satisfactory” from the appropriate federal supervisory agency for meeting the criteria specified in Section 2906 of Title 12 of the U.S. Code (Community Reinvestment Act of 1977).
c. The bank must provide certification and supporting information that indicates at least 25% in loans is invested within the City of San Luis Obispo. d. To ensure the City obtains a competitive rate for investments in the program, any potential investment or proposal must enjoy a rate of return equal to or greater than the Local Agency Investment Fund (LAIF) average quarterly rate existing at the time of the investment;
e. Participating banks shall make a presentation to the City of San Luis Obispo Investment Oversight Committee about their community involvement at least once per year.
f. Upon the Investment Oversight Committee’s review of community involvement, the existing investment will be evaluated for renewal by City finance staff.

REVIEW OF INVESTMENT PORTFOLIO
The securities held by the City must be in compliance as outlined under “Suitable and Authorized Investments” at the time of purchase. Because some securities may not comply with said section subsequent to the date of purchase, the Finance Director/City Treasurer shall at least annually review the portfolio to identify those securities that doe no longer comply. The Finance Director/City Treasurer shall establish procedures to report to the Investment Oversight Committee any major and/or critical incidences of noncompliance identified through the review of the portfolio.

CITY POLICIES
Debt Funds. Reserve funds from the proceeds of debt issues shall be invested by the Finance

20 Director/City Treasurer in accordance with bond covenants.

Deferred Compensation. These policies do not apply to deferred compensation plans. Individual investment policies are adopted by each deferred compensation plan and approved independently by Council. Furthermore, individual investments are directed solely by the employee.

Prohibited Investment Vehicles and Practices

1. State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited to, mutual funds (other than money market funds as described above in No. 10), equity investments, unregulated and/or unrated investment pools or trusts, collateralized mortgage obligations and futures and options.

2. In accordance with Government Code Section 53601.6, investment in inverse floaters, range notes or mortgage derived interest-only strips is prohibited.

3. Investment in any security that could result in a zero-interest accrual if held to maturity is prohibited.

4. Trading securities for the sole purpose of speculating on the future direction of interest rates is prohibited.

5. Purchasing or selling securities on margin is prohibited.

6. The use of reverse repurchase agreements, securities lending or any other form of borrowing or leverage is prohibited without Council approval.

21 AUTHORIZED INVESTMENTS SUMMARY
Investment Type
Government Code
Maximum Maturity
Maximum % of Portfolio
Quality Requirements
San Luis Obispo
Maximum Maturity Maximum
% of Portfolio Quality
Requirements

1. Treasury Obligations 5 Years
None
None
5 Years a
None
None

2. GSE Securities 5 Years
None
None
5 Years a
None
None

3. Municipal Securitiesb
5 years
None
None
5 years a
30% per type; 5% per issuer “A”
or better

4. Commercial Paper 270 Days
25% per type; none per issuer
A-1/P-1/F-1; Long-term “A”
270 Days
25% per type; 10% per issuer A1/P-1/F-1; Long-term “A”

5. Medium Term Notes 5 Years
30% per type; none per issuer
“A”
5 Years
30% per type; 5% per issuer “A”

6. Bankers’ Acceptances 180 Days
40% per type; 30% per issuer
None
180 Days
40% per type; 5% per issuer None

7. Repurchase Agreement 1 Year
None
None
1 Year
None per type; 5% per
counterparty
Primary Dealers/ Collateralization
requirements

8. Asset Backed Securities 5 Years
20 % per type; none per issuer
“A” for issuer’s debt; “AA” for issue”
5 Years
15% per type; 2.5% per issuer
“A” for issuer’s debt; “AAA” for
issue

9. LAIF N/A
None
None
N/A
Limit per Gov’t Code
None

10. Negotiable CDs 5 Years
30% per type; none per issuer
None
5 Years
30% per type; 5% per issuer “AA”
or “A-1”

11. Collateralized Bank Deposits 5 Years
None
None
5 Years
None per type; 25% per institution
None

12. Money Market Mutual Funds N/A
20% per type; 10% per issuer
Highest rating of at least two
NRSRO
N/A
20% per type; 10% per issuer
Highest rating of at least two
NRSRO

13. Local Government Investment
Pools(LGIPs)
N/A
N/A
Advisor requirements
N/A
N/A
Advisor requirements/“AAA”
a. Up to 10% of the portfolio can be invested in Treasury and GSE securities maturing over 5 years. This includes municipalobligations.
b. Includes State Obligations, City of San Luis Obispo obligations and California Local Agency obligations

22 VI. INVESTMENT MATURITY
In addition to the risks associated with the creditworthiness of the financial institution and the security of the investment vehicle, the maturity period of investments is also a significant consideration in the management of the City's portfolio.

In order to minimize the impact of market risk, it is intended that all investments will be held until maturity. In implementing this policy, the following guidelines will be used:

1. Projected cash flow requirements are the primary factor to be used in determining investment maturity terms.

2. After cash flow needs have been met, investments may be structured in longer-term securities within a disciplined investment program and process that is based on long-term expectations and is not speculative.

3. Investments may be sold before maturity for cash flow purposes or to rebalance the risk profile of the portfolio.

4. Council approval to make investments with terms in excess of five years is required at least three months prior to the initial investment.

23 VII. SUSTAINABILITY & ESG INVESTING
Environmental, social, and governance (“ESG”) investing is the process of incorporating the analysis of non-financial environmental, social, and governance factors into investment decisions alongside more traditional financial criteria. It is the City’s objective to integrate ESG and other sustainability factors into investment decisions for its investment portfolio to the extent practical and possible. In order to achieve this objective, the City will develop and apply ESG additional screening investment criteria to authorized corporate obligations—, including asset-backed securities, bankers’ acceptances, commercial paper, corporate/medium-term notes, bank notes, and negotiable certificates of deposit —for purposes of determining investment eligibility.

The Sustainability & ESG iInvestment cCriteria will be based on the ESG risk ratings, industry and sub-industry definitions, and sub-industry rankingsrules detailed below, which are provided by Morningstar Sustainalytics, Bloomberg, or another Sustainalyticsa reputable ranking rating agency.

The ESG investment criteria may include industry exclusions, ESG risk rating limitations, and eligibility exceptions for issuers that are top performers within their subindustry. Thise cESG criteria will be reviewed annually by City’s Investment Oversight Committee.

Sustainability & ESG Investment Criteria*
Criteria #1: Industry/ Subindustry
Exclusions
based on Bloomberg BB Sector classifications
Industry/subindustry exclusions:
(1) Coal
(2) Oil & Gas
(3) Oil & Gas Services
(4) Pipelines
(5) Aerospace/Defense
(6) Aerospace/Defense-Equip
(7) Electronic-Military
(8) Forest Products & Paper
(9) Tobacco
(10) Private Corrections
(11) Casino Services
(12) Gambling (Non-Hotel)
(13) Internet Gambling
(14) Lottery Services
(15) Racetracks
Criteria #2: ESG Risk Rating Limit
based on data from Morningstar Sustainalytics
An eligible issuer’s ESG Risk Rating must be medium or lower (i.e., < 30 on a scale of 0-100, where lower scores indicate less ESG-related risk)
Criteria #3: ESG Risk Rating Limit
Exception | Top ESG Performers
Within Peer Group
based on data from Morningstar Sustainalytics
If Criteria #1 is satisfied, but #2 is not met, an issuer may still be eligible if its ESG Risk Rating is in the high category (i.e., 30-39.99) and its subindustry ranking is within the top 25th percentile
Acceptable Investments Subject to
the Sustainability & ESG Investment
Criteria
Asset-Backed Securities
Bankers’ Acceptances
Commercial Paper
Corporate, Medium-Term & Bank Notes
Negotiable Bank Deposit Obligations
*The criteria outlined above will be based on issuer/parent corporation-level data as of the most recent prior-month-end date.

The Sustainability & ESG Investment Parameters are in effect at time of purchase of the investment.

24 If a previously purchased investment no longersatisfiesthe City’s Sustainability & ESG iInvestment cCriteria, the City will continue to hold that investment to maturity unless the City directs its investment advisor to sell the investment.

25 VIII. CASH MANAGEMENT PRACTICES
To achieve a reasonable return on public funds, the following cash management practices will be followed:

1. Maintain maximum investment of all City funds not required to meet immediate cash flow needs while maintaining adequate compensating balances as required under the City’s banking services agreement.

2. Pool resources available for investment from all City-administered funds, with interest earnings allocated to each of the funds in accordance with generally accepted accounting principles.

3. Maximize the City’s cash flow through the immediate deposit of all cash receipts, use of direct deposits and wire transfers when available, and appropriate timing of payments to vendors.

4. Maximize the cash flow information available by using only one operating bank account.

26 IX. EVALUATION OF INVESTMENT PERFORMANCE
As indicated in the Introduction section of this document, it is the City’s primary investment objective to achieve a reasonable rate of return on public funds while minimizing risks and preserving capital. In evaluating the performance of the City’s overall portfolio in achieving this objective, it is expected that yields on City investments will regularly meet or exceed the returns of a Treasury Index of similar duration.the average return on three-month U. S. Treasury Bills. It is also expected that the portfolio managed by the investment advisor will meet or exceed the Bank of America Merrill Lynch 0-to-5-year U.S. Treasury Bond Index.

It is the City’s full intent, at the time of purchase, to hold all investments until maturity to ensure the return of all invested principal dollars.

However, it is realized that market prices of securities will vary depending on economic and interest rate conditions at any point in time. It is further recognized that in a well-diversified investment portfolio, occasional measured losses are inevitable due to economic, bond market, or individual security credit analysis. These occasional losses must be considered within the context of the overall investment program objective and the resultant long-term rate of return.

The investment program shall seek to augment returns consistent with the intent of this policy, identified risk limitations and prudent investment principles. These objectives will be achieved by use of the following strategies:

Active Portfolio Management: Through active fund and cash flow management, taking advantage of current economic and interest rate trends, the portfolio yield may be enhanced with limited and measurable increases in risk by extending the weighted maturity of the total portfolio.

Portfolio Maturity Management: When structuring the maturity composition of the portfolio, the City shall evaluate the current cash flow trends, expected interest rate yields, and necessary cash flow requirements. It is recognized that in optimal market condition, longer maturities produce higher yields.

Securities Swaps: The City may take advantage of a security swap opportunity in order to improve the quality, yield, or target duration in the portfolio; address a liquidity need of the portfolio; or to remove a security with a declining credit to minimize loss of principal. A swap may be selected even if the transactions will result in an accounting loss. Documentation for swaps will be included in the City's permanent investment file documents.

Security Downgrade: If securities owned by the City are downgraded to a level below the quality required by this Investment Policy, it shall be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio.

27 X. INVESTMENT REPORTING
Consistent with the guidance provided by California Government Code Section 53646 and the City’s practice of reviewing the Financial Policies each year, the Finance Director/City Treasurer may submit the Investment Policy to the Council for consideration at a public meeting. This statement will generally be reviewed by the Council in conjunction with the Financial Plan review and approval process. In accordance with this Statement of Investment Policy, the City Treasurer is responsible for developing and maintaining thisInvestment Management Plan.

Though optional, pursuant to California Government Code Section 53646 (b)(1), the Finance Director/City Treasurer will provide the Council and Investment Oversight Committee with a quarterly investment report providing the following information for each investment or security:

1. Issuer (financial institution)

2. Type of investment

3. Amount paid for the investment

4. The par amount of the investment, if applicable

5. Certificate or other reference number if applicable

6. Percentage yield on an annualized basis

7. Purchase date

8. Maturity date for each investment and the weighted average maturity of all the investments within the portfolio

9. Current book value

10. Current market value

11. Total cost and market value, including source of this valuation, of the City's portfolio

12. A description of the compliance with the Statement of Investment Policy

13. Information demonstrating that the City's expenditure requirements can be met in the following six months

14. Other information regarding the City's portfolio as appropriate The Investment Report shall include all investments as of the end of the quarter from all funds held in the City's portfolio, including funds held and invested by trustees exclusive of deferred compensation plan funds; and shall be issued within 30 days after the end of the quarterly reporting period.

28 1. Within 60 days from the start of each fiscal year, the City Treasurer shall provide the Investment Oversight Committee (IOC) with the value that represents the City’s minimum liquidity requirement which is equal to 3 months of operating costs based on the most recently adopted annual budget. Any adjustments to this amount which the Treasurer feels are required to meet cash demands from time to time shall be identified by the Treasurer at each meeting of the IOC as these amounts become known.

2. At the regularly scheduled IOC meeting which next follows the end of a fiscal year, the Treasurer shall file a report which identifies how the invested balances were adjusted to accommodate the City’s liquidity requirement and the extent to which investment maturity limits were adjusted to follow the City’s benchmark duration value.

29 XI. INVESTMENT POLICY AND MANAGEMENT PLAN REVIEW
The Finance Director/City Treasurer shall review the City's Investment Policy & Management Plan on an ongoing basis to ensure its continued effectiveness and value in administering the City's portfolio. Additionally, the City shall maintain an Investment Oversight Committee whose membership shall consist of the Mayor, the City Manager, the Finance Director/City Treasurer, the Deputy Director of Finance/Controller, the Principal Budget Analyst, and a member of the public at large. The Investment Oversight Committee is responsible for:

1. Reviewing the City's portfolio at least quarterly to determine compliance with the Investment Policy & Management Plan; and

2. Reviewing and making recommendations as appropriate regarding the City's investment policies and practices at least annually.

It is important to note the distinction between the committee's oversight responsibility in ensuring compliance with the policies and overall framework established in this plan, and the responsibility of the Finance Director/City Treasurer in managing the City's investment portfolio in accordance with this plan.

This distinction between management and oversight is especially important as it applies to the role of the City's independent auditors. The committee's oversight function is consistent with the scope of the auditor's engagement duties, which includes reviewing for compliance with City financial policies and procedures, and for making recommendations for improvements in the City's fiscal operations.

However, in this oversight context, the auditors retain their independence from responsibility for managing any aspects of the City's operations; this responsibility lies solely with the City's elected leadership and staff.

30 XII. GLOSSARY
Asset Backed Security is a security in which its income payments and value is derived from and collateralized of “backed” by a specified pool of underlying assets, such as receivables.

Bankers’ Acceptances (BAs) are short-term credit arrangements to enable businesses to obtain funds to finance commercial transactions. They are time drafts drawn on a bank by an exporter or importer to obtain funds to pay for specific merchandise. By its acceptance, the bank becomes primarily liable for the payment of the draft at maturity. An acceptance is a high-grade negotiable instrument.

Benchmark is a market index used as a comparative basis for measuring the performance of an investment portfolio. A performance benchmark should represent a close correlation to investment guidelines, risk tolerance and duration of the actual portfolio's investments.

Bond is a financial obligation for which the issuer promises to pay the bondholder (the purchaser or owner of the bond) a specified stream of future cash flows, including periodic interest payments and a principal repayment.

Broker-Dealer is a person or a firm who can act as a broker or a dealer depending on the transaction.

A broker brings buyers and sellers together for a commission. They do not take a position. A dealer acts as a principal in all transactions, buying and selling for his own account.

Certificates of Deposit (CDs)
• Negotiable Certificates of Deposit are large-denomination CDs. They are issued at face value and typically pay interest at maturity, if maturing in less than 12 months. CDs that mature beyond this range pay interest semi-annually. Negotiable CDs are issued by U.S. banks (domestic CDs), U.S. branches of foreign banks (Yankee CDs), and thrifts. There is an active secondary market for negotiable domestic and Yankee CDs. However, the negotiable thrift CD secondary market is limited. Yields on CDs exceed those on U.S. treasuries and agencies of similar maturities. This higher yield compensates the investor for accepting the risk of reduced liquidity and the risk that the issuing bank might fail. State law does not require the collateralization of negotiable CDs.
• Non-negotiable Certificates of Deposit are time deposits with financial institutions that earn interest at a specified rate for a specified term. Liquidation of the CD prior to maturity incurs a penalty. There is no secondary market for those instruments, therefore, they are not liquid. They are classified as public deposits and financial institutions are required to collateralize them.

Collateral may be waived for the portion of the deposits that are covered by FDIC insurance.

Collateral refers to securities, evidence of deposits, or other property that a borrower pledges to secure repayment of a loan. It also refers to securities pledged by a bank to secure deposits. In California, repurchase agreements, reverse repurchase agreements, and public deposits must be collateralized.

Commercial Paper is a short-term, unsecured, promissory note issued by a corporation to raise working capital.

31 Corporate Note is a debt instrument issued by a corporation with a maturity of greater than one year and less than ten years.

Delivery Versus Payment (“DVP”) is a settlement procedure in which securities are delivered versus payment of cash, but only after cash has been received. Most security transactions, including those through the Fed Securities Wire system and Depository Trust Company (“DTC”), are done DVP as a protection for both the buyer and seller of securities.

Depository Trust Company (“DTC”) is a firm through which members can use a computer to arrange for securities to be delivered to other members without physical delivery of certificates. A member of the Federal Reserve System and owned mostly by the New York Stock Exchange, the Depository Trust Company uses computerized debit and credit entries. Most corporate securities, commercial paper, CDs, and BAs clear through DTC.

Federal Agency Obligations are issued by U.S. Government Agencies or Government Sponsored Enterprises (“GSE”). Although they were created or sponsored by the U.S. Government, most Agencies and GSEs are not guaranteed by the United States Government. Examples of these securities are notes, bonds, bills and discount notes issued by the Federal National Mortgage Association (“Fannie Mae” or (“FNMA”), the Federal Home Loan Mortgage Corporation (“Freddie Mac” or (“FHLMC”), the Federal Home Loan Bank system (“FHLB”), and Federal Farm Credit Bank (“FFCB”). The Agency market is a very large and liquid market, with billions traded every day.

Investment Advisor is a company that provides professional advice managing portfolios, investment recommendations and/or research in exchange for a management fee.

Issuer means any corporation, governmental unit, or financial institution that borrows money through the sale of securities.

Liquidity refers to the ease and speed with which an asset can be converted into cash without loss of value. In the money market, a security is said to be liquid if the difference between the bid and asked prices is narrow and reasonably sized trades can be done at those quotes.

Local Agency Investment Fund (“LAIF”) is a special fund in the State Treasury that local agencies may use to deposit funds for investment. There is no minimum investment period and the minimum transaction is $5,000, in multiples of $1,000 above that, with a maximum of $50 million for any California public Agency. It offers high liquidity because deposits can be converted to cash in twentyfour hours and no interest is lost. All interest is distributed to those agencies participating on a proportionate share determined by the amounts deposited and the length of time they are deposited.

Interest is paid quarterly via direct deposit to the Agency’s LAIF account. The State keeps an amount for reasonable costs of making the investments, not to exceed one-quarter of one percent of the earnings.

Market Value is the price at which a security is trading and could presumably be purchased or sold.

Maturity is the date upon which the principal or stated value of an investment becomes due and payable.

32 Medium-Term Notes are debt obligations issued by corporations and banks, usually in the form of unsecured promissory notes. These are negotiable instruments that can be bought and sold in a large and active secondary market. For the purposes of California Government Code, the phrase “Medium-Term” refers to a maximum remaining maturity of five years or less. They can be issued with fixed or floating-rate coupons, and with or without early call features, although the vast majority are fixed-rate and non-callable. Corporate notes have greater risk than Treasuries or Agencies because they rely on the ability of the issuer to make payment of principal and interest.

Money Market Fund is a type of safe investment comprising a variety of short-term securities with high quality and high liquidity. The fund provides interest to shareholders and must strive to maintain a stable net asset value (“NAV”) of $1 per share.

NRSRO is a “Nationally Recognized Statistical Rating Organization.” A designated rating organization that the SEC has deemed a strong national presence in the U.S. NRSROs provide credit ratings on corporate and bank debt issues. Only ratings of a NRSRO may be used for the regulatory purposes of rating. Includes Moody’s, S&P Global, Fitch, and Duff & Phelps among others.

Principal describes the original cost of a security. It represents the amount of capital or money that the investor pays for the investment.

Repurchase Agreements are short-term investment transactions. Banks buy temporarily idle funds from a customer by selling him them U.S. Government or other securities with a contractual agreement to repurchase the same securities on a future date at an agreed upon interest rate.

Repurchase Agreements are typically for one to ten days in maturity. The customer receives interest from the bank. The interest rate reflects both the prevailing demand for Federal Funds and the maturity of the Repurchase Agreemento. Repurchase Agreements must be collateralized.

Supranational entities are formed by two or more central governments with the purpose of promoting economic development for the member countries. Supranational institutions finance their activities by issuing debt, such as supranational bonds. Examples of supranational institutions include the European Investment Bank and the World Bank. Similarly, to the U.S. government bonds, the bonds issued by these institutions are considered direct obligations of the issuing nations and have a high credit rating.

U.S. Treasury Issues are direct obligations of the United States Government. They are highly liquid and are considered the safest investment security. U.S. Treasury issues include:

1. Treasury Bills which are non-interest-bearing discount securities issued by the U.S.

Treasury to finance the national debt. Bills are currently issued in one, three, six, and twelvemonth maturities.

2. Treasury Notes that have original maturities of one to 10 years.

3. Treasury Bonds that have original maturities of greater than 10 years.

Yield to Maturity is the rate of income return on an investment, minus any premium above par or plus any discount with the adjustment spread over the period from the date of the purchase to the date of maturity of the bond

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September 5, 2025
Memorandum
To: Emily Jackson, Finance Director
City of San Luis Obispo
From: Monique Spyke, Managing Director
Justin Resuello, Institutional Sales and Relationship Manager PFM Asset Management a division of U.S. Bancorp Asset Management, Inc.

RE: 2025 Investment Policy Review
PFM Asset Management, a division of U.S. Bancorp Asset Management, Inc. has completed its review of the Investment Policy (the “Policy”) for the City of San Luis Obispo (the “City”). This year, we are recommending changes to (1) provide futher clarity on policy and (2) include Sustainability and ESG Criteria within the Policy itself. All changes have been tracked within the shared file.

Specifically, with regard to policy clarity, we recommend removing the contrarian mention of “collateralized mortgage obligations” in the Prohibited Investment Vehicles and Practies section of the Policy. In January 2024, Senate Bill 882 made several changes to Code, including one change to Code Section 53601(o). The bill clarified that mortgage-backed securities issued by federal agencies are exempt from the Code’s requirements described in Section 53601(o) for privately issued assetand mortgage- backed securities. The Code update codifies the common understanding of how agency mortgage-backed securities are treated under Code. We are recommending including the following language:
“For investments that are not issued or guaranteed by federal agencies and GSEs…” Separately, we also recommend updating the name for “S&P” to “S&P Global” to align with formal credit rating agency recognition.

In accordance with the City’s request, we have also integrated the ESG parameters into the main Policy document rather than maintaining a separate Addendum. All pertinent updates can be found in Section VII:

Sustainability & ESG Investing.

Most notably, we changed the title from “ESG” to “Sustainability & ESG” to be more inclusive and align better with current industry terminology. References to Morningstar’s Sustainalytics were expanded to “Morningstar, Bloomberg, or another reputable rating agency.” Additionally, the company-specific exclusions for private prisons were replaced with the exclusion of the specific industry name (“Private Corrections” under Criteria #1); the reason for this change is that this industry-level exclusion was not available for Bloomberg coding when the Addendum was first adopted in 2020, but it can now be included. Lastly, it was clarified that the rules apply only at the time of purchase, which had been implied but not clearly stated before.

Please let me know if you’d like to schedule a call to discuss our recommendations or to answer any questions you may have. Thank you.

1 of 2
November 13, 2025
Memorandum
To: Emily Jackson, Finance Director
City of San Luis Obispo
From: Monique Spyke, Managing Director
Justin Resuello, Institutional Sales and Relationship Manager PFM Asset Management a division of U.S. Bancorp Asset Management, Inc.

RE: 2025 Investment Policy Review
PFM Asset Management, a division of U.S. Bancorp Asset Management, Inc. has completed its review of the Investment Policy (the “Policy”) for the City of San Luis Obispo (the “City”). This year we are recommending changes to provide futher clarity on policy and have attached a marked-up version of the Policy to illustrate our recommendations.

Under section five, “Investment Vehicles”, we suggest addressing the amendments to Senate Bill 595 and Senate Bill 858 provided revisions applicable to eligible investments for local agencies:

The maximum maturity period for prime quality commercial paper increased from 270 days to 397 days.

Agencies with less than $100,000,000 in investment assets are permitted to invest no more than 40% of the portfolio until January 1, 2031. After January 1, 2031, local agencies with less than $100,000,000 in investment assets will be permitted to invest no more than 25% of investment assets in eligible commercial paper.

Additionally, local agencies are authorized to invest in United States government securities that could result in zero-interest accrual if held to maturity, with a repeal date of January 1, 2031, at which time, securities that could result in zero-interest accrual will no longer be permitted.

Addressed in section two, “Inventment Authority and Responsibilities”, Senate Bill 827 expands fiscal and financial training requirements. Section 53238.2 states:
(a) Every local agency official who is in a local agency’s service as of January 1, 2026, and commenced that service prior to January 1, 2026, shall receive the fiscal and financial training required by this article before January 1, 2028, unless that official’s term of office ends before January 9, 2028. (b) Every local agency official who commences service with a local agency on or after January 1, 2026, shall receive the fiscal and financial training required by this article no later than six months from the first day of service with the local agency. Thereafter, the local agency official shall receive the training at least once every two years.

In the “Responsibilities of an Investment Advisor”, we suggest addressing the amendment to section 53601.8 of the Code, which states, local agencies are permitted to place no more than 30% of funds as deposits at a commercial bank, savings bank, savings and loan association, or credit union that uses a private sector entity that assists in the placement of deposit, subject to certain conditions until January 1, 2031. Existing law until

2 of 2
January 1, 2026, prohibits deposits placed pursuant to the provisions from exceeding 50% of the agency’s funds.

Additionally, under amendments to section 53601.8, in effort to identify ways to reduce the costs and improve credit ratings of state and local issues, the California Debt and Investment Advisory Commission is commissioning studies that require collecting, maintaining, and providing information on local agency investments of public funds for local agency investments. The City will be required to submit a prescribed report to the appropriate policy committees of the legislature on the deposit of surplus funds on or before January 1, 2030, pursuant to existing law by local agencies.

Please feel free to contact me at your convenience should you have any questions or if you would like to discuss the review further.

Item 5i
Department: Police
Cost Center: 8001
For Agenda of: 5/19/2026
Placement: Consent
Estimated Time: N/A
FROM: Rick Scott, Police Chief
Prepared By: Melissa Ellsworth, Senior Business Analyst SUBJECT: POLICE DEPARTMENT GRANT APPLICATIONS FOR FY 2026-27

RECOMMENDATION

1. Authorize the Police department to submit grant applications to the following agencies for FY 2026-27:
a. California Office of Traffic Safety in an amount not to exceed $190,000. b. California Department of Alcoholic Beverage Control in an amount not to exceed $93,000.
c. Department of Justice, Office of Justice Programs, Edward Byrne Memorial Justice Assistance Grant in the amount of $17,463.

2. If the grants are awarded, authorize the City Manager and the Chief of Police to execute related grant documents and authorize the Finance Director to make the necessary budget adjustments upon the award of the grant.

POLICY CONTEXT
The recommended actions are consistent with the City of San Luis Obispo’s Financial Management Manual, Section 740 – Grant Management Policy. The policy states that Council must approve all grant applications in excess of $5,000 and delegates receipt and contract execution to the City Manager.

DISCUSSION
The police department utilizes grant funds annually to offset costs associated with focused enforcement activities related to traffic safety, impaired driving, and underage drinking. Grant funds are used to pay for officer overtime and related equipment.

Office of Traffic Safety
The Office of Traffic Safety (OTS) is California’s designated highway safety office that awards grants annually to state and local agencies for enforcement and educational programs designed to improve road safety throughout the state.

Item 5i
The department has been awarded funding from OTS for over twenty years; funding enables the department to conduct numerous operations specifically focused on alcohol or drug impaired drivers. An application for the FY 2026-27 OTS grant was submitted in an amount not to exceed $190,000 ($188,747). If awarded, grant funds will be used for overtime costs associated with the following activities: DUI checkpoints, DUI saturation patrols, traffic enforcement, distracted driving, traffic safety education, and pedestrian and bicycle enforcement. Due to the timing of the grant deadline, the application was submitted prior to Council’s review; however, if Council denies this request, the application can be withdrawn, or the award can be declined.

Alcoholic Beverage Control
The California Department of Alcoholic Beverage Control (ABC) is an agency of the State government charged with regulation of alcoholic beverages. A recurring goal of ABC is to reduce youth’s access to alcohol by combining focused enforcement, training and educational programs.

Grant funds are used for overtime focused on underage drinking, establishments overserving, training, and education. The grant application was submitted on March 30, 2026, in an amount not to exceed $93,000. If awarded, grant funds will be used for enforcement activities related to underage drinking, general alcohol enforcement and awareness. If Council denies staff’s request, the application can be withdrawn, or the award can be declined.

Edward Byrne Memorial Justice Assistance Grant
The Office of Justice Programs, Bureau of Justice Assistance, provide grant funding under the Edward Byrne Memorial Justice Assistance Grant (JAG) program. This grant is a local formula-based opportunity for units of local government to support the purchase of equipment, supplies, training or other programs that support law enforcement.

The department has been allocated funding under this grant formula for many years; this year the allocation is $17,463. The department submitted a grant proposal requesting additional general observation (Pod) cameras to equip the department’s new mobile camera trailer, consistent with the fixed pod cameras in other areas of the city. These cameras are primarily observation cameras which are also license plate reader (LPR) capable but will not be Flock brand cameras due to recent data privacy concerns. The benefits of LPR cameras include the ability to quickly capture data in the event of an investigation, identify stolen vehicles, and assist in locating potential vehicles involved in a missing persons (Amber Alert) case. LPR data is only saved for 30 days before it is deleted and is not shared with outside law enforcement agencies. The grant application was due on April 28th, however, if Council denies this request staff can withdraw the application or request to change the type of purchase.

Public Engagement
This item is on the agenda for May 19, 2026, City Council meeting and will follow all required postings and notifications. The public may have an opportunity to comment on this matter at or before the meeting.

Item 5i

CONCURRENCE
The Director of Finance concurs with staff’s recommendation.

ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) does not apply to the recommended action in this report because the action does not constitute a project under CEQA Guidelines Section 15378.

FISCAL IMPACT
Budgeted: No Budget Year: 2026-27
Funding Identified: No
Fiscal Analysis:

Funding Sources
Total
Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
State of California
Office of Traffic Safety
188,747
State of California
Alcoholic Beverage
Control
93,000
Edward Byrne
Memorial Justice
Assistance
17,463
Total $ $299,210 $ $
Matching funds are not required for these grants. If the grants are awarded, staff will request to appropriate funds as necessary. If funds are not received the department will be delayed, or potentially unable to purchase, the additional LPR cameras.

ALTERNATIVES
Do not submit grant applications or decline funding. Grants provide funding for specialized equipment purchases and overtime costs associated with focused enforcement and education opportunities. Without grant funds the department would be unable to carryout these programs which increase safety in the community.

Item 5j
Department: Administration
Cost Center: 1001
For Agenda of: 5/19/2026
Placement: Consent
Estimated Time: N/A
FROM: Greg Hermann, Deputy City Manager
Prepared By: Natalie Harnett, Policy and Project Manager SUBJECT: LEASE AMENDMENT WITH PTI US TOWERS II, LLC FOR

TELECOMMUNICATIONS FACILITY LEASE AT SANTA ROSA PARK

RECOMMENDATION

1. Approve a Draft Resolution (Attachment A) authorizing the Second Amendment to the Lease Agreement between the City of San Luis Obispo and PTI US TOWERS II, LLC, to extend the lease for telecommunications facilities at Santa Rosa Park for an additional 20-year term.

2. Authorize the Finance Director to implement any necessary budget adjustments to reflect the amended lease terms.

POLICY CONTEXT
The City’s Financial Management Manual (Section 475-C) allows for long-term leases of City property on a case-by-case basis and provides guidance for leases that support significant City goals, plans, or policies and offer measurable community benefits. The policy emphasizes that the overarching principle is to pursue an approach that best achieves the City’s objectives given the circumstances. The original lease for this property was executed in accordance with all City policies and procedures. The recommendation follows Council direction from a Closed Session discussion regarding price and terms for the associated property and lease and is in alignment with the applicable guidance from the City’s Financial Management Manual.

In addition, Council approval of the lease is required by Resolution No. 10052 (2009), which states that “no sale or lease of real property nor any sale of personal property of a value in excess of one thousand dollars ($1,000.00) nor any lease of personal property for a period exceeding three (3) years shall be authorized by the Council except by resolution passed by affirmative vote of three-fifths (3/5) of all members of the Council.”

Item 5j

DISCUSSION
Background
The City of San Luis Obispo currently holds five cellular communication site leases executed between 2003 and 2017. These leases provide locations for wireless service infrastructure, including antennas, towers, and related transmitting equipment. A ground lease is the legal agreement that authorizes a wireless provider or tower company to use City-owned land for these purposes in exchange for rent.

A ground lease at Santa Rosa Park was executed on February 3, 2003 (Attachment A), between the City of San Luis Obispo and Pacific Bell Wireless (d/b/a Cingular Wireless) for space to install two light pole “towers”, among other improvements. In June 2003, there was a First Amendment to the Lease Agreement (Attachment B) which made changes to include additional improvements to the park. T‑ Mobile became the sole owner of Pacific Bell Wireless, LLC in January 2005. In November 2015, PTI entered into an agreement with T‑ Mobile to acquire ownership and management rights to hundreds of T‑ Mobile tower sites in the U.S., including this location. As a result, PTI is now the entity that operates the tower and serves as the tower ground lessee.

The lease covers approximately 1,200 square feet of land which now includes two light standards that support wireless communication equipment and two shared buildings that house cell equipment and storage for the City’s skate program. In lieu of rent payments through 2008, Cingular funded the construction of new light standards, two small buildings, site lighting, and landscaping improvements, all of which are now owned by the City. The site currently hosts three wireless carriers: New Cingular Wireless (AT&T), Verizon, and T‑ Mobile, which use the tower infrastructure to provide service to the surrounding area. AT&T holds a separate direct ground lease with the City expiring in 2031, while Verizon and T‑ Mobile are subtenants of PTI.

The original 2003 lease agreement (Attachment A) included an initial five‑ year term followed by three successive five‑ year renewal periods, for a total potential term of 20 years. PTI has exercised all three of the initial five-year renewal options, and the lease expired in March 2023. PTI has expressed interest in further extending the lease and has continued providing rent payment through 2026. No formal notice of lease termination has been issued, as the City was actively working through the logistics of the lease extension. The City Council met in closed session on November 18, 2025, to discuss the lease and provide direction on price and terms for a potential lease extension.

Although the original lease term expired in 2023, the parties agreed to proceed by amendment rather than a new agreement because the majority of the existing terms remain acceptable and continue to govern the relationship. Staff therefore recommend approval of Attachment D, which amends the existing lease to add four successive fiveyear renewal options along with the following key changes:

Item 5j
Section 3. Term: The amendment adds four (4) additional successive five-year Renewal Terms beyond the current term. Each Renewal Term will automatically extend unless the Lessee provides at least sixty (60) days’ written notice of its intent not to renew. The first additional Renewal Term will commence retroactively on April 1, 2023, following the expiration of the current term on March 30, 2023.

Public Purpose Termination Provision: Under the original agreement, PTI held a unilateral right to terminate the lease for convenience with 60 days’ notice, while the City had no comparable option. This amendment adds a new termination right, providing the City greater flexibility should the Premises be required for public purposes. During any Renewal Term, the City may terminate the lease with two (2) years’ prior written notice. The parties will negotiate in good faith to identify a potential relocation site on City property; however, if a mutually acceptable relocation site cannot be reached, or if the Lessee is unwilling or unable to relocate, the lease will automatically terminate at the end of the two-year notice period. This provision establishes a clear off-ramp for the City and enhances long-term control of the property.

Section 4. Rent: Effective retroactively to April 1, 2026, annual rent will increase to $45,000, escalated annually by Consumer Price Index (CPI) or 3 percent (3%), whichever is greater. Note: Section 22.E.1 includes an “additional annual rent” clause requiring the Lessee to pay the City additional rent for each subtenant. With two current subtenants, the City will receive a total of $90,000 annually.

One-Time Payment: Upon full execution of the Second Amendment, the Lessee will pay the City a one-time payment of $25,000.

Standard Provisions: The amendment includes standard legal provisions affirming that the remainder of the lease remains in effect, California law governs, the City has authority to enter into the agreement, and the Lessee may update and record accurate property descriptions at its expense.

Previous Council or Advisory Body Action
On November 18, 2025, the City Council met in closed session pursuant to Government Code section 54956.8 to provide direction to its real property negotiators regarding the lease of telecommunications facilities at Santa Rosa Park. The proposed Lease Amendment is the result of those negotiations and is now presented for Council consideration in open session.

Public Engagement
Notice of this agenda item was provided through the meeting's posted agenda. The public may submit comments in writing before the meeting or share their input during the public meeting.

Item 5j

CONCURRENCE
The Parks and Recreation department, IT, and Finance were consulted at the onset of lease negotiations and concur with the recommendation. The City Attorney’s Office has supported the lease negotiations and has reviewed and approved the lease as to form.

ENVIRONMENTAL REVIEW
This action is not considered a “project” under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15060(c)(3) because it involves an administrative activity that will not result in a direct or reasonably foreseeable indirect physical change in the environment.

Additionally, the proposed lease amendment is categorically exempt from CEQA under CEQA Guidelines Section 15301 (Class 1 - Existing Facilities), which applies to the operation, permitting, and leasing of existing public or private facilities involving negligible or no expansion of existing use. The amendment would extend the term of an existing telecommunications lease at an established facility at Santa Rosa Park and does not authorize any new construction or expansion of the existing use.

FISCAL IMPACT
Budgeted: Yes Budget Year: 2025-26
Funding Identified: Yes
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund N/A N/A N/A N/A
State
Federal
Fees
Other:

Total N/A N/A N/A N/A
There is no direct fiscal impact associated with this request beyond staff time required for negotiation. Cell tower leases provide a source of passive revenue for the City. The increased rent will be backdated to April 2026 and reflects an approximate 12 percent year over year increase from 2025, resulting in an estimated additional $10,000 in annual revenue from what was originally budgeted. In addition, the City will receive a one-time payment of $25,000.

Item 5j

ALTERNATIVES
Modify terms of the Second Amendment to the lease. Council could choose to change the proposed terms, in which case staff would return to PTI to determine if the revised terms are acceptable.

Do not amend the lease. Under this alternative, Council could direct staff to issue notice to terminate the existing agreement and provide direction on whether to seek a new tower operator. The telecommunications infrastructure is already in place, and discontinuing the lease could disrupt services to the community. While the City could issue an RFP for a new tower operator, the process is uncertain, would require significant staff resources, and may not result in terms more favorable than those currently proposed.

ATTACHMENTS
A – Resolution Approving First Amendment to Lease Agreement B – April 2003 Lease Agreement with Cingular Wireless
C – June 2003 First Amendment to Lease Agreement
D – Second Amendment to Lease Agreement (Exhibit A to Resolution)

R ______
RESOLUTION NO. _____ (2026 SERIES)

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS

OBISPO, CALIFORNIA, APPROVING THE SECOND AMENDMENT

WITH PTI US TOWERS II, LLC FOR TELECOMMUNICATIONS

FACILITIES AT SANTA ROSA PARK
WHEREAS, the City entered into a lease agreement with Pacific Bell Wireless, LLC (d/b/a Cingular Wireless) on April 1, 2003, for an initial five-year term with options to extend for three additional five-year terms; and
WHEREAS, a First Amendment to the agreement was executed in June 2003 to revise the Improvements associated with the site; and
WHEREAS, T‑ Mobile became the sole owner of Pacific Bell Wireless, LLC in 2005 and later transferred ownership and management rights for this tower site to PTI US Towers II, LLC (PTI) through a 2015 agreement, resulting in PTI now serving as the operator of the tower and ground lessee; and
WHEREAS, PTI has exercised all three initial five-year renewal options, and the current lease term expired in March 2023; and
WHEREAS, PTI has expressed interest in further extending the lease, and while the lease has technically expired, PTI has continued providing rent payments through 2026; and
WHEREAS, the City Council met in closed session on November 18, 2025, to discuss options for the Santa Rosa Park telecommunications site and determine negotiating parameters for the lease extension, and staff subsequently negotiated a lease amendment within the parameters established by Council; and WHEREAS, the Financial Management Manual (Section 475-C) authorizes longterm leases of City property on a case-by-case basis when they support City goals, plans, or policies and provide measurable community benefits.

NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows:

SECTION 1. The City Council has determined, based on the circumstances at the time, that approval of Second Lease Amendment is in the best interest of the City and ensures continued reliable telecommunications service to the community.

SECTION 2. The City Council hereby approves the Second Amendment to the Lease Agreement with PTI US Towers II, LLC, substantially in the form attached hereto as Exhibit A, and authorizes the City Manager or designee to execute the amendment and any related documents necessary to effectuate the lease extension.

Resolution No. _____ (2026 Series) Page 2
R ______
SECTION 3. The City Manager or designee is authorized to take all actions necessary to implement this Resolution, including recording the lease amendment and updating financial records to reflect the updated annual rent.

SECTION 4. This Resolution shall take effect immediately upon adoption.

Upon motion of Council Member ___________, seconded by Council Member ___________, and on the following roll call vote:

AYES:

NOES:

ABSENT:

The foregoing resolution was adopted this _____ day of _______________ 2026. ___________________________
Mayor Erica A. Stewart
ATTEST:
______________________
Teresa Purrington
City Clerk
APPROVED AS TO FORM:
______________________
J. Christine Dietrick
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on ______________________. ___________________________
Teresa Purrington
City Clerk

TELECOMMUNICATIONS FACILITY LEASE AT SANTA ROSA PARK
This Lease is made and entered into this // day of ?-~a-k , 2003, by and between the CITY OF SAN LUIS OBISPO, a mW1icipal corporation and charter ct (hereinafter referred to as "Lessor"), and PACIFIC BELL WIRELESS, LLC, a Nevada limited liability company d/b/a CINGULAR WIRELESS (hereinafter referred to as "Lessee").

RECITALS
This Lease is made and entered into with respect to the following facts:

A. Lessor is the owner of the prope11Y described in Exhibit A, located at I 90 Santa Rosa Street, San Luis Obispo, California, commonly known as Santa Rosa Park.

B. Lessee has requested permission to construct a wireless communications facility to be located at Santa Rosa Park and Lessee is willing to construct and dedicate certain public improvements to Lessor. Lessor is willing to lease a portion of Santa Rosa Park to Lessee upon the terms and conditions hereinafter set forth.

C. Lessee warrants that the facility will not interfere with the Department of Parks and Recreation's operations or the public's use of the park.

D . This Lease is conditioned upon Lessee obtaining all governmental permits and approvals enabling Lessee to construct and operate wireless communications facilities on the Premises, as defined below.

E. Lessor and Lessee have heretofore entered into a Memorandum of Understanding dated April 16, 2002 concerning Santa Rosa Park.

NOW THEREFORE, the parties hereto agree as follows:

1. Premises. Lessor is the owner of a parcel of land located in the City of San Luis Obispo, County of San Luis Obispo, State of California, located at 190 Santa Rosa Street, San Luis Obispo, California, 93401, commonly known as Santa Rosa Park. The land is more particularly described in Exhibit A, attached hereto. Lessor hereby agrees to lease to Lessee and Lessee hereby agrees to lease from Lessor approximately one thousand two hundred ( 1,200) square feet of the land and all access and Telecommunicatio11s Facility Lease at Santa Rosa Park Page I of 27

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utility casements described in Exhibit B attached hereto, and by this reference made a part hereof (hereinafter referred to as the "Premises"). This lease is subject to the tenns, covenants and conditions hereinafter set forth and Lessee covenants, as a material part of the consideration for this Lease, to keep and pcrfom1 each and every tem1, covenant and condition of said Lease.

During the term of this Lease, Lessor also grants to Lessee an irrevocable, nonexclusive right of ingress and egress, seven days a week, twenty-four (24) hours a day, and the right to install and maintain underground utility wires and cables and conduits and pipes (I) from the Premises to the nearest public right-of-way, and (2) from the radio equipment to the antennas.

2. Improvements.

A. lessee shall design and perform, construct or erect or cause to be constructed or erected al its sole cost the followi ng improvements as shown on Exhibit "B" (hereinafter "Park Improvements"):

I) Remove a portion of the central parking lot and reconfigure the layout of the remaining parking tot to result in no net loss of parking spaces. 2) Install turf and irrigation systems where the asphalt was removed. 3) Relocate the soil.ball field right field fence from the cast to the west of the newly turfed area.
4) Replace and relocate the right fi eld light pole to the west side of the newly turfed area with two light poles that also serve as cellular antennas. 5) Construct a building for cellular equipment on the north side of the soil.ball field.
6) Construct a building located on the east side of the basketball court for communications equipment and storage for the skate and blading program ("radio/utility building"), including the following for the Lessee's Fire Department: a) fiber and phone service access in two dedicated conduits (2 inch) from Hathway Street to the radio/utility building; b) space and installation for a two floor-to-ceiling "st3Jldard racks" (each one being 19 inches wide by 84 inches tall); c) area Telecom11umicario11s Facility l ease al Santa Rosa Park Page 2 of27

separation, for security purposes only, for the two racks mentioned above (chain link fence with a locking gate is suggested); d) one 20 amp electrical service, backed-up for by emergency generator to the secure area (this may be a shared system); e) climate control for the secured area; I) access to the secure area 24- hours a day, 365 days a year; g) space for 6 antenna on the light pole site, with appropriate conduit runs to the radio/utility building; h) assurance that only FCC licensed radio systems are to be installed in the radio/utility building.
7) Upgrade the lighting on the multi-use court and skate orea. 8) Make other minor improvements as necessary to complete the Park Improvements project.

Lessee shall also erect on the Premises communications facilities, which include, but are not limited to, equipment shelters, radio frequency transmitting and receiving equipment, batteries, utility lines, transmission lines, radio frequency transmitting and receiving antennas, and supporting structures and improvements (hereinafter "Lessee's Facilities") as shown on Exhibit "B". Titc plans for the Park Improvements and Lessee's Facilities (landscaping, irrigation, fencing, building, concrete, and all related improvements) as shown on Exhibit "B" shall have the prior written approval of Lessor in its municipal capacity (not in its capacity as landlord). Lessee shall dedicate the Park Improvements to Lessor upon completion thereof.

B. The Park Improvements shall be performed by Lessee under the authority, direction, supervision and approval of Lessor. Lessee shall submit construction plans to the City's Director of Parks and Recreation for approval prior to submilling the application and plans to the Community Development Department for building permit processing and approval.

C. Lessee acknowledges and understands that the improvement is a public construction project subject lo the competitive bidding requirement contained in California Public Contracts Code Section 20162 and the prevailing wage requirement contained in California Labor Code Section t 771.

Te/ecommunicatio11s Facility lease at Santa Rosa Park Page J o/17

D. Lessee shall provide a Perfonnance Bond to Lessor to guarantee completion of the Park Improvements in the amount of Two Hundred Twenty-seven Thousand Eighty-three Dollars ($227 ,083). Bond shall be provided prior to the issuing of the building pennit.

3. Tenn. The initial tenn of this Lease shall be for five (5) years {"Initial Tenn") commencing with the issuance of a City building pem1it to constn1ct the Lessee's Facilities and Park Improvements, or April I, 2003, whichever is earlier ("Commencement Date"). This Lease shall automatically be renewed on the same tenns and conditions, for three (3) additional tcnns (each a "Renewal Tenn") of five (5) years each, unless Lessee notifies Lessor of its intention not lo renew, at least sixty (60) days prior to the expiration of the Initial Tenn or any Renewal Tenn.

4. Rent. Rent shall be paid annually in advance as follows:

A. Lessee shall pay to Lessor as annual rent on or before the Commencement Date of the Lease the sum of Twenty Thousand Dollars ($20,000.00) ("Annual Rent") and Additional Rent per tenant without deduction, setoff, notice or demand, provided, however, that Lessor shall waive the Annual Rent and any Additional Annual Rent (ns defined in Section 22.E.) in consideration for the Park Improvements conslructed by Lessee at its, and its sublease tenant's sole cost. Lessor's waiver of Lessee's obligation to make Annual Rent and any Additional Annual Rent payments shall commence on the Commencement Date and shall continue until the total cost of the Park Improvements has been credited against such Rent payments.

B. Annually thereafter, Lessee shall pay to Lessor as Annual Rent for that lease year without deduction, setoff, notice, or demand the previous year's Annual Rent multiplied by the CPI Adjuster, or multiplied by three percent (3%), whichever is greater.

C. The CPI Adjuster means a percent, which is calculated by dividing the United States Consumer Price Index (All Urban Consumers) published by the Bureau of Labor Statistics of the U.S. Depanment of l.abor three (3) months prior to the adjustment date by the base Index number published three (3) months prior to the Commencement Date, or previous adjustment date, as applicable.

If the Index is changed so that the base Index number differs from that in effect when the first extended Telecommunlcatlons Facility Lease ar Santa Rosa Park l'age 4 of27

term commenced, the Index shall be converted in accordance with the conversion factor published by the Bureau of Labor Statistics. If the Index is discontinued or revised during an extended tem1, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised.

D. If Lessee fails to pay the Annual Rent within thirty (30) days aficr such rent is due, Lessee shall pay a late fee of one and one half percent ( 1.5%) per month. This late charge docs not establish a grace period. Lessor and Lessee agree that the charge is presumed to be the damages sustained by Lessor for Lessee's late payment of rent and that it is impracticable or difficult to fi x the actual damages.

E. Provided in Exhibit D is a sample schedule of lease payments to the City, assuming the value of improvements set forth in Section 2(A) of Two Hundred Twenty-seven Thousand Eighty-three Dollars ($227,083.) Minimum lease payments increase three percent 3% as set forth in Section 4(D) and are scheduled for the full twenty (20) year teml.

5. Use.

A. Lessee shall use the Premises for the sole purpose of constructing, maintaining, securing and operating wireless communications facilities (including but not limited to cellular, PCS, paging, and broad band) including the construction of equipment buildings and installation of required antennas and related communications equipment upon the new sports lighting poles all as listed, depicted, and described in the "Lessee's Facilities" which is attached hereto as Exhibit "B" and hereby incorporated by reference. Any other use of the Premises or use of equipment not described in Exhibit "B," is not authorized and shall constitute a breach of this Lease.

0. Lessee must obtain all discretionary permits and approvals required by Lessor in its municipal capacity. Installation of a new wireless tclccommunicAtion or modification of an ~i ting installation shall require use permit approval and architectural review. The applicant shall submit application materials and fees as required by the Community Development Department. Wireless communications facilities shall not be constructed, installed or modified prior to obtaining a City building Telecomm1mications Facility I.ease at Santa Rosa Park Page5 o/27

pcnnit. It shall be the responsibility of the owner/operator of a telecommunications facility to provide the City with a notice of intent to modify site equipment in any way. Lessor shall reasonably cooperate (at no expense lo Lessor) with Lessee in connection with Lessee's efforts to obtain all such permits and approvals; provided, however, Lessor shall not be obligated to apply for any pennits or approvals with Lessee. Construction of Lessee's Facilities and the Park Improvements shall be at Lessee's sole expense.

Further, Lessee shall maintain the Lessee's Facilities !Tee from hazards or risk to the public health, safety and welfare.

C. At all times throughout the tcnn of this Lease, Lessee's use of the Premises shall be in confom1ancc with, and subject to all conditions of, any and all discretionary pcnnits in effect.

D. Lessor agrees that Lessee's ability to use the Premises 1s dependent upon Lessee's obtaining all necessary certificates, pcm1ils and/or other approvals which may be required from Lessor in its municipal or regulatory capacity and from any federal, slate or other local authority. Lessor agrees to cooperate with Lessee as to Lessee's obtaining such certificates, pennits or other approvals. In the event Lessee is unable to obtain any necessary certificate, pcm1it or other approval in order to operate or conslrucl lhe Park Improvements or Lessee's Facilities, Lessee may tenninate lhis Lease as provided here in, upon thirty (30) days prior written notice.

6. Interference.

A. Lessee warrants that its construction, repair and opcralion of Lessee's Facilities will not interfere with Lessor's fire, police, public works and other public safety or city department communication broadcasts or frequencies. All operations by Lessee shall be in compliance with all Federal Communications Commission requirements and all applicable Jaws.

B. If Lessor suspects or has reason to believe that Lessee's use of the Premises creates radio or television interference for nearby residents or interference with Lessor's communication systems, and if Lessee (i) docs not proceed diligently to eliminate such interference, or (ii) provide evidence that Lessee and the sublease tenant are not the source of such interference, within ten (10) Telecommunications FaciUty Lease at Santa Rosu Park /'age 6of 27 \

business days after notice from Lessor to do so, Lessor may immediately terminate this Lease by gi,~ng notice to Lessee.

C. Lessee shall provide Lessor with a contact person who shall be available twentyfour (24) hours a day to receive reports of any interference \vith Lessor's frequencies. In the event that there is interference with Lessor's public safoty frequencies, Lessee shall immediately cease the operations creating the interference when directed to do so by the City's Fire Chief and/or Police Chief until such time that the interference can be eliminated to the satisfaction of the City's Fire Chief and/or Police Chief. Lessee's failure to immediately cease such operations shall be considered a material breach of this I.ease notwithstanding Paragraph 6.B. above.

7. Radio Frequency Emission Exposure.

A. No wireless telecommunication facility shall be siled or operated in such a manner that it violates any condition of its Federal Communication Commission's (FCC) permit or license. To that end no facility or combination of facilities shall produce at any time power densities in any inhabited area that exceed the FCC's Maximum Permissible Exposure (MPE) limits for electric and magnetic field strength and power density for transmitters or any more restrictive legally enforceable and applicable standard subsequently adopted or promulgated by the city, county, the state of California, or the federal government. For purposes of radio frequency emissions, compliance with FCC exposure limitations shall constitute a conclusive presumption that there is no hazard or risk to the public health, safety or welfare.

B. Initial compliance with this requirement shall be demonstrated for any facility within three hundred (300) feet of residential uses or sensitive receptors such as schools, churches, hospitals, etc. and all broadcast radio and television facilities, regardless of adjacent land uses, through submission, at the time of application for the necessary permit or entitlement, calculations specifying MPE levels in the inhabited area where the levels produced are projected to be highest. If these calculated levels exceed eighty percent (80%) of the MPE limits, the applicant shall hire n qualified electrical engineer licensed by the State or California to measure exposure le\•els at the location after the Telecommunications Facility lease 111 Santa Rosa Park Page 7of17

facility is in operation. A report of these measurements and the engineer's findings with respect lo compliance with MPE limits shall be submil1cd to the Community Development Director. Lessee's Facilities shall not commence nonnal operations until it complies with, or has been modified to comply with this standard. Proof of compliance shall be a certification provided by the engineer who prepared the original report. In order 10 assure the objectivity of the analysis, the City may require, at the <tpplicant's expense, independent verification of the results of the analysis.

C. Every wireless telecommunication facility within three hundred (300) feet of an inhabited area and all broadcast radio and television facilities shall demonstrate continued compliance with its FCC permit or license and MPE limits. Every five (5) years a report listing each transmitter and antenna present at the facility and the effective radiated power radiated shall be submillcd to the Community Development Director. If either the equipment or effective radiated power has increased, calculations specifying exposure levels in the inhabiled areas where the levels are projected lo be highest shall be prepared. Calculations shall also be prepared every lime the adopted MPE limits change. If calculated levels in either of these cases exceed eighty (80%) of the MPE limits, the operator of the facility shall hire a qualified electrical engineer licensed by the State of California to measure the actual exposure levels produced. A report of these calculations, required measurements, if any, and the engineer's findings with respect to compliance with the current MPE limits shall be submillcd to the Community Development Director within five (5) years of facility npproval and every five (5) years thereafter. In the case of a change in the limits, the required report shall be submitted within ninety (90) days of the date the change becomes effective.

D. Failure to supply the required reports or to remain in continued compliance with any FCC license, permit or MPE limits shall be considered a material breach of this Lease.

8. Visual Mitigation. Lessee will use a variety of visual mitigation strategics for all of its facilities, as determined necessary by the Community Development Director and as required through the Architectural Review process, with the goal of achieving a l 00% stealth installation. Facilities shall be creatively designed to minimize the visual impact to the greatest extent possible by means of placement, Te/ecom111unlcalio11s Facility Leose al Santa Rosa Park Page 80/27

screening, and camouflage. The applicant shall use the smallest and least visible antennas possible to accomplish the coverage objectives. Each installation shall be designed to blend inlo its surroundings so that the antenna(s) and equipment are not apparent to the casual observer. The light poles in which antennas are located shall not exceed fourteen (14) inches in diameter. No more than one carrier s hall install antennas in any given light pole. Ground mounted support equipment shall be undergrounded or otherwise screened from view so as to be effectively unnoticeable. All connections and conduits between the base of the antenna(s) and support equipment shall be undergrounded. Electrical and telephone service to the support equipment shall be undergrounded.

9. . Each facility shall be operated in a manner that minimizes any possible disrnplion caused by noise to people working and living in the vicinity. At no time shall equipment noise from any source exceed an exterior noise level of 55 dB at the property line or within 20 feel of such equipment, whichever is less. This requirement may be modified al the discretion of the Community Development Director where typical ambient noise levels exceed 55 dB. Outdoor noise producing construction activities shall take place only on weekdays between the hours of 8:00 am and 5:00 pm unless a different schedule is approved as part of the use pcm1it. Any fac ility utilizing temporary backup generators shall be required to meet or exceed Air Pollution Control District Standards. All generators shall be fitted with approved air pollution control devices. Projects that propose lo include backup generators shall require review and approval from the Air Pollution Control District. Project plans shall indicate location, size, horsepower and type of fue l used for any proposed generator. Generators shall only be operated during power outages and for testing and maintenance purposes. Testing and maintenance shall only take place on weekdays between the hours of t 0:00 am and noon.

I 0. NondiscrimjnJ!li!m. Subject lo applicable laws, rnles, and regulations, Lessee shall nol discriminate against any person or group on the basis of age, sex, sexual orientation, AIDS, AIDS related condition, marital slatus, race, religion, creed, ancestry, national origin, disability, or handicap.

11. Subsurface Restrictions. The parties agree that this Lease covers only the surface of the Premises and only so much of the subsurface as is reasonably necessary for Lessee's use of the Premises Tcleco1111111111icatio11s Facility I.ease at Santa Rosa Park /'age 9o/27

as permitted in this Lease (including, without limitation, (i) the foundation for Lessee's monopole antenna stnicturc and building, and (ii) cables, conduits and pipes within the Premises to connect Lessee's communications equipment within such building to the antennas to be constrncted and maintained by Lessee within the Premises).

12. Liens. Lessee shall keep the premises free of mechanic's, material supplier's or other liens for any work done, labor perfom1ed or materials furnished therein by or for Lessee, and Lessee shall defend, indemnify and hold Lessor, its officials, employees and agents harmless from and against all claims, liens, demands, causes of action, liability, loss, cost and expense (including reasonable attorney's fees) of whatever kind for any such work done, labor perfonmed or materials furnished.

13. No Utilities. Lessor shall not provide any utilities to the Premises. Lessee shall be permitted to install utility lines, meters for electricity, and shall arrnnge and pay for the installation and use of all utilities of whatsoever kind to the Premises.

14. Mamtenance.

A. Lessee shall, al Lessee's sole cost and to the satisfaction of Lessor, maintain Lessee's Facilities and all related improvements (except the Park Improvements as shown on Exhibit "B") in good condition, free from rodents, weeds, noxious plants and wild growth, in substantial repair, in a safe and sanitary condition, and in compliance with all applicable laws and regulations and shall promptly repair any damage caused by Lessee. If Lessee fails to maintain the Lessee's Facilities as required herein, Lessor may notify Lessee of said failure. If Lessee fails to correct the situation within thirty (30) days aficr notice or such longer period as may be established by Lessor, Lessor may make the necessary correction and lhc cost thereof, including but not limited to lhc cost of administration, and labor, malerials, equipment, shall be paid by Lessee within thirty (30) days aficr receipt of a stalement of said cost from Lessor. If said slatemcnt is not timely paid, Lessor may, at its option, choose any remedy available herein or by law, including the tenmination of this Lease. Lessee hereby waives to the extent pcrm.itted by law any right to make repairs at the expense of Lessor or to vacate the Premises in lieu thereof as may be provided by law.

Tclecom1111111ica1ions Facility I.ease al Santa Rosa Park Page /Oo/17

B. Lessor shall have no duty to maintain or repair Lessee's Facilities or any of Lessee's improvements, including the light poles on the Premises.

15. Taxes. Lessee acknowledges that this Lease may create a possessory interest subject to property taxation and that Lessee may be liable for payment of taxes levied on such interest. Lessee shall promptly pay, prior to delinquency, all taxes, assessments and other governmental fees that may be lawfully levied against the Premises and any improvements or personal property located on the Premises and on any posscssory interest created by this Lease, and provide proof of payment to Lessor on demand.

16. Insurance. Concurrent with the execution of this Lease, Lessee shall procure and maintain, at its cost, during the initial and any extended or Renewal Term of this Lease from an insurer admilled in California or having a minimum rating of or equivalent to A: VTI 111 Best's /11S11ra11 ce Guide:

A. Comprehensive General Liability insurance with a combined single limit of al least Five Million Dollars ($5,000,000) for each occurrence. Lessor, its officials, employees and agents shall be covered as additional insureds with respect to liability arising from activities performed by or on behalf of Lessee. Said insurance shall be primary insurance with respect to Lessor and shall contain a cross liability endorsement.

B. "Alt Risk" property insurance in an amount sufficient to cover the full replacement value of Lessee's personal property, improvements and equipment on the Premises.

C. Upon the execution of this Lease, Lessee shall deliver to Lessor certificates of insurance with original endorsements evidencing the coverage required by this Lease. The certificates and endorsements shall be signed by a person authorized by the insurer to bind coverage on its behalf.

D. Said insurance shall contain an endorsement requiring thirty (30) days prior written notice from insurer to Lessor before cancellation or change of coverage.

E. Said insurance may provide for such deductibles or self-insured retention as may be acceptable to the City's Risk Manager or dcsignee. In the event such insurance docs provide for deductibles or self-insured retention, Lessee agrees that it will fully protect Lessor its officials and employees in the same manner as these interests would have been protected had a policy of commercial Te/ecommunkations Facility Lease at Santa Rosa Park Page JI a/27

insurance been in effect. With respect to damage to property, Lessor and Lessee hereby waive all rights of subrogation, on~ against the other, but only to the extent that collectible commercial insurance is available for said damage.

F. The procuring of insurance shall not be constnied as a limitation on Lessor's liability or as full performance on Lessee's part of the indemnilicalion provision of this Lease. Lessee understands and agrees that, notwithstanding any insurance, Lessee's obligation to defend and indemnify Lessor, its officials and employees hereunder is for the full amount of any damage, loss cost or expense.

G. Any modification or waiver of these insurance requirements shall only be made with the written approval of the Lessor's Risk Manager or designee.

17. Removal oflmprovemcnts. On the expiration or sooner termination of this Lease, Lessee at Lessee's sole cost shall have the right to remove Lessee's Facilities (with the cxccplion of the Park Improvements as shown on Exhibit B, consisting of the equipment buildings and sports lighting poles) erected on the Premises by Lessee by giving notice of its intention to do so lo Lessor and by removing same within forty-five (45) days after expiration or sooner termination of this Lease. Lessor may treat any such buildings or improvements as abandoned if Lessee fails to timely remove them and, in such event, (a) Lessor shall be deemed owner of them without accounting to Lessee, or (b) Lessor may cause their removal at Lessee's cost, with the exception of the underground conduits which may be abandoned in place by Lessee.

18. Relocation. Lessee agrees that nothing contained in this Lease shall create any right in Lessee for any relocation payment or assistance pursuant to the provisions of Title l, Division 7, Chapter 16 of the California Government Code from Lessor on account of the expiration or sooner termination of this Lease.

19. Notice. Any notice required hereunder shall be in writing and personally delivered or deposited in the U.S. Postal Service, registered or certified, return receipt, postage prepaid, to the address of the respective parties set forth below:

Telecomm1111icolio11s Faciliry l ease al Santa Rosa Park Page 12 o/27

LESSOR:

Parks and Recreation Director
City of San Luis Obispo
LESSEE:

Cingular Wireless
Mail code GAN02
1341 Nipomo Street
San Luis Obispo, CA 93401
Attn: Network Real Estate Administration
6100 Atlantic Blvd.

Norcross, GA 30071
With a copy concurrenlly to:

Cingular Wireless
Attn: Legal Department
2521 Michelle Drive, 2oc1 Floor
Tustin, CA 92780
Notice shall be deemed effective on the date shown on the return receipt or on the date personal delivery is made, whichever first occurs. If delivery is refused, the date of deposit of the copy in the mail shall be deemed the date of notice. Change of address shall be given as provided herein for notices.

20. Ha1,;irdous Materials and Waste.

A. Lessee shall comply with all applicable laws regarding the use, storage and disposal of hawrdous materials on the Premises. Lessee shall comply with California Heallh and Safety Code Section 25359.7 or its successor regarding notice to Lessor on discovery by Lessee of the presence or suspected presence of any hazardous substance on the Premises.

D. Lessee shall not bring any hazardous materials onto the Premises except for those contained in its back-up power batteries and common materials used in telecommunications operations, e.g., cleaning solvents. Lessee shall treat all hazardous materials brought onto the Premises by it in accordance with all federal, state and local laws and regulations.

C. Lessee shall specify any proposed generator usage and its proposed location.

D. Lessor represents that the Premises have not been used for the generation, storage, treatment or disposal of hazardous materials, hazardous substances or hazardous wastes. In addition, Lessor represents that no hazardous materials, hazardous substances, or hazardous wastes, pollutants, asbestos, polychlorinatcd biphenyls (PCBs), petroleum or other fuels (including crude oil, or any fraction or derivative thereof), or underground storage tanks arc located on or near the Premises.

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21. Indemnity. Lessee shall defend, protect, indemnify and hold hannlcss Lessor, its officials, employees and agents from all claims, demands, damages, causes of action, losses, liability, costs or expenses, including reasonable altomey's fees, of any kind or nature whatsoever (except those resulting from Lessor's sole negligence or willful misconduct) which Lessor, its officials, employees and agents may incur for injury to or death of persons or damage to or loss of property occurring in, on or about the Premises arising from the condition of the Premises (other than conditions existing prior to Lessee's occupancy of the Premises), the alleged acts or omissions of Lessee, any parent, subsidiary, affiliate or partnership in which any such entity participates, Lessee's officers, employees or agents, the occupancy, use or misuse of the Premises by Lessee, any parent, subsidiary, affi liate or partnership in which any such entity participates, Lessee's officers, employees or agents, or any breach of this Lease.

Lessor shall protect, indenmify and save hannless Lessee, and its officers, agents and employees, from and against all claims, demands and causes of action by Lessor's employees or third parties on account of personal injuries or death or on account of property damages arising out of the use of the Premises by Lessor hereunder and resulling from the sole negligence or willful misconduct of Lessor or its officers, agents and employees.

22. Assignlllent and Subletting. Except for an assignlllent, sublease or transfer lo Lessee's affiliate, parent, subsidiary, member or partner, or as a result of a merger or sale of substantially all of Lessee's asse\s ("Pcm1itted Assignment") Lessee shall no\ assign or transfer this Lease or any interest herein, without the prior wrillen consent of Lessor which shull not be unreasonably withheld, provided, however, that Lessee shall notify Lessor in writing ofa Permitted Assignment within thirty (30) days. To obtain Lessor's consent to a proposed assignment or transfer (hereinafter collectively referred to as "transfer"), Lessee shall meet the following requirements and Lessee's failure to meet any requirement shall allow Lessor to withhold consent:

A. Lessee shall notify Lessor at least sixty (60) days prior to the date when Lessee desires the transfer to take effect ("Transfer Date") which notice shall contain the name, address and Telrcomm1111icatio11s Facility lease at Santa Rosa Park Page 14 of 27