CC 2024-02-13_10b PH AGMC Formula BusinessItem 10.b.
MEMORANDUM
TO: City Council
FROM: Brian Pedrotti, Community Development Director
SUBJECT: Introduction of an Ordinance Amending Section 16.04.070 of Chapter
4 of Title 16 of the Arroyo Grande Municipal Code Regarding the
Definition of Formula Business and Finding That This Action is
Exempt from Review Under the CEQA
DATE: February 13, 2024
SUMMARY OF ACTION:
Introduction of a proposed ordinance amending Title 16 of the Arroyo Grande Municipal
Code (“AGMC”) regarding the definition of a Formula Business and finding that this action
is exempt from review under CEQA. Introducing the ordinance will allow for adoption at a
future City Council meeting following this noticed public hearing.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
No financial impact is projected.
RECOMMENDATION:
Introduce, read by title only, and waive further reading of an Ordinance amending Section
16.04.070 of the Arroyo Grande Municipal Code regarding the definition of a Formula
Business and finding the Ordinance exempt from the California Environmental Quality Act
(CEQA) because the Ordinance has no potential to result in either a direct, or reasonably
foreseeable indirect, physical change in the environment (State CEQA Guidelines, §§
15060, subd. (b)(2)-(3), 15378).
BACKGROUND:
Adoption of Original Ordinance
In March of 2005, in response to public comment, the City Council directed staff to
research and propose formula business restrictions applicable to the Village Core
Downtown (VCD) and Village Mixed Use (VMU) districts of Arroyo Grande’s Historic
Character Overlay zone (the “Village”) commercial area. On April 26, 2005, the City
Council held a study session to discuss proposals to regulate formula businesses, also
called chain businesses, and asked staff to return with an ordinance prohibiting formula
businesses in the vicinity of the Village. Upon approval by the City Council, the 2005
Ordinance identified that “the potential proliferation of formula businesses would diminish
Page 197 of 442
Item 10.b.
City Council
Introduction of an Ordinance Amending Section 16.04.070 of Chapter 4 of Title 16
of the Arroyo Grande Municipal Code Regarding the Definition of Formula
Business and Finding That This Action is Exempt from Review Under the CEQA
February 13, 2024
Page 2
the unique character of the VCD and VMU/HCO districts by offering standardization of
architecture, interior design and décor, uniforms and the like, and which are required to
be virtually identical to other such businesses in other communities .” Specifically, the
Ordinance prohibited formula businesses in the VCD and Village Mixed Use/Historic
Character Overlay (VMU/HCO) districts (see Figure 1 below). Collectively, the VCD and
VMU/HCO may be referred to as the “Village” throughout this report.
Figure 1: VCD and VMU Zoning Districts
The Ordinance provided the following definition for a formula business:
“Formula business”. Shall mean a business, limited to retail trade uses and
restaurants, that is required by contractual or other arrangement to maintain
standardized services and the same or similar name, tradename, or trademark which
causes it to be substantially identical to six (6) or more other establishments,
regardless of ownership or location, and which satisfies one of the following two
criteria:
Page 198 of 442
Item 10.b.
City Council
Introduction of an Ordinance Amending Section 16.04.070 of Chapter 4 of Title 16
of the Arroyo Grande Municipal Code Regarding the Definition of Formula
Business and Finding That This Action is Exempt from Review Under the CEQA
February 13, 2024
Page 3
a. It has exterior design or architecture, signs, décor or similar features in a style
which is distinctive to and standardized among the chain or group;
b. It is a fast-food restaurant.
The definition above is limited to retail trade uses and restaurants and excludes other
businesses such as offices and hotels or inns. Additionally, the definition adopted sets
the threshold for other similar establishments to six, which is more restrictive than other
jurisdictions, as discussed below.
Revisiting the Ordinance
In 2023, the City received an application for a new ice cream shop in the VCD in the
space previously occupied by Doc Bernstein’s. Staff was tasked with researching whether
the ice cream shop qualified as a “formula business.” At the time of application, staff
identified five similar ice cream stores and concluded that it did not meet the six-location
threshold of a formula business. However, the City Council expressed concern that similar
establishments might be prohibited under the City’s current zoning regulations, causing
staff to revisit whether the six-establishment threshold was too low.
On May 23, 2023, based on the above concerns, the City Council directed staff to review
the definition of “Formula Business” in the AGMC and return at a study session to provide
analysis as to whether to revise the definition.
City Council Study Session
On October 10, 2023, the City Council held a study session to discuss potential revisions
to the regulations related to formula businesses. Staff provided a staff report outlining the
purpose of the current definition, examples from other jurisdictions with similar restrictions
on formula businesses, and potential revisions . The City Council’s discussion included
topics such as types of uses that would fall into the definition of formula business, non -
conforming uses, and an increase in the number of establishments to be considere d a
formula business. Ultimately, the City Council directed staff to return with an amendment
to the definition of formula business, including (1) an increase to the six-establishment
threshold, (2) that the definition apply to all business types, and (3) the removal of the two
criteria in the definition.
Planning Commission
On January 16, 2024, the Planning Commission held a public hearing and recommended
that the City Council approve the Ordinance amendment as proposed.
ANALYSIS OF ISSUES:
Page 199 of 442
Item 10.b.
City Council
Introduction of an Ordinance Amending Section 16.04.070 of Chapter 4 of Title 16
of the Arroyo Grande Municipal Code Regarding the Definition of Formula
Business and Finding That This Action is Exempt from Review Under the CEQA
February 13, 2024
Page 4
Per the discussion above, the AGMC includes a definition of a formula business and
identifies that these are prohibited in the Village. The current definition of a Formula
Business is inclusive of both of the following:
1. A retail trade or restaurant business, and
2. Is required by contractual or other arrangement to maintain standardized services
and the same or similar name, tradename, or trademark which causes it to be
substantially identical to six (6) or more other establishments, regardless of
ownership or location.
In addition to these two criteria, the definition goes on to say that in order to qualify as a
formula business, the business must meet one of the two following additional criteria:
It has exterior design or architecture, signs, décor or similar features in a style
which is distinctive to and standardized among the chain or group, or
It is a fast-food restaurant.
Based on a strict reading of this language, if a business meets the first two criteria and is
a fast-food restaurant, it qualifies as a formula business and is prohibited in the Village
regardless of its exterior design or architecture, signs, décor or similar style features. Non-
fast-food restaurants (i.e., sit-down restaurants), however, could potentially be allowed in
the Village if they met the first additional criteria. In other words, if the non -fast-food
restaurant managed to alter its exterior design or architecture, signs, décor or similar
features so that it ceased to be distinctive to and standardized among the chain or group,
it would no longer qualify as a formula business and could be allowed.
Proposed Revisions
Expansion to all Businesses. Currently, the definition of formula business is limited to
retail and restaurant establishments. The proposed revisions remove those categories,
expanding the definition of formula business to any type of business in the Village.
Qualifying Criteria. The current definition specifies that to be a formula business, the
establishment must use “exterior design or architecture, signs, décor or similar features
in a style which is distinctive to and standardized among the chain or group” or be a fast-
food restaurant. These current criteria would allow a formula business, such as a sit-down
restaurant, to locate within the Village if they altered their architecture, signs, décor, etc.
to be distinctive. The proposed revisions remove these criteria, thereby c losing the
“loophole” that would allow such formula businesses in the Village since the City’s goal is
to have unique businesses in its historic core.
Number of Locations. A business that has more than six (6) locations is considered a
formula business under the current definition. The proposed amendment increases this
Page 200 of 442
Item 10.b.
City Council
Introduction of an Ordinance Amending Section 16.04.070 of Chapter 4 of Title 16
of the Arroyo Grande Municipal Code Regarding the Definition of Formula
Business and Finding That This Action is Exempt from Review Under the CEQA
February 13, 2024
Page 5
number to ten (10) locations, to strike a balance between maintaining the charm and
character of the Village without imposing restrictions on property owners that make it
difficult to find tenants for vacant commercial spaces. Ten (10) locations is a commonly
used threshold in other jurisdictions like the cities of Sonoma and Malibu. Staff contacted
these agencies, and it was determined that setting the number at 10 has allowed these
jurisdictions to maintain their identity without stifling economic development.
The proposed ordinance reads as follows:
“Formula business”. Shall mean a business, limited to retail trade uses and
restaurants, that is required by contractual or other arrangement to maintain
standardized services and the same or similar name, tradename, or trademark which
causes it to be substantially identical to six (6) ten (10) or more other establishments
at the time of application submittal, regardless of ownership or location., and which
satisfies one of the following two criteria:
a. It has exterior design or architecture, signs, décor or similar features in a style
which is distinctive to and standardized among the chain or group;
b. It is a fast food restaurant.
Legally Non-conforming
If the definition of formula business is amended as proposed, it would expand to uses
beyond retail and restaurants and as a result would create legally non -conforming
businesses in the Village. These uses would primarily be real estate offices that are part
of nationwide corporations. Non-conforming uses are regulated by AGMC Section
16.48.110. This Section establishes standards for maintaining a non -conforming use,
enlarging the use, alteration or restoration after destruction, and discontinuation of a non -
conforming use.
The non-conforming uses that would be created by this amendment will be discontinued
if the use is changed to a conforming use or if the use is discontinued for a continuous
period of one hundred eighty (180) days or more. (AGMC Section 16.48.110.B.4) A non-
conforming use may continue following a change of ownership, tenancy or management
if the building, structure, land use or activity is substantially unchanged. For purposes of
that section, a formula business would lose it s non-conforming status if there was a
substantial change to the building, structure, or land use/activity on the property (e.g. a
formula real estate office could not convert to a formula fast casual restau rant because
that would constitute a substantial change in the land use.) If the amendment is adopted,
the existing businesses will be allowed to continue as legal non -conforming in the VCD
and VMU districts, subject to AGMC Section 16.48.110.B.4. No additional language
regarding legal non-conforming uses has been included in the proposed ordinance
revisions.
Page 201 of 442
Item 10.b.
City Council
Introduction of an Ordinance Amending Section 16.04.070 of Chapter 4 of Title 16
of the Arroyo Grande Municipal Code Regarding the Definition of Formula
Business and Finding That This Action is Exempt from Review Under the CEQA
February 13, 2024
Page 6
General Plan Consistency
The amendment is supported by objectives and policies in the General Plan. Specifically,
Economic Development Element objective ED2 and policies ED 3-4 and ED 5-4 support
the small-town character and maintaining the Village as a vibrant downtown core. Land
Use Element objective LU6 also supports maintaining the Village core as a “symbolic,
functional and unique business center of the City” which can be achieved by the adoption
of the amendment to the definition of formula business and its implementation. Thus,
disallowing formula businesses, as defined, will ensure that current residents, visitors,
and future generations may enjoy the unique and historic character, culture, and
architecture of the Village, as contemplated by the above objectives and policies of the
General Plan.
ALTERNATIVES:
The following alternatives are provided for the City Council’s consideration:
1. Introduce the attached Ordinance; or
2. Modify as appropriate and introduce the modified Ordinance; or
3. Do not introduce the Ordinance and provide direction to staff on specific revisions
to the Ordinance; or
4. Provide other direction to staff.
ADVANTAGES:
Revisions to the Ordinance are supported with objectives and policies from the General
Plan because the revisions strengthen the regulatory requirements for formula
businesses, ensuring that the architectural design and style of the Village are preserved.
DISADVANTAGES:
The proposed amendment will limit the type of businesses that can lease commercial
spaces within the VCD and VMU districts.
ENVIRONMENTAL REVIEW:
The ordinance does not qualify as a “project” under CEQA and because the ordinance
will not result in a direct or reasonably foreseeable indirect physical change in the
environment. (State CEQA Guidelines section 15060, subd. (c)(2), (3).) Section 15378
of the State CEQA Guidelines defines a project as the whole of an action, which could
potentially result in either a direct physical change, or reasonably foreseeable indirect
physical change, in the environment. Here, the ordinance will not result in any
construction or development, and it will not have any other effect that would physically
change the environment. Approval of the proposed ordinance therefore does not qualify
as a project subject to CEQA.
PUBLIC NOTIFICATION AND COMMENTS:
Page 202 of 442
Item 10.b.
City Council
Introduction of an Ordinance Amending Section 16.04.070 of Chapter 4 of Title 16
of the Arroyo Grande Municipal Code Regarding the Definition of Formula
Business and Finding That This Action is Exempt from Review Under the CEQA
February 13, 2024
Page 7
The Agenda was posted at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
ATTACHMENTS:
1. Proposed Ordinance
Page 203 of 442
65501.00002\41296594.1
ATTACHMENT 1
ORDINANCE NO. ____
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
ARROYO GRANDE AMENDING SECTION 16.04.070 OF
THE ARROYO GRANDE MUNICIPAL CODE REGARDING
THE DEFINITION OF FORMULA BUSINESS AND FINDING
THE ORDINANCE EXEMPT FROM THE CALIFORNIA
ENVIRONMENTAL QUALITY ACT
WHEREAS, on April 26, 2005, the City Council held a study session to discuss
alternatives for the regulations for chain businesses; and
WHEREAS, on August 23, 2005, the City Council adopted an ordinance to amend
Title 16 of the Arroyo Grande Municipal Code (AGMC) regarding the definition of formula
business; and
WHEREAS, on May 23, 2023, the City Council directed staff to review the
definition of “Formula Business” in the municipal code and return with a study session to
determine if ordinance revisions were warranted; and
WHEREAS, on October 10, 2023, the City Council discussed potential revisions
to the definition of “Formula Business,” and directed staff to proceed with an ordinance
amendment; and
WHEREAS, on January 16, 2024, the Planning Commission conducted a duly
noticed public hearing to consider the staff report, recommendations by staff, and public
testimony concerning the ordinance. Following the public hearing, the Planning
Commission voted to forward the ordinance to the City Council with a recommendation in
favor of its adoption; and
WHEREAS, on February 13, 2024, the City Council conducted a duly noticed
public hearing to consider the ordinance, including: (1) the public testimony and agenda
reports prepared in connection with the ordinance; (2) the policy considerations discussed
therein; and (3) the consideration and recommendation of the Planning Commission; and
WHEREAS, the City Council of the City of Arroyo Grande, at its regularly
scheduled public meeting on February 13, 2024 introduced this Ordinance to amend
Section 16.04.070 of Title 16 of the Arroyo Grande Municipal Code; and
WHEREAS, all legal prerequisites to the adoption of the ordinance have occurred.
NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF ARROYO GRANDE DOES
ORDAIN AS FOLLOWS:
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ORDINANCE NO.
PAGE 2
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SECTION 1. Incorporation. The above recitals are true and correct and are
incorporated herein by this reference.
SECTION 2. Environmental. The City Council finds that this ordinance is exempt
from the California Environmental Quality Act ("CEQA") because the ordinance does not
qualify as a “project” under CEQA and because the ordinance will not result in a direct or
reasonably foreseeable indirect physical change in the environment. (State CEQA
Guidelines section 15060, subd. (c)(2), (3).) Section 15378 of the State CEQA Guidelines
defines a project as the whole of an action, which could potentially result in either a direct
physical change, or reasonably foreseeable indirect physical change, in the environment.
Here, the ordinance will not result in any construction or development, and it will not have
any other effect that would physically change the environment. The ordinance therefore
does not qualify as a project subject to CEQA.
SECTION 3. Required Findings. In accordance with section 16.16.040(E) of the
Arroyo Grande Municipal Code, the City Council hereby makes the following findings:
1. General Plan. The ordinance’s amendments to the AGMC are consistent
with the general plan and necessary and desirable to implement the provisions thereof.
Specifically, economic development objective ED2 and policies ED 3-4 and ED 5-4
support the small-town character and maintaining the Village as a vibrant downtown core.
Land use element objective LU6 also supports maintaining the Village core as a
“symbolic, functional and unique business center of the City” which can be achieved by
the adoption of the amendment to the definition of formula bus iness and its
implementation. Thus, disallowing formula businesses, as defined, will ensure that current
residents, visitors, and future generations may enjoy the unique and historic character,
culture, and architecture of the Village, as contemplated by the above objectives and
policies of the General Plan.
2. Health, Safety, and Welfare; Illogical Land Use Pattern. Adoption of the
ordinance will not adversely affect the public health, safety, and welfare as it simply
updates the definition of “formula business” in the AGMC to ensure that the AGMC is
consistent with the City’s general plan. Finally, this ordinance will not result in an illogical
land use pattern as it is not amending the City’s zoning map.
3. Consistency with Title 16. This ordinance is consistent with the purpose and
intent of AGMC Title 16 because it removes an internal inconsistency therein and ensures
that the provisions thereof are consistent with the City’s economic development and land
use elements.
4. Environmental. There will be no environmental impact by amending the
definition of a formula business because doing so authorizes no construction or
development, nor could the definitional change of a formula business indirectly result in
a physical impact on the environment. See Section 2 “Environmental” above.
Page 205 of 442
ORDINANCE NO.
PAGE 3
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SECTION 4. Code Amendment. Subsection (C) of Section 16.04.070 of the
Arroyo Grande Municipal Code is hereby amended to read as follows (additions shown
in underline and deletions shown in strikethrough):
“Formula business”. Shall mean a business, limited to retail trade uses and
restaurants, that is required by contractual or other arrangement to maintain
standardized services and the same or similar name, tradename, or trademark which
causes it to be substantially identical to six (6) ten (10) or more other establishments
at the time of application submittal, regardless of ownership or location., and which
satisfies one of the following two criteria:
a. It has exterior design or architecture, signs, décor or similar f eatures in a style
which is distinctive to and standardized among the chain or group;
b. It is a fast food restaurant.
SECTION 6. Publication. A summary of this ordinance shall be published in a
newspaper published and circulated in the City of Arroyo Grande at least five days prior
to the City Council meeting at which the proposed ordinance is to be adopted. A certified
copy of the full text of the proposed ordinance shall be posted in the office of the City
Clerk. Within 15 days after adoption of the ordinance, the summary with the names of
those City Council members voting for and against the ordinance shall be published
again, and the City Clerk shall post a certified copy of the full text of such adopted
ordinance.
SECTION 7. Effective Date. This ordinance shall become effective 30 days after
adoption.
SECTION 8. Severability. Should any provision of this ordinance, or its
application to any person or circumstance, be determined by a court of competent
jurisdiction to be unlawful, unenforceable or otherwise void, that determination shall have
no effect on any other provision of this ordinance or the application of this ordinance to
any other person or circumstance, and, to that end, the provisions hereof are severable.
The City Council declares that it would have adopted all the provisions of this ordinance
that remain valid if any provisions of this ordinance are declared invalid.
SECTION 9. Records. The documents and materials associated with this
ordinance that constitute the record of proceedings on which the City Council’s findings
and determinations are based are located at 300 E. Branch Street, Arroyo Grande, CA
93420. The City Clerk is the custodian of the record of proceedings.
On motion by Council Member ______, seconded by Council Member _______, and by
the following roll call vote to wit:
AYES:
NOES:
ABSENT:
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ORDINANCE NO.
PAGE 4
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the foregoing Ordinance was adopted this ____ day of _______, 2024.
Page 207 of 442
ORDINANCE NO.
PAGE 5
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___________________________________
CAREN RAY RUSSOM, MAYOR
ATTEST:
___________________________________
JESSICA MATSON, CITY CLERK
APPROVED AS TO CONTENT:
___________________________________
MATTHEW DOWNING, CITY MANAGER
APPROVED AS TO FORM:
___________________________________
ISAAC ROSEN, CITY ATTORNEY
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