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COUNCIL AGENDA REPORT
DATE: SEPTEMBER 1, 2015
TO: MAYOR AND TOWN COUNCIL
FROM: LES WHITE, INTERIM TOWN MANA
MEETING DATE: 09/01/15
ITEM NO: 11
DESK ITEM
SUBJECT: PROVIDE DIRECTION ON THE TOWN'S DEFINITIONS AND POLICIES
FOR FORMULA RETAIL, SPECIALTY RETAIL, AND OUTDOOR SEATING.
REMARKS:
After the initial Staff Report was distributed on August 27, 2015, staff received several questions
from Council Members, which are addressed below.
1. I'm curious what regulations /ordinances were looked at in determining "best practices,"
particularly in light of the following litigation: Subway v. Springdale, Utah, and Island
Silver & Spice, Inc. v. Islamorada. Is our ordinance even legal? If so, what is the
litigation risk?
The best practice research (benchmarking) conducted by staff discussed in the report refers to
information gathered on California cities with existing Formula Retail restrictions, including
San Francisco, Malibu, Arcata, Sausalito, Benicia, Ojai, San Juan Batista, Coronado, Calistoga,
Carmel, Pacific Grove, Sausalito, Solvang and Sonoma.
Staffs research and analysis of other jurisdictions that have a formula retail ordinance
establishes a common element in their definition of a "formula" business. Typically, the
definition states that formula businesses are those that are required to maintain certain
standardized features, such as products and services, menus, uniforms, decor, architecture, and
signage. The ordinances are worded so that if any of these features are standardized, the
business meets the "formula" definition.
PREPARED BY: MONICA RENN
Economic Vitality ana
Reviewed by: Lll�!LAssistant Town Manager —V"bwn Attorney
NAMGR\AdminWorkFiles\2015 Council Reports \Sept 1\Fortnula and specialty Retail Report and Attachements\Fomtula Retail. Specialty
Relail.0utdoor Seating Addendunt.doc
PAGE
MAYOR AND TOWN COUNCIL
SUBJECT: PROVIDE DIRECTION ON THE TOWN'S DEFINITIONS AND POLICIES
FOR FORMULA RETAIL, SPECIALTY RETAIL, AND OUTDOOR SEATING.
SEPTEMBER 1, 2015
REMARKS (cont'd):
Most of the Court decisions regarding formula retail ordinances deal with the property owners'
contention that the law discriminates against out -of -state companies and thereby violates the
Constitution's dormant commerce clause.
As mentioned by the Council Member, a federal court did overturn a formula business
ordinance adopted by the town of Islamorada, Florida. Islamorada's ordinance limited formula
businesses to no more than 2,000 square feet and 50 linear feet of storefront. Although the
court said that preserving distinctive community character was a legitimate public purpose for
enacting a formula business ordinance, it ruled that Islamorada had not demonstrated that this
was in fact the purpose of the law. Local officials had instead revealed that the true purpose
was protecting particular local businesses. Moreover, the court noted that Islamorada, which
has no downtown or other historic commercial district and consists instead of strip
development along U.S. Highway 1, had taken no other steps to develop or protect its
distinctive character.
In contrast to the Florida case, in an unpublished court decision, the court upheld Coronado's
formula retail ordinance after several property owners challenged the law. The court ruled that
the ordinance does not violate the US Constitution's commerce and equal protection clauses,
and is a valid use of municipal authority under California state law. The court found that the
law does not in fact "impose different regulations on interstate as opposed to intrastate
businesses, nor does it distinguish between those businesses that are locally owned and those
that are owned by out -of -state interests." The court noted the law focuses on whether the store
is contractually required to have standardized features, regardless of whether it is part of a
national chain-or owned by a California resident. The court also ruled that the law did not have
a discriminatory purpose. The ordinance's lengthy preamble states that the city seeks to
maintain a vibrant and diverse commercial district, and that the unregulated proliferation of
formula businesses would frustrate this goal and lessen the commercial district's appeal. The
court concludes that this is a legitimate purpose, noting that "the objective of promoting a
diversity of retail activity to prevent the city's business district from being taken over
exclusively by generic chain stores is not a discriminatory purpose under the commerce
clause." The court also dismissed the equal protection and state law challenges, stating that the
ordinance is rationally related to a legitimate public purpose.
The Town's Ordinance does not impose different regulations on interstate as opposed to
intrastate businesses, nor does it distinguish between those businesses that are locally owned
and those that are owned by out -of -state interests. Instead, its regulations are evenhanded - any
business that meets the definition of a Formula Retail is required to obtain a CUP before it
opens a business. By treating all interstate and intrastate businesses evenhandedly, "'there is no
"differential treatment of in -state and out -of -state economic interests that benefits the former
and burdens the latter. "'
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MAYOR AND TOWN COUNCIL
SUBJECT: PROVIDE DIRECTION ON THE TOWN'S DEFINITIONS AND POLICIES
FOR FORMULA RETAIL, SPECIALTY RETAIL, AND OUTDOOR SEATING.
SEPTEMBER 1, 2015
REMARKS (cont'd):
The Town's Formula Retail Ordinance was also not imposed or established for discriminatory
purpose. In the "Whereas" preamble section, the Ordinance sets forth the nondiscriminatory
purposes of the law by explaining that "the Town of Los Gatos has long been recognized as
having a unique retail environment with an unusual mix of retail businesses in terms of type,
ownership and appearance, that distinguishes it from other retail areas and has contributed to
its long time vibrancy and financial success... an increase in the existing number of formula
businesses potentially threatens the Town's unique retail environment in a number of ways,
including, but not limited to, the replacement of small, locally owned businesses that often
feature unique physical appearances and offer unusual or uncommon products or product
lines." The "Whereas" preamble section goes on to state that "the Town's General Plan
contains numerous goals, policies and implementing strategies intended to preserve its unique
retail environment .... a mixture of community - oriented commercial goods, services and
lodging, that is unique in its accommodation of small town style merchants and the
maintenance of a small town feel and character.... a goal to maintain mixture of goods and
services, identity, environment and commercial viability and a policy to "[e]ncourage the
development and retention of small businesses..."
These stated purposes do not reflect the Town Council enacted the Ordinance with the intent to
discriminate against interstate commerce or out -of -state entities. Instead, these recitals disclose
the Town Council's primary purpose was to provide for an economically viable and diverse
downtown commercial area that is consistent with the ambiance of the Town, and that it
believed the best way to achieve these goals was to subject to greater scrutiny those retail
stores that are contractually bound to use certain standard processes in displaying and/or
marketing their goods or services. These declared purposes of the Ordinance are not
discriminatory under the commerce clause because they treat interstate businesses the same as
they treat intrastate or local businesses.
2. On page 3, paragraph 2 of the Staff Report, there is a reference to the "Town's own
intent with the establishment of Formula Retail regulations." Where is that "intent"
documented/to be found?
Ordinance 2107 (Attachment 7) was adopted in 2002 and reflects this as the Council's intent:
WHEREAS, Council's intent in adopting this ordinance is to ensure the exercise ofgreater
control over the location of new formula retail businesses in the Town in order to meet the
goals, policies and implementing strategies of the Town's General Plan and avoid the
transition of the Town's unique retail environment into one that is homogenous with retail
in other communities.
PAGE 4
MAYOR AND TOWN COUNCIL
SUBJECT: PROVIDE DIRECTION ON THE TOWN'S DEFINITIONS AND POLICIES
FOR FORMULA RETAIL, SPECIALTY RETAIL, AND OUTDOOR SEATING,
SEPTEMBER 1, 2015
REMARKS (cont'd):
3. This entire discussion needs to include the 29.10.020 definition of "retail" which
theoretically supersedes, as well as overlaps the Staff - generated "specialty retail," which
then gets reflected in the traffic impact policy. All of these things need to be integrated
and consistent.
Section 29.10.020 defines retail:
Retail use means providing on site sales directly to the consumer for consumer or
household use, including but not limited to the following. small markets/businesses
which sell meat, vegetables, dairy products, baked goods, candy and/or other food
products, household cleaning and maintenance products, cards, stationary, notions,
books, cosmetics, specialty items, hobby materials, toys, household pets and supplies,
apparel, jewelry, fabrics, cameras, household electronic equipment, CD music and
movies, sporting equipment, kitchen utensils, home furnishings, home appliances, art
supplies and framing, art work, antiques, paint, wallpaper, carpet, floor covering, office
supplies, musical instruments, hardware, homeware, computers and related
equipment/supplies, bicycles, automotive parts and accessories (excluding service and
installation), and flowers, plants and garden supplies (excluding nurseries). Retail sales
that are incidental to the primary use will not satisfy this definition.
Council could consider amending the Retail use definition to include elements of the Specialty
Retail definition.
4. Seems like the Staff Report should point out that none of the Code sections cited in
paragraph 3 in the Outdoor Seating section of the report actually address Outdoor
Seating and that the only anything that exists in Town right now that refers to outdoor
seating appears at Paragraph 8 of the still- extant Alcohol Policy: "Alcoholic beverage
service in approved outdoor seating areas may be permitted if adequate separation from
public areas is provided as determined by the Town Manager. The separation shall
clearly suggest that alcohol is not allowed outside the restaurant seating area."
In addition to the comment above, Section 29.20.185 contains the Table of Conditional Uses,
and item (1) j. reflects the zones where outdoor seating may occur with an approved CUP.
5. Item 11, Attachment 5 regarding seating charts: Why would we include "intended for
off -site consumption" when we're talking about seating?
During the Strategic Goals discussion at the last Council meeting, the Council discussion
identified "hybrid businesses" as a category of emerging businesses to discuss. In addition,
industry trends show that consumers seek the opportunity to meet and socialize in various
settings, not just restaurants. Seats may or may not be something the Council wishes to
consider regulating for Specialty Retailers. If Council does wish to consider seats as an option,
PAGES
MAYOR AND TOWN COUNCIL
SUBJECT: PROVIDE DIRECTION ON THE TOWN'S DEFINITIONS AND POLICIES
FOR FORMULA RETAIL, SPECIALTY RETAIL, AND OUTDOOR SEATING.
SEPTEMBER 1, 2015
REMARKS (cont'd):
the information provided in the staff report may be helpful as a starting point for this
discussion. Additionally, the Town's Traffic Impact Policy allows seating for those businesses
that meet the Impulse or Specialty Retail without associating trips to the seats whereas with
restaurant calculations trips may be associated with either seats or square footage.
6. Why would formula use restrictions apply to these? The Town doesn't do it now in
considering Starbucks, Peets, Phitz, etc.
Staff provided this as an option for the Council to consider given that most other jurisdictions
researched included restaurants with their policies because they found the intent of their
Formula Retail Policy was true for all business merchants. This option could also play a role
depending on if/how the Council defines Specialty Retail, and where merchants such as those
listed above will end up being classified.
7. On page 2, Formula Retail, 1st paragraph, "In contrast, within other commercial zones,
only those Formula Retailers larger than 6,000 square feet must obtain a CUP." Can you
provide 2 or 3 examples of Formula Retailers that are typically 6,000 square feet?
Pierl Imports and ACE Hardware, both on Los Gatos Blvd. meet the Formula Retail definition
and occupy spaces larger than 6,000 square feet.
8. Can you confirm that we have a prohibition on drive through restaurants? If so, could
you provide a reference so that should the discussion tomorrow want to tighten the drive
through definition we can have it readily available?
Drive through restaurants are a prohibited use by section 29.10.045 (Uses Prohibited), and are
defined in section 29.10.020 (Definitions) as: "Restaurant, drive in means a restaurant where
food or beverages are sold to be eaten in vehicles whether on or off the premises or are
delivered directly to the occupants of vehicles."
9. If changes are to be made, what is the process? i.e., General Plan Committee /Planning
Commission/Council?
Any changes made to the Town Code would need to go to both the Planning Commission and
Town Council. Policy level modifications or additions may be acted upon by the Council
alone.
10. Mention has always been made to the parking district/payment into the parking district.
What are the limitations, if any, relating to restaurants /retail/whatever, and payment into
the parking district? To the availability of parking?
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MAYOR AND TOWN COUNCIL
SUBJECT: PROVIDE DIRECTION ON THE TOWN'S DEFINITIONS AND POLICIES
FOR FORMULA RETAIL, SPECIALTY RETAIL, AND OUTDOOR SEATING.
SEPTEMBER 1, 2015
REMARKS (cont'd):
Downtown properties have parking credits based on their square footage either onsite or within
the Parking Assessment District (PAD). At one point, properties with smaller buildings and
the potential to expand were given the opportunity to purchase parking credits within the PAD
up to the FAR of .60, which is equal to the maximum FAR for new construction. Some
property owners took advantage of this and thus have more credits in the PAD than they would
if their parking credits were calculated based on existing square footage alone. The PAD notes
the following land use categories for each parcel: retail, office, restaurant, or residential. While
parking is currently linked to square footage and seating capacity, with the absence of a PAD,
Council could choose to amend the way seats are currently used to calculate parking for an
establishment so long as any changes did not reduce the number of spaces that are currently
vested with property owners.
11. On the list of suggested amendments to restaurant definitions —
• Minor restaurant -- why no alcohol/no architecture changes? Is this to avoid a CUP?
All restaurants, including minor restaurants require a CUP. Minor Restaurants are defined as
such because those outside of the C -2 zone are considered by the Development Review
Committee rather than the Planning Commission or Town Council.
• Why include a definition for drive -in restaurants, when drive -ins are specifically
NOT allowed per Town Code?
Council may choose to amend or eliminate the current definition for drive -in restaurants. The
Town Code does contain other definitions for prohibited uses, and having this definition allows
staff and businesses to define the use. Depending on the Specialty Retail discussion and
outcomes, Council may wish to amend or eliminate this prohibition.
12. I know that the Formula Retail restrictions really are only applied to the Downtown area,
though in re- checking the Code, there's nothing I can find that restricts the application.
Formula Retail is defined in section 29.10.020, then regulated by zone within the Table of
Conditional Uses in section 29.20.185 with findings addressed in section 29.20.190. All Formula
Retailers in the C -2 must obtain a CUP. Formula Retailers looking to locate in the CH, C -1, or
LM must obtain a CUP if they will occupy a space larger than 6,000 square feet.
COORDINATION:
The preparation of this Desk Item was coordinated with the Town Attorney and the Community
Development Department.
PAGE 7
MAYOR AND TOWN COUNCIL
SUBJECT: PROVIDE DIRECTION ON THE TOWN'S DEFINITIONS AND POLICIES
FOR FORMULA RETAIL, SPECIALTY RETAIL, AND OUTDOOR SEATING.
SEPTEMBER 1, 2015
Attachments 1- 6 (Previously received with the Staff Report dated August 20 2015):
1. Illustration of relationship between the regulations that affect business uses
2. Formula Retail: current definition and recommended amendments
3. List of current Formula Retailers in the Downtown
4. Specialty Retail Administrative Policy
5. Recommendation for Specialty Food Retail definition and seating ratio calculations
6. Current Restaurant Use definitions and recommendations for amendments
Attachment 7 (Received with this Desk Iteml:
7. Ordinance 2107
ORDINANCE 2107
AN ORDINANCE OF THE TOWN OF LOS GATOS AMENDING THE ZONING
ORDINANCE OF THE TOWN CODE REGARDING
SECTIONS 29.10.020, 29.20.185, AND 29.20.190.
WHEREAS, the Town of Los Gatos has long been recognized as having a unique retail environment
with an unusual mix of retail businesses in terms of type, ownership and appearance, that distinguishes it
from other retail areas and has contributed to its long time vibrancy and financial success.
WHEREAS, an increase in the existing number of formula businesses potentially threatens the
Town's unique retail environment in a number of ways, including, but not limited to, the replacement of
small, locally owned businesses that often feature unique physical appearances and offer unusual or
uncommon products or product lines. This can occur either by the replacement of existing retail businesses
with new formula retail businesses, or by retail businesses with the capacity to overwhelm existing
businesses. An over concentration of formula retail business can result in a retail environment that is
indistinguishable from those located elsewhere in the region, the state and the nation.
WHEREAS, the Town's General Plan contains numerous goals, policies and implementing
strategies intended to preserve its unique retail environment. For example, the land use designation CBD
for the Central Business District (2.4.2) is described as "[encouraging] a mixture of community- oriented
commercial goods, services and lodging, that is unique in its accommodation of small town style merchants
and the maintenance of a small town feel and character, " while descriptions of the Mixed Use,
Neighborhood and Service Commercial districts emphasizes maintaining and servicing the needs of the
small town residential scale and natural environments of adjacent residential neighborhoods. Elsewhere,
concerning the historic downtown area, is a goal to maintain mixture of goods and services, identity,
environment and commercial viability (L.G.6.2) and a policy to "[e]ncourage the development and retention
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ATTACHMENT 7
of small businesses and locally -owned stores and ships that are consistent with small town character and
scale" (L.P.6.2).
WHEREAS, Council's intent in adopting this ordinance is to ensure the exercise of greater control
over the location of new formula retail businesses in the Town in order to meet the goals, policies and
implementing strategies of the Town's General Plan and avoid the transition of the Town's unique retail
environment into one that is homogenous with retail areas in other communities.
THE TOWN COUNCIL OF THE TOWN OF LOS GATOS DOES ORDAIN AS FOLLOWS:
SECTION I
Town Code section 29.20.020 is amended to read as follows:
Formula retail business means a retail business which, along with one or more other
business locations, is required by contractual or other arrangement to maintain any of the
following: standardized merchandise, services, decor, uniforms, architecture, colors, signs
or other similar features.
Nursery school/ Day Care Center means a school for pre - elementary school age children which
provides controlled activities and instruction.
SECTION II
Town Code section 29.20.185 Table of Conditional Uses is amended as follows:
Replace existing Conditional Use Permit Table with Conditional Use Permit Table attached hereto
as Exhibit A.
SECTION III
Town Code section 29.20.190 is amended to read as follows:
(a) The deciding body, on the basis of the evidence submitted at the hearing, may grant a
conditional use permit when specifically authorized by the provisions of this chapter if it
finds that:
(1) The proposed uses of the property are essential or desirable to the public convenience
or welfare;
(2) The proposed uses will not impair the integrity and character of the zone;
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(3) The proposed uses would not be detrimental to public health, safety or general
welfare; and
(4) The proposed uses of the property are in harmony with the various elements or
objectives of the general plan and the purposes of this chapter.
(5) A hazardous waste facility proposal is subject to the California Health and Safety
Code, Article 8.7, Section 25199 -- 25199.14 and shall be consistent with the Santa
Clara County Hazardous Waste Management Plan.
(b) The deciding body, on the basis of the evidence submitted at the hearing, may deny
conditional use permit for a formula retail business if the following findings are made:
(1) The proposed use of the property is not in harmony with specific provisions or
objectives of the general plan and the purposes of this chapter; and
(2) The proposed use will detract from the existing balance and diversity of businesses
in the commercial district in which the use is proposed to be located.
SECTION IV
This Ordinance was introduced at a regular meeting of the Town Council of the Town of Los Gatos
on October 21, 2002, and adopted by the following vote as an ordinance of the Town of Los Gatos at a
meeting of the Town Council of the Town of Los Gatos on November 4, 2002 This ordinance becomes
effect 30 days after it is adopted.
COUNCIL MEMBERS:
AYES: Steven Blanton, Sandy Decker, Joe Pirzynski,
Mayor Randy Attaway.
NAYS: Steve Glickman.
ABSENT: None.
ABSTAIN: None.
SIGNED: -�
MAYOR OF T TOWN OF S GATOS
LOS GATOS, CALIFORNIA
ATTEST:
CLERK OF THE TOWN OF TS GATOS
LOS GATOS, CALIFORNIA
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