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Item 17 Staff Report Consider Adopting a Resolution Revising the Below Market Price Housing Program Guidelines for Second UnitsCOUNCIL AGENDA REPORT DATE: October 2, 2003 TO: MAYOR AND TOWN COUNCIL FROM: DEBRA J. FIGONE, TOWN MANAGER SUBJECT: MEETING DATE: 10/6/03 ITEM NO. CONSIDER ADOPTING A RESOLUTION REVISING THE BELOW MARKET PRICE HOUSING PROGRAM GUIDELINES FOR SECOND UNITS RECOMMENDATION: 1. That the Town Council adopt the attached resolution revising the Town's Below Market Price Housing Program Guidelines for second units. 2. Authorize budget adjustment in the amount of $250,000 from BMP funds and $250,000 from RDA Low and Moderate Housing Funds providing FY 03/04 appropriations for proposed loan program BACKGROUND: At its meeting of September 2, 2003, the Council directed staff to create a program that will serve as an incentive to property owners who are interested in building a second unit to make the unit part of the Town' s Below Market Price (BMP) housing program. This program will be entirely voluntary to the property owner but if the owner decides to participate in the program the second unit will be income and rent restricted. DISCUSSION: The second unit ordinance adopted by the Council on September 15, 2003 includes a provision that states: "Incentive Program: Any second dwelling developed under an incentive program established by resolution of the Town Council shall be made affordable to eligible applicants pursuant to the requirements of the incentive program." PREPARED BY: BUD N. LORTZ 0-2 DIRECTOR OF COMMUNITY DEVELOPMENT Reviewed by: ssistant Town Manager IL Attorney Clerk .CFinance Community Development Revised: 10/2/03 2:19 pm Reformatted: 5/30/02 f PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: BMP PROGRAM GUIDELINES October 2, 2003 The second unit ordinance becomes effective on October 28, 2003 and Council indicated a desire to have the Second Unit Incentive Program (SUIP) in effect by that time. The attached resolution revises the BMP guidelines to establish a SUIP. Incentive Program Overview The incentive program that is being suggested by staff is a no interest construction loan. The loan amount will be determined based on the size of the second unit. The Uniform Building Code currently establishes a construction cost for new construction and remodels at approximately $107/square foot and $64/square foot respectively. The loan amount will be calculated at 100% of the construction cost as set forth in the Building Code if the unit is income and rent restricted at very low income levels or 80% if the unit is income and rent restricted at low income levels. By using the construction costs set forth in the Building Code as the mechanism for calculating the loan amount, it will enable the Town to provide loans to property owners who intend to build a new second unit as well as those who intend to convert an existing accessory structure into a second unit. It also enables the loan amount to be adjusted depending on the size of the unit. The construction cost established in the Building Code may not pay for the entire cost of constructing a second unit but it will offset the majority of the construction cost and provide a significant incentive to stimulate a property owner's interest in participating in the SUIP. For example, if a property owner elects to participate in the SUIP and intends to build a 750 sq. ft. second unit that will be income and rent restricted at very low income levels, the maximum loan they would be eligible to receive is $80,250. The table provided below shows the second unit rents proposed for low and very low income persons/families. The table included as Attachment 2 shows the income ranges for low and very low income persons/families. 0 Bedroom 1 Bedroom 2 bedroom 3 Bedroom 80% of County Fair Market Rates $1,000 S 1,140 $1,408 $1,930 50% of County Fair Market Rates $625 $712 $880 $1,206 Administration of the Second Unit Incentive Program When a property owner participates in the SUIP, a deed restriction is recorded on the property. A model deed restriction is being drafted by the Town Attorney and will ensure that the rental rates, tenant income levels, and duration of affordability are clearly stipulated. The Community Development Department and Community Services Department will team up to administer the SUIP. The Town's agreement with the Santa Clara County Housing Authority already n PAGE 3 MAYOR AND TOWN COUNCIL SUBJECT: BMP PROGRAM GUIDELINES October 2, 2003 provides for monitoring rental units that are part of the Town's BMP Program to ensure the units are being rented at the appropriate rate and that the tenants incomes do not exceed the income limits. The Town's agreement with the Housing Trust of Santa Clara County can be amended to include administration and oversight of loans made under this program. Duration of Affordablity Restriction The Town has two primary funding sources for affordable housing: Redevelopment Affordable Housing Funds and BMP Program Funds. Staff is suggesting that a loan for a second dwelling unit that is built within the Redevelopment Project Area be funded with Redevelopment Affordable Housing Funds while a loan for a second dwelling unit that is built outside the Redevelopment Project Area be funded with BMP Program Funds. The reasoning behind this suggestion is that the Redevelopment Agency only receives half credit for housing units that are built outside the Redevelopment Project Area. It also enables the Town to pool the available funding sources. Redevelopment Law requires that a unit built with Redevelopment Funds remain affordable for 55 years. However, since the BMP funds are governed by the Town, we can stipulate that units created using BMP Program Funds remain affordable for 30 years. Staff believes this disparity in the duration of affordability works in our favor. Since virtually all of the existing second units are concentrated in the Redevelopment Project Area the disparity creates a greater incentive to develop second units outside the Redevelopment Project Area thereby dispersing second units throughout the community. Finally, staff believes that second units developed under the SUIP should remain affordable for the aforementioned time frames even if the property is sold. This would be consistent with the BMP Program. While this requirement may cause some property owners to not participate in the SUIP, staff believes that it will eliminate the potential abuse of the SUIP by a property owner who builds a second unit through the SUIP with the intent of selling the property. The loan should be required to be repaid after 30 years regardless of the funding source used to fund the loan. CONCLUSION: The SUIP as set forth in the revised BMP Guidelines (Attachment 1) is designed to create affordable second units through financial incentives offered to property owners who are willing to enter into a deed restriction that will ensure the unit is income and rent restricted. This voluntary program will be offered to second unit applicants who will decide to participate if the program is in their best interest. The incentives of the program have yet to be tested. Staff will seek input from those applicants who chose not to participate to gain a better understanding of the aspects of the program that either create an excessive constraint or do not quite provide a sufficient incentive to cause them to participate in the program. Staff will carefully review this input to determine if adjustments in the program are warranted and will return to Council with specific changes to the program as necessary to make the program a success. PAGE 4 MAYOR AND TOWN COUNCIL SUBJECT: BMP PROGRAM GUIDELINES October 2, 2003 ENVIRONMENTAL ASSESSMENT: Is not a project defined under CEQA, and no further action is required. FISCAL IMPACT: The fund balance in the BMP Program is approximately $1,400,000 and the fund balance in the Redevelopment Affordable Housing Fund is approximately 2,000,000. It is difficult to estimate how many property owners may be interested in participating in the SUIP. As an initial appropriation, staff suggests that an allocation of $250,000 from each of the funding sources ($500,000 total). This would accommodate up to six new 750 square foot second units if income and rent restricted at very low income levels. Loans be approved on a first come basis. If the SUIP is an overwhelming success, staff will return to Council to consider whether additional funding should be allocated. Attachments: 1. Resolution revising BMP guidelines (revisions to BMP Guidelines indicated in italics) 2. Current Income Guidelines Chart BNL:mdc N:\DEV\BUD\second units.wpd RESOLUTION NO. RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS ADOPTING REVISED BELOW MARKET PRICE HOUSING PROGRAM GUIDELINES WHEREAS, The Town of Los Gatos Zoning Ordinance Sections 29.10.3000 through 29.10.3040 establishes a Below Market Price (BMP) Housing program to assist low and moderate income Los Gatos residents; and WHEREAS, the Program requires construction of dwellings that persons and families of low and moderate income can afford to buy or rent, and assures to the extend possible that the resale prices of those dwellings and rents, if they are rented, will be within the means of persons and families of low and moderate income; and, WHEREAS, the program helps the Town meet State mandated housing goals; and, WHEREAS, this resolution revises the Town of Los Gatos Below Market Price Guidelines by adding a section that pertains to New Second Dwelling Units. NOW, THEREFORE, BE IT RESOLVED that the Town Council of the Town of Los Gatos (1) repeals Resolution 2000-131; and (2) adopts the Revised Below Market Price Housing Program Guidelines as indicated in Exhibit A. PASSED AND ADOPTED at a meeting of the Town Council of the Town of Los Gatos, California, held on the day of , 2003 by the following vote: COUNCIL MEMBERS: AYES: NAYS: ABSENT: ABSTAIN: SIGNED: MAYOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA ATTEST: CLERK OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA ATTACHMENT 1 TOWN OF LOS GATOS BELOW MARKET PRICE HOUSING PROGRAM GUIDELINES I. GENERAL PROVISIONS A. Every multifamily rental dwelling project at the time of building permit, every residential condominium or planned development residential subdivision at the time of subdivision, and every community apartment project and every residential stock cooperative apartment or unit project at the time of subdivision if the transaction involves subdivision, or at the time of sale, if it does not, shall contain one or more BMP dwellings according to the rules listed below with the following exception: Any planned development with an underlying zone of HR, shall only be required to pay an in -lieu fee as established by this resolution. 1. Projects containing five or more but fewer than twenty market rate units must provide a number of BMP units equal to 10 percent of the number of market rate units. 2. Projects which include 20 to 100 market rates units must provide BMP units as determined by the following formula: Number of BMP units = .225 (total # of market rate units)-2.5 3. All projects in excess of 100 market rate units must provide a number of BMP units equal to 20 percent of the market rate units. 4. Whenever the calculations of below market price units result in a fraction of one-half or more, the number of units to be reserved is increased to the next whole number. B. Confidentiality Client information is confidential and not considered public information except for statistical information on the BMP units and general demographic information on the buyers and renters of BMP housing units. Through BMP program implementation the Town is attempting to provide a supply of low -moderate income housing. The Town does not wish to set the occupants of such housing apart from the general community, attaching a stigma to the occupants. Furthermore, no public interest is served by disclosure of this information. The address of the projects containing BMP units may be provided as well as a range of sales prices. II. OWNER OCCUPIED UNITS A. Applicant Eligibility 1. Household Income: Income limits are set according to household size using the Federal Department of Housing and Urban Development statistics regarding median income. 2. Buyer Qualification: a. A buyer's qualification is determined by the family's ability to make the monthly payments for the unit. The monthly housing cost shall include the following factors: S:1bmp guildclincs 2000.wpd Exhibit A - Unit Price Current Lending Rates Estimated Taxes Estimated Insurance Costs - Homeowner's Fees - Other expenses as determined necessary by the lender. b. All persons must qualify for their own mortgage without assistance from the Town. Qualifications must include the ability to pay taxes, insurance, closing costs and any homeowner association fees in addition to the mortgage. B. Buyer Selection 1. A point system is used to establish applicant rating and ranking. Applicants will be ranked according to total points and must have at least one point to be eligible for consideration. Points are awarded as follows: Six points: (a) Senior citizens who reside in the Town at the time of application and have lived in the Town for at least the prior two years. A senior citizen is defined as any person 62 years of age or older at time of application or married couples living together when at least one spouse is 62 years of age or older at time of application. (b) Senior Citizens who have lived in the Town for at least two years and have moved out of the Town within the last five years prior to the time of application. (c) Handicapped persons who reside in the Town at the time of application and who have lived in the Town for at least the prior two years. (d) Households required to relocate their residence as a result of Council action or mobile home park closure. (e) Salaried Town employees as defined in the Town's Personnel Rules, who have been employed by the Town for a period of no less than 12 months prior to the time of application. Five points: Single heads of household with dependent children who reside in the Town at the time of application and have lived in the Town for at least the prior two years. Four points: Persons who live in the Town of Los Gatos at time of application and who have lived in the Town at least the prior two years. Three points: Persons who work in the Town of Los Gatos at time of application and have worked in the Town for at least the prior two years. Two points: a. Households who have lived in the Town for at least 10 years and have moved out within the last ten years prior to the time of application. S:1bmp guildelines 2000.wpd f b. Household size is worth two points per person. One point: Households who live or work within Santa Clara County at the time of application. 2. A lottery will be used to rank each qualified applicant in the case of a tie. 3. An applicant has two opportunities to refuse a unit before being removed from the current applicant pool. 4. Applicants who do not qualify for a particular project shall retain their eligibility. 5. The highest ranked applicant must obtain pre -approval for a loan within one week after notification of its eligibility to purchase the unit. The applicant must submit documentation of loan approval within four weeks of notification of its eligibility to purchase the unit. C. Determination of Initial Selling Price 1. The initial sales price of the unit will be determined by consultation between the Town Manager, or delegate, and the developer within the price ranges calculated as defined herein. The Manager is authorized to approve changes in specifications to lower the price of the BMP units which do not violate any Town code or ordinance requirements, such as changes in carpeting, lighting fixtures, etc. The initial price will be set by a BMP price agreement, which must be signed by the Town Manager and the developer prior to the Planning Commission review of the project. 2. The initial price of a unit may include direct construction costs and may include a proportionate share of the costs of providing utility services, required on -site improvement, financing and premium points, loan standby fees, landscaping and parking, provided that the price shall not exceed an amount which will allow a range of qualified buyers (as defined above) to purchase a unit. 3. The initial price shall not include cost of land, builder's profit, marketing costs, planning, promotional or advocacy expenses, options preliminary drawings, preparing working drawings and specifications, off -site improvements, public agency fees, bonds, insurance, recreational facilities and engineering and architectural fees related to construction. 4. The range in which the initial selling price shall be set will be determined through completion of the following calculation on a regular basis: a. Calculation of the Housing Multiplier i. Determination of Total Housing Cost Sales Price - 10 percent down payment = mortgage + Annual Debt Service + Taxes + Homeowners Fees + Private Mortgage Insurance (PMI) = Total Housing Cost ii. Determination of Minimum Household Income S:1bmp guildelines 2000.wpd Assume 30 percent of household income to go towards housing: Total Housing Cost/.30 = Minimum household income iii. Determination of Multiplier Sales Price/Minimum Household Income= Multiplier b. Initial Sales Price Ranges Minimum and maximum sales prices are established by completing the following formula for a range of family sizes: Income (80, 100, and 120 percent of median income as defined by the Federal Department of Housing and Urban Development) (H.U.D.) x multiplier = sales price. D. Deed Restrictions Council approved Deed Restrictions are recorded with each Below Market Price dwelling units. E. Resale of Units 1. If the owner elects to sell his/her unit, the Town must be notified. 2. When a Below Market Price dwelling unit becomes available for resale, the owner must allow the Town to set the resale price and make the unit available to other program applicants. 3. The Town determines the resale price in accordance with the deed restriction recorded on the property. 4. Town markets the unit and ranks applications, to identify the top qualified applicants. F. In -Lieu Fees 1. Establishment of Fee: Projects with five or more but less than ten units may pay a fee in -lieu of building a BMP unit in order to comply with BMP Program requirements. Approval of Hillside Planned Developments with five or more residential building sites shall require the payment of an in -lieu fee. The fee shall be equal to the amount of six percent of the building permit valuation for the project. The total building permit valuation is determined by the chief building official. 2. Fees shall be paid prior to or at time of final occupancy as follows: a. Multi -Family Owner Occupied Developments. At approximately 40% occupancy of entire development as determined during the Planning approval process. b. Multi -Family Renter Occupied Developments. At approximately 75% occupancy of entire development as determined during the Planning approval process. c. Hillside Planned Developments. At time of final occupancy for each unit. 3. In -lieu fees will be deposited into the Town's Affordable Housing Fund. Funds will be used, in part, for administration of the program. Applications/recommendations for use of remaining funds will be S:\bmp guildelines 2000.wpd reviewed as received. Possible use of the funds include, but is not limited to, the following: - landbanking writing down the cost of owner occupied units to make them affordable to low/moderate income households purchasing rental units for renting to eligible tenants. III. RENTAL UNITS A. Administration The program shall be administered by the Town or its designee. B. Applicant Eligibility 1. Household Income: In order to be eligible, applicants must have a household income under 80 percent of the County's median income as defined by the Federal Department of Housing and Urban Development. 2. Ability to Pay Rent A tenant's ability to pay monthly rent will also be considered in determining tenant eligibility. C. Tenant Selection Applications from tenants selected by property owner or manager will be forwarded to Town for verification of income eligibility. D. Management 1. BMP rental units shall be managed in the same manner as other units in the development. 2. Tenants are eligible to receive conciliation and mediation services provided through the Town's Rental Mediation Program except as they regard rent increases. E. Unit Rents Tenants will be limited to persons whose annual income is less than 80 percent of the County's Median Income as defined by the Federal Department of Housing and Urban Development. Priority will be given to those households whose income is less than 50 percent of the median income as defined by H.U.D. Rents will be restricted to 80% of Fair Market Rents as determined by the Santa Clara County Housing Authority. F. Annual Review If a tenant's income increases so that it falls between 80 and 100 percent of the County's Median income, then the rent may be increased in accordance with the Town's Rental Dispute Ordinance; and the unit shall still be considered a BMP Rental Unit. However, if a tenant's income exceeds 100 percent of the median, the rent may be increased to the average rent of similar units in the complex; in this latter case, the unit will no longer be a BMP unit and the next available unit must be rented to an eligible household so that the number of subsidized units remains the same. S:1bmp guildelines 2000.wpd IV. RENTAL UNITS - NEW SECOND DWELLING UNITS A. Administration The program shall be administered by the Town or its designee. B. Second Unit Incentive Program The property owner of a New Second Dwelling Unit, as defined in Section 29.10.310 of the Town Code, may chose to participate in the Second Unit Incentive Program (SUIP) as referenced in Section 29.10.320(a) of the Town Code and as set forth below. The SUIP consists of a no interest construction loan to a property owner who intends to develop a new second unit. The loan amount shall be determined based on the square foot construction cost as set forth in the current version Uniform Building Code as adopted by the Town for new construction and remodels. The loan amount will be calculated at 100% of the construction cost if the unit is income and rent restricted to serve households with incomes below 50% of the County's Median Income or 80% of the unit is income and rent restricted to serve households with incomes below 80% of the County's Median Income. When a property owner participates in the SUIP, a deed restriction shall be recorded on the property. The deed restriction shall stipulate the rental rate, tenant income level, duration of affordability and loan repayment requirement as well as any other criteria as determined appropriate by the Town. Loans shall be repaid in 30 years. A SUIP loan to construct a second unit within the Central Los Gatos Redevelopment Project area shall be funded using Redevelopment Affordable Housing Funds and shall remain affordable for 55 years. A SUIP loan to construct a second unit outside the Central Los Gatos Redevelopment Project area shall be funded using BMP Program Funds and shall remain affordable for 30 years. The SUIP affordability restrictions as set forth in this section may only be amended by action of the Town Council. A tenant's ability to pay monthly rent will also be considered in determining tenant eligibility. Applications from tenants selected by the property owner or manager will be forwarded to Town or its agent for verification of income eligibility. Rental agreements shall be submitted to the Town or its agent to verify compliance with the provisions of this section. Tenants are eligible to receive conciliation and mediation services provided through the Town's Rental Mediation Program except as they regard rent increases. Units targeted to households with incomes up to 80% of the County's Median Income levels shall have rents restricted to 80% of Fair Market Rents as S:Ibmp guildclines 2000.wpd determined by the Santa Clara County Housing Authority. Units targeted to households with incomes up to 50% of the County's Median Income levels shall have rents restricted to 50% of Fair Market Rents as determined by the Santa Clara County Housing Authority. Tenant rents and incomes will be monitored annually. S:1bmp guildelines 2000.wpd Current Income Guidelines Determined by Federal Department of Housing and Urban Development for Santa Clara County Effective February 1, 2003 % of Median 30 50 80 100 Persons in Extremely Low Very Low Low Income Median Income Household Income Income 1 22,150 36,950 57,450 73,900 2 25,300 42,200 65,650 84,400 3 28,500 47,500 73,850 95,000 4 31,650 52,750 82,100 105,500 5 34,200 56,950 88,650 113,900 6 3.6,700 61,200 95,200 122,400 7 39,250 65,400 101,800 130,800 8 41,800 69,650 108,350 139,300 N:\CSD\BMP\2003 Income Limits.wpd Attachment 2 Town Council Minutes October 6, 2003 Redevelopment Agency Los Gatos, California PUBLIC HEARINGS CONTINUED AMENDMENT TO THE DOWNTOWN REDEVELOPMENT AGENCY/CONT. RESOLUTIONS 2003-116 & 2003-26RD/ORDINANCE INTRODUCTION Motion by Mr. Wasserman, seconded by Mr. Pirzynski, that Council introduce Proposed Ordinance entitled, ORDINANCE OF THE TOWN OF LOS GATOS APPROVING AND ADOPTING THE SECOND AMENDMENT TO THE REDEVELOPMENT PLAN FOR THE CENTRAL LOS GATOS REDEVELOPMENT PROJECT AREA, AND MAKING CERTAIN FINDINGS PURSUANT TO THE COMMUNITY REDEVELOPMENT LAW OF THE STATE OF CALIFORNIA. Carried by a vote of 3 ayes. Ms McNutt and Mrs. Decker abstained due to conflict of interest. OTHER BUSINESS MUSIC IN THE PARK/CONCERT SERIES/CIVIC CENTER LAWN (16.33) Mayor Decker stated that this was the time and place duly noted to consider approving the recommendation of the Arts Commission to hold the Music in the Park concert series at the Civic Center lawn. The following people from the audience addressed this issue: Teri Hope, Chair of the Arts Commission, and Chair of Music in the Park Committee, spoke of trying to be as fiscally responsible as they could for the event. This year and last, the contributions to the event and the sponsors' generosity, have demonstrated the support that the new location has received. Sallie Robbins-Druian spoke in support of this location emphasizing the support from the Arts Commission, citizens, visitors and merchants who benefit from the use of these facilities. John Tice disputed the Arts Commissions report. He asked for another survey to review the study. He also asked Council to consider at least six family concerts to be held at the plaza and to have the groups that pull larger crowds hold their shows at the Civic Center. No one else from the audience addressed this issue. Motion by Mr. Pirzynski, seconded by Mr. Wasserman, to approve the recommendation of the Arts Commission to hold the Music in the Park concert series at the Civic Center lawn. Carried unanimously. SECOND DWELLING UNIT/BELOW MARKET PRICE/RESOLUTION 2003-117 (17.37) Mayor Decker stated that this was the time and place duly noted to consider adopting resolution revising the Below Market Price Housing Program Guidelines for Second Units. Motion by Mrs. Decker, seconded by Mr.Glickman, that Council adopt Resolution 2003-117 entitled, RESOLUTION OF THE TOWN OF LOS GATOS ADOPTING REVISED BELOW MARKET PRICE HOUSING PROGRAM GUIDELINES FOR SECOND UNITS, and authorizing budget adjustment in the amount of $250,000 from BMP funds and $250,000 from RDA Low and Moderate Housing Funds providing FY 03/04 appropriations for proposed loan program. Carried unanimously. N:1CLK\Council Minutes\2003\M 10-06-03.wpd 7 RESOLUTION 2003 - 117 RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS ADOPTING REVISED BELOW MARKET PRICE HOUSING PROGRAM GUIDELINES WHEREAS, The Town of Los Gatos Zoning Ordinance Sections 29.10.3000 through 29.10.3040 establishes a Below Market Price (BMP) Housing program to assist low and moderate income Los Gatos residents; and WHEREAS, the Program requires construction of dwellings that persons and families of low and moderate income can afford to buy or rent, and assures to the extend possible that the resale prices of those dwellings and rents, if they are rented, will be within the means of persons and families of low and moderate income; and, WHEREAS, the program helps the Town meet State mandated housing goals; and, WHEREAS, this resolution revises the Town of Los Gatos Below Market Price Guidelines by adding a section that pertains to New Second Dwelling Units. NOW, THEREFORE, BE IT RESOLVED that the Town Council of the Town of Los Gatos (1) repeals Resolution 2000-131; and (2) adopts the Revised Below Market Price Housing Program Guidelines as indicated in Exhibit A. PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los Gatos, California, held on the 6th day of October, 2003 by the following vote: COUNCIL MEMBERS: AYES: Steve Glickman, Diane McNutt, Joe Pirzynski, Mike Wasserman, Mayor Sandy Decker. NAYS: None ABSENT: None ABSTAIN: None SIGNED:/s/ Sandy Decker MAYOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA ATTEST: /s/ Marian V. Cosgrove CLERK OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA