HomeMy WebLinkAboutO-1719 repeal and replace Chapter 17.138 (Inclusionary Housing Requirements) for consistency with the 6th Cycle Housing ElementO 1719
ORDINANCE NO. 1719 (2022 SERIES)
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, APPROVING AN UPDATE TO THE CITY’S
INCLUSIONARY HOUSING ORDINANCE OF THE MUNICIPAL CODE
(CHAPTER 17.138) WITH AN EXEMPTION FROM ENVIRONMENTAL
REVIEW (CEQA)
WHEREAS, on January 5,1999, The City adopted its first Inclusionary Housing
Ordinance contained in Ordinance No. 1346; and
WHEREAS, on June 13, 2007, and update was made to the Inclusionary
Housing Ordinance regarding resident selection process for inclusionary housing
contained in Ordinance No. 1508; and
WHEREAS, a Nexus Study was reviewed by Council on April 21,2020 to
determine the feasibility of increasing the required amount of affordable housing in
housing projects and implementing that into the City’s Inclusionary Housing Ordinance;
and
WHEREAS, the City Council of the City of San Luis Obispo conducted a web-
based public hearing via teleconference on November 17, 2020, for the purpose of final
adoption of the sixth cycle update to the General Plan Housing Element that included
Program 2.13 that states, “Update the Inclusionary Housing Ordinance, including Table
2A, based on findings and recommendations in the 2020 Affordable Housing Nexus
Study and conduct further feasibility analysis in order to evaluate the City’s ability to
provide affordable housing in the proportions shown in the Regional Housing Needs
Allocation, per Policy 2.4”; and
WHEREAS, in April 2021, the City hired Economic & Planning Systems, Inc.
(EPS) to conduct a feasibility analysis based on the findings and recommendations
included in the Nexus Study and current market information and provide preliminary
recommendations for updates to the City’s existing Inclusionary Housing Ordinance; and
WHEREAS, the State of California Office of Housing and Community
Development, on September 3, 2021, certified the City of San Luis Obispo’s 6th Cycle
General Plan Housing Element as in full compliance with State Law; and
WHEREAS, a Study Session was held by City Council on March 1, 2022, to review
the preliminary recommendations of the feasibility analysis; and
WHEREAS, on May 11, 2022, the City published a draft of the proposed
amendments to Municipal Code Chapter 17.138 for public review; and
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WHEREAS, the Planning Commission of the City of San Luis Obispo conducted
a public hearing in the Council Chamber of City Hall, 990 Palm Street, San Luis Obispo,
California on June 8, 2022, for the purpose of recommending amendments to implement
programs of the 6th Cycle Housing Element by updating the Inclusionary Housing
Ordinance; and
WHEREAS, the City Council of the City of San Luis Obispo conducted a public
hearing in the Council Chamber of City Hall, 990 Palm Street, San Luis Obispo,
California on July 19, 2022, for the purpose of introducing an ordinance to repeal and
replace Chapter 17.138 (Inclusionary Housing Requirements); and
WHEREAS, notices of said public hearing were made at the time and in the
manner required by law.
WHEREAS, the City Council has duly considered all evidence, including the
testimony of the applicant, interested parties, and the evaluation and recommendations
by staff, presented at said hearing.
NOW, THEREFORE, BE IT ORDAINED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. Findings. Based upon all the evidence, the City Council makes the
following findings:
1. The proposed amendments to Title 17 of the Municipal Code are consistent
with the 6th Cycle Housing Element Program 2.13 which states, “Update the
Inclusionary Housing Ordinance, including Table 2A, based on findings and
recommendations in the 2020 Affordable Housing Nexus Study and conduct
further feasibility analysis in order to evaluate the City’s ability to provide
affordable housing in the proportions shown in the Regional Housing Needs
Allocation, per Policy 2.4.”
2. The proposed amendments to Title 17 of the Municipal Code are consistent
with the 6th Cycle Housing Element Program 4.6 which states, “Amend the
City’s Inclusionary Housing Ordinance to require that affordable units in a
development be of similar size, number of bedrooms, character and basic
quality as the non-restricted units in locations that avoid segregation of such
units, including equivalent ways to satisfy the requirement. Also evaluate
adjusting the City’s allowable sales prices for deed-restricted affordable units
per a variety of unit types.”
3. The repeal and replacement of Chapter 17.138 of the Municipal Code for
qualifying development projects will not alter the character of the City or cause
health safety or welfare concerns because the amendment is consistent with
the General Plan and directly implements City goals and policies.
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SECTION 2. Environmental Determination. The proposed amendments to the
Municipal Code Title have been assessed in accordance with the authority and criteria
contained in the California Environmental Quality Act (CEQA), the state CEQA
Guidelines, and the environmental regulations of the City. Specifically, the proposed
amendments have been determined to be exempt from further environmental review
pursuant to CEQA Guidelines Section 15061(b)(3), the “Common Sense” exemption,
because the proposed actions will have no possibility of a significant effect on the
environment and will not cause impacts. In this case, the proposed repeal and
replacement of the Inclusionary Housing Ordinance is consistent with State Law and the
City’s 6th Cycle Housing Element and will not have an significant effect and project
specific environmental review will be required.
SECTION 3. Action. The City Council hereby repeals and replaces, in its entirety,
Chapter 17.138, entitled “Inclusionary Housing Requirements”, of the San Luis Obispo
Municipal Code as set forth and incorporated herein (existing tables labeled Table 8-1
through Table 8-5 as referenced in Article 8 of Title 17, shall be relabeled as Table 8-2
through Table 8-6, respectfully).
Chapter 17.138: Inclusionary Housing Requirements
Sections:
17.138.010 – Purpose
17.138.020 – Applicability and Exclusions
17.138.030 – Definitions
17.138.040 – Inclusionary Housing Requirements
17.138.050 – Standards for Inclusionary Units
17.138.060 – In-Lieu Housing Fee
17.138.070 – Inclusionary Housing Proposal
17.138.080 – Procedures
17.138.090 – Eligibility Requirements
17.138.100 – Shared Equity Purchase Program
17.138.110 – Administration, Management, and Monitoring
17.138.120 – Enforcement
17.138.010 – Purpose
The purpose and intent of this Chapter are: 1) to promote the public welfare by increasing
the production and availability of affordable housing units; 2) to establish an inclusionary
housing requirement which implements General Plan policies guiding land use and
housing development; and 3) to ensure that affordable housing units established
pursuant to the provisions of this Chapter are located in a manner that provides for their
integration with market rate units.
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17.138.020 – Applicability and Exclusions
A. This Chapter shall apply to all residential development projects, except the following
types of residential development projects are exempt:
1. Residential additions, repairs, or remodels, provided that such work does not
increase the number of existing dwellings;
2. The addition or inclusion of Accessory Dwelling Units (ADUs) or Junior
Accessory Dwelling Units (JADUs) associated with an existing or proposed
residential or mixed-use development;
3. Affordable housing projects in which 100 percent of the dwellings to be built
will be sold or rented in conformance with the City’s Affordable Housing
Standards (excluding any on-site manager unit);
4. Housing projects that include a density bonus.
5. Emergency projects or projects which the Council determines are necessary
to protect public health and safety;
6. Development projects which the Director determines are essentially
noncommercial or nonresidential in nature, which provide educational, social,
or related services to the community and which are proposed by public
agencies, nonprofit agencies, foundations, and other similar organizations;
7. Projects which replace or restore a structure damaged or destroyed by fire, flood,
earthquake, or other disaster within three years prior to the application for the
new structure(s) (see Chapter 17.92 Nonconforming Structure);
17.138.030 – Definitions
For the purposes of this Chapter, the following words and phrases shall have the
meaning set forth below. For all other definitions, the provisions of Article 9 (Definitions)
of this Title shall apply.
A. “Administrator” means Below Market Rate Program Administrator which may either
be the City itself or a third-party administrator acting as an agent for the City in
connection with all aspects of the operation of the City's Below Market Rate program
pursuant to an Agreement entered into between the City and the Administrator, as
such agreement may be amended or replaced from time to time.
B. “Affordable” means housing which can be purchased or rented by a household with
very low-, low-, or moderate- income, as described in the City’s affordable housing
standards.
C. “Below Market Rate (BMR)” means that the affordability level of an inclusionary unit
is below the cost of what a current market rate unit would be and is affordable to
extremely low-, very low-, low-, or moderate-income households.
D. “Borrower” shall be defined as one who meets the eligibility requirements for
purchasing an inclusionary affordable unit.
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E. “Commercial Linkage Fee” means the fee paid by the applicant of commercial
development projects to mitigate the impacts that such developments have on the
demand for affordable housing in the City (see Municipal Code Chapter 4.60).
F. “Density bonus” means a density increase over the maximum density otherwise
allowable under the Zoning Regulations, Chapter 17.140.
G. “Early resale” shall mean the sale, lease, or transfer of property within seven years
of the initial close of escrow for Equity Share Inclusionary Units.
H. “Equity Share” shall mean the shared equity of appreciation between the City and the
Borrower on inclusionary units when agreements specifically allow for affordable
units to be sold at market-rate after a 7-year period.
I. “Fee Schedule” means fees that for-sale and for-rent units are subject to and are paid
to either the City or the Administrator for associated costs related to but not limited to
eligibility screening, income verification, marketing of affordable units, and the close
of escrow or completion of new lease agreements for affordable units.
J. “Inclusionary housing unit” means a dwelling unit required under the provisions of
this Chapter, and which meets the City’s affordable housing standards.
K. “Low-” or “lower-income households” shall have the meaning set forth in Health and
Safety Code Section 50079.5; provided the income of such persons and families
shall not exceed 80 percent of the median income within the City as published and
periodically updated by the State Department of Housing and Community
Development.
L. “Market rate” shall mean the highest price a willing buyer would pay and a willing
seller would accept, both being fully informed and in an open market, as determined
by an appraiser.
M. “Moderate-income households” shall have the meaning set forth in Health and Safety
Code Section 50079.5; provided the income of such persons and families exceed 80
percent but are less than or equal to 120 percent of the median income within the
City as published and periodically updated by the State Department of Housing and
Community Development.
N. “Commercial development project” shall mean development projects which result in
the construction or conversion of structures for the purpose of conducting business,
including but not limited to retail sales, restaurants, offices, gas stations,
manufacturing, etc.
O. “Residential development project” shall mean development projects which result in
the construction or conversion of structures, including, but not limited to, single-unit
attached or detached homes, apartments, condominiums, live/work units, mixed-
use, mobile homes, transitional housing or supportive housing, and group housing.
P. “Very low-income” shall have the meaning set forth in Health and Safety Code Section
50079.5; provided the income of such persons and families shall not exceed 50
percent of the median income within the City as published and periodically updated
by the State Department of Housing and Community Development.
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17.138.040 – Inclusionary Housing Requirements
A. General Requirements. All non-exempt residential development projects shall
include inclusionary units as required by this chapter. If the calculated number of units
results in a fraction, the number shall be rounded as described in Section
17.138.080(A).
1. Construct the required number of inclusionary units for Residential or Mixed-Use
projects;
2. Pay an in-lieu fee for Residential or Mixed-Use projects; or
3. Pay a commercial linkage fee (see Municipal Code Chapter 4.60) for new Non-
Residential or Non-Residential portions of Mixed-Use project(s).
B. Residential Requirements
1. Ownership Dwelling Units. Ten (10) percent of the dwelling units (see Section
17.138.080.A) shall be made available for sale to eligible households with five
(5) percent for low-income households (fractional units may be rounded down to
the next whole number) and five (5) percent for moderate-income households
(fractional units may be rounded up to the next whole number). See Section
17.138.080.A for more information regarding fractional numbers.
2. Rental Dwelling Units. Six (6) percent of the dwelling units (see Section
17.138.080.A: Fractional Numbers) shall be made available for rent to eligible
households with three (3) percent for very low-income households (fractional
units may be rounded down to the next whole number) and three (3) percent for
low-income households (fractional units may be rounded up to the next whole
number).
3. In-Lieu Housing Fees. An applicant may pay in-lieu fees to the City rather than
construct inclusionary units on site for residential projects (see Section
17.138.060: In-Lieu Housing Fee).
C. Non-Residential Requirements
1. Commercial, Office, Service, Hotel, Retail, Industrial, and Institutional
Uses. An applicant shall pay a commercial linkage fee based on the gross
square footage of the non-residential space in accordance with Municipal Code
Chapter 4.60.
D. Mixed-Use Development Requirements
1. Dwelling Units & Commercial Space. For mixed-use development, the
inclusionary housing requirement is determined in accordance with subsection
B of this Section for all dwelling units in addition to subsection C of this Section
for all new commercial square footage within the development project. For
example, a for-rent mixed-use project includes twenty (20) residential units and
5,000 square feet of commercial space: the inclusionary requirement would be
two (2) affordable units (20 x 6% = 1.2 rounded to 2) and a commercial linkage
fee would be applied to the 5,000 square feet of commercial space.
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17.138.050 – Standards for Inclusionary Units
A. Standards. Inclusionary units must meet the following standards:
1. Inclusionary units shall be dispersed throughout the residential development
projects to prevent a concentration of affordable units within the development
project.
2. Inclusionary units shall be consistent with the design of market rate units in terms
of exterior appearance, materials, and finished quality.
3. The applicant may reduce square footage of inclusionary units as compared to
the market rate units as long as the minimum square footage of the affordable
units are no less than seventy-five percent of the average size of all market rate
units in the residential development project with the same bedroom count. For
the purpose of this subsection, the “average size” of a unit with a certain bedroom
count equals the total square footage of all market rate units with that bedroom
count in the residential development project divided by the total number of
market rate units with the same bedroom count in the residential development
project.
4. For residential development projects with multiple market rate unit types
containing differing numbers of bedrooms, inclusionary units shall be
representative of the market rate unit mix. For example, a for sale, residential
project includes fifty (50) dwelling units; ten (10) three-bedroom units, twenty
(20) two-bedroom units, and twenty (20) one-bedroom units. To represent the
units within the residential project, the five (5) required inclusionary units would
be one (1) three-bedroom, two (2) two-bedrooms and two (2) one-bedrooms.
5. The required inclusionary units shall be constructed concurrently with market
rate units, unless an alternative development schedule is otherwise stipulated
by the applicable Review Authority of the residential development project.
6. Inclusionary units shall be subject to the City’s and/or the Administrator’s Fee
Schedule in accordance with Section 17.138.110.
17.138.060 – In-Lieu Housing Fee
A. Payment of In-Lieu Fee. The developer may, at their discretion, choose to pay a
fee, as established by a resolution of the City Council, to the City in lieu of
constructing affordable units to meet their inclusionary housing requirement.
B. In-Lieu Fee Calculation. In-lieu fees shall be calculated using the new, habitable
square footage, as defined by California Building Code, included within the
residential development project.
C. Affordable Housing Fund. All in-lieu fees collected shall be deposited into the
Affordable Housing Fund. The fund shall be administered by the Finance Director
and shall be used exclusively to provide funding for the provision of affordable
housing and for reasonable costs associated with the development of affordable
housing, at the discretion of the Council.
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D. Timing. In-lieu fees shall be paid prior to building permit issuance. For projects
constructed in phases, in-lieu fees shall be paid in the proportion that the phase
bears to the overall project.
17.138.070 – Inclusionary Housing Plan
A. Application Requirements. An applicant proposing a project for which inclusionary
housing is required shall submit a statement with their planning application or
building permit (whichever applies), describing the project’s inclusionary housing
plan. The statement shall include:
1. A project description that includes details regarding the proposed residential
development project such as, but not limited to total number of dwelling units,
number of bedrooms per dwelling unit, square footage of all units (both
residential and commercial), type of project (rental or ownership), etc.;
2. A description of the inclusionary housing plan for each construction phase,
including the method chosen to meet the inclusionary housing requirement and
including all of the following information including but not limited to:
a. Whether the unit is for sale or rental;
b. The number, location, unit type, tenure, number of bedrooms and baths, floor
plan, construction schedule of all inclusionary units;
c. Preliminary calculation of in-lieu fees or commercial linkage fee as
applicable;
d. Other information which the Director determines necessary to adequately
evaluate the proposal.
17.138.080 – Procedures
A. Fractional Numbers. In determining the number of dwellings that are required to be
built pursuant to Section 17.138.040.B, if the number of required inclusionary
dwellings results in a fractional unit, an applicant may pay the in-lieu fee for the
fractional unit or provide an additional affordable unit in the project (based on the unit
affordability for the type of project). The In-lieu fee for fractional units shall be
calculated as described in Table 8-1 (Fractional Inclusionary Requirement
Scenarios):
Table 8-1: Fractional Inclusionary Requirement Scenarios
Example
Project:
25 Units (i.e.
1,000 sq. ft. per
unit)
Inclusionary
Housing
Requirement
Option 1 Option 2 Option 3
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For-Sale (10%)1 2.5 units1 2 Moderate
1 Low
Pay in-lieu
fee3
1 Moderate
1 Low
Pay fractional
in-lieu fee4
For-Rent (6%)2 1.5 units2 1 Low
1 Very-low
Pay in-lieu
fee3
1 Low
Pay fractional
in-lieu fee4
Notes
1. Five percent for low-income households (rounded down to the next whole number) and
five percent for moderate-income households (rounded up).
2. Three percent for very low-income households (rounded down) and three percent for
low-income households (rounded up).
3. In-lieu fee is calculated by the habitable area of the project multiplied by the in-lieu fee
as established by the City’s Comprehensive Fee Schedule.
4. Fractional in-lieu fee amount is calculated by the remaining factional inclusionary
requirement (i.e. 0.5) multiplied by the in-lieu fee cost per square foot, and then
multiplied by the habitable area of the project (excluding the area of any inclusionary
units that are provided in the project).
[For-Sale Example: (0.5 x In-lieu fee) x 23,000 sq. ft. = Fractional In-lieu fee amount]
B. Affordable Housing Agreement. The applicant shall complete and sign an
Affordable Housing Agreement.
1. Submittal of an Affordable Housing Agreement. Applicants of residential
development projects subject to this Chapter shall submit an affordable housing
agreement on forms provided by the City and pay a processing and recordation
fee.
2. Timing. All building permits for inclusionary units in a residential development
project shall be issued concurrently with, or prior to, issuance of building permits
for the market rate units.
3. Construction Schedule. The inclusionary units shall be constructed
concurrently with, or prior to, construction of the market rate units, unless
otherwise stipulated by the applicable Review Authority of the residential
development project. Occupancy permits and final inspections for inclusionary
units in a residential development shall be approved concurrently with, or prior
to, approval of occupancy permits and final inspections for the market rate units.
4. Review and Approval. The draft agreement shall be reviewed by the Director
and City Attorney for compliance with project approvals, City policies and
standards, and applicable codes. Following approval and signing of the
agreement by the parties, the final agreement shall be recorded, and relevant
terms and conditions shall be recorded as a deed restriction on those lots or
affordable units subject to affordability requirements. The affordable housing
agreement shall be binding to all future owners and successors in interest.
5. Term. The affordable housing agreement shall ensure that affordability is
maintained for the longest period allowed or required by State law, but not less
than 45 years for ownership and 55 years for rental.
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6. Exemption for In-Lieu Fee Payment. An affordable housing agreement shall
not be required for projects which meet their inclusionary housing requirement
through the payment of in-lieu fees.
17.138.090 – Eligibility Requirements
A. Program Requirement. Only households qualifying as extremely low-, very low-, low,
or moderate income, pursuant to the affordable housing standards, shall be eligible
to rent, purchase, or occupy inclusionary units developed or funded in compliance
with this requirement. For-sale inclusionary housing units shall be owner-occupied
for the term of the affordable housing agreement.
B. Eligibility Screening. The City or an Administrator designated by the City shall
screen prospective renters or buyers of affordable units. Buyers of affordable units
shall enter into an agreement with the City. Occupants must be selected by means
of an open, public process which ensures that individuals of a group of interested
participants are selected in accordance with the City’s BMR Ownership and Rental
Housing Guidelines. Private selection of individuals by project owners is not
permitted for any affordable units.
17.138.100 – Shared Equity Purchase Program
When a residential development project includes affordable housing units for sale in
excess of the inclusionary housing requirement for the project, the additional units may
be offered under the Shared Equity Purchase Program.
A. Under this program, the qualified buyer of a designated affordable dwelling unit
shall enter into a shared equity agreement with the City. Said agreement shall be
recorded as a lien against the purchased property, at no interest, securing and
stating the City’s equity share in the property. The City’s equity share shall be
calculated by the Director, and shall be the decimal percentage of the property’s
value resulting from:
1. The difference between the property’s market value and the actual price paid by
the homeowner, divided by the market value; and/or, when applicable
2. The amount of subsidy provided by the City to the homeowner to purchase
the property, divided by the
property’s market value.
B. Upon sale, the City’s equity share shall be repaid to the City from the proceeds
of the sale, less the City’s percentage share of title insurance, escrow fees, and
documentary transfer taxes, at the close of escrow. The proceeds from the sale
shall be deposited into the City’s Affordable Housing Fund and shall be used for
the purposes set forth in Health and Safety Code § 33334.2(e).
C. In the event of “early resale,” owners of properties subject to the Shared Equity
Purchase Program shall either: (1) pay an equity recapture fee to the City as
described in the schedule below, in addition to the City’s equity share, or (2) sell the
property to another eligible household.
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If the owner chooses to pay the equity recapture fee, the recapture fee shall be paid
to the City upon resale at close of escrow, based on the following schedule:
Table 8-1: Percent of Equity Build-up Recaptured
Year % of Equity Build-up Recaptured
0 – 3 100%
4 75% + City’s Equity Share
5 50% + City’s Equity Share
6 25% + City’s Equity Share
7 and after 0% + City’s Equity Share
The recapture amount shall be determined prior to the calculation of escrow closing
costs.
17.138.110 – Administration, Management, and Monitoring
Inclusionary rental and owner units shall be managed and operated by the property
owner, or the owner’s agent, for the term of the affordable housing agreement. Sufficient
documentation shall be submitted to ensure compliance with this Chapter, to the
satisfaction of the Director.
A. Duties of Program Administrator. The City may either handle in-house or contract
for administration of the BMR Ownership Housing Program and monitoring
compliance with the requirements of this Chapter to a program Administrator
pursuant to an agreement executed between the City and the Administrator in
accordance with the approved fee schedule. At a minimum, the Administrator shall
perform the following services:
1. Maintain and administer the City’s BMR Ownership and Rental Housing
Guidelines and Affordable Housing Standards.
2. Screen and select qualified buyers and renters according to the City’s
Ownership and Rental Housing Guidelines and Affordable Housing Standards
and maintain qualified owner and renter eligibility list;
3. Maintain a list of eligible mortgage lenders for financing the purchase of
inclusionary units in accordance with the BMR Ownership Housing Guidelines;
4. Market new and vacant BMR for-sale and rental units within the City’s affordable
housing inventory.
5. Monitoring compliance with terms and conditions of the occupancy and sale
restrictions;
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17.138.120 – Enforcement
A. Enforcement. No building permit shall be issued, nor shall any other development
entitlement be granted for a residential development project subject to this Chapter
that does not meet these requirements. No inclusionary unit shall be rented or sold
except in accordance with these requirements and the affordable housing standards.
SECTION 4. A summary of this ordinance, together with the names of Council
members voting for and against, shall be published at least five (5) days prior to its final
passage, in The New Times, a newspaper published and circulated in this City. The
Ordinance shall be effective thirty (30) days after its final passage.
INTRODUCED on the 19th day of July 2022, AND FINALLY ADOPTED by the
Council of the City of San Luis Obispo on the 16th day of August 2022, on the following
vote:
AYES: Council Member Marx, Pease, Shoresman, and Vice Mayor
Christianson
NOES: Mayor Stewart
ABSENT: None
__________________________
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
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