Palo Alto's push to preserve the California Avenue shopping area's funky, arty charm gained steam Wednesday night, when the city's planning commissioners added their support to limiting chain stores in the city's eclectic "second downtown."

In its first discussion of the proposed law, the Planning and Transportation Commission offered many words of praise – as well as a few of caution – about the city's latest attempt to protect mom-and-pop retailers.

The City Council launched the effort earlier this year, when it approved the rough framework for the new law and proposed an expansion of the retail area around California Avenue to adjacent streets. The council then forwarded the proposed change to the planning commission for further vetting.

The new law is part of a broader package of initiatives that the council had recently launched to address the recent surge of office growth and rapidly rising rents. California Avenue, which is seeing the bulk of this growth, is at the epicenter of the city's attention.

Earlier this year, the city completed a $6.9-million streetscape project on the prominent strip, which now features wider sidewalks, prominent crosswalks, fewer driving lanes and two new public plazas.

Now, officials are worried that the rising rents on California Avenue will displace small mom-and-pop stores and encourage more offices. The recent departures of long-time establishments Cho's Dim Sum, Avenue Florist and Bargain Box underscored, for many, the negative impacts of California Avenue's newfound prosperity.

To protect retail from being displaced by office, the council on May passed one emergency law prohibiting the conversion of ground-floor retail to other uses and another one limiting new office growth in the major commercial areas to 50,000 square feet. It also cobbled together the framework for a new ordinance that would limit chain stores and promote more ground-floor retail on California and on surrounding streets.

In crafting its chain-store ordinance, Palo Alto is largely following the lead of San Francisco, which has such limitations in place in various neighborhoods. The new ordinance would define "formula retail" as "a retail, personal, or eating and drinking service which, along with 10 or more other business locations in the United States, is required by contractual or other arrangement to maintain any of the following standardized characteristics: merchandise, menu, services, decor, uniforms, architecture, facade, color scheme, signs, trademark or service-mark."

The proposed law would extend some if not all of California Avenue's ground-floor retail requirements to Cambridge Avenue, which runs parallel, and to a stretch of Park Boulevard from California to Grant Avenue.

Jessica Roth, whose family has owned the California Avenue business European Cobblery for 75 years, has been at the forefront of the effort to limit new chain stores. Roth told the commission Wednesday that small businesses help "make up the neighborhoods of our city" and warned that, without them, the city will lose its character.

"We are surrounded by other cities that have done similar things (restrict chain stores) with positive outcomes, and I hope we will be able to do the same," Roth said.

The planning commission, which was missing three members (Mark Michael, Kate Downing and Adrian Fine), did not vote on the proposed ordinance and will resume its discussion on Aug. 26. But during its deliberations Wednesday, commissioners largely agreed with the council's direction.

While they acknowledged the limitation could result in lower property values and higher vacancies on California Avenue, as well as potentially higher prices for consumers, commissioners generally agreed that these potential consequences are outweighed by the benefit of preserving the street's character.

Commissioner Michael Alcheck, one of the staunchest supporters of the chain-store limitation, said he was "thrilled" about the new law. He lauded its impact in San Francisco, which has served as a model for other cities throughout the Bay Area.

"People refer to San Francisco retail as the 'rainforest of retail' because of the variety," Alcheck said. The proposed ordinance would not affect the few existing chain stores and franchises that currently make their home on California Avenue, a list that includes Subway, Starbucks, FedEx, the Counter and Benjamin Moore Paints. Nor would it make it completely impossible for new chains to open up shop.

It would, however, require them to acquire a conditional-use permit. The council would have the authority to deny permit applications. New hair and nail salons, which are ubiquitous around California Avenue, would have to go through a similar permit process as well.

Chair Greg Tanaka was more cautious than Alcheck and Commissioner Eric Rosenblum in his support for the ordinance. California Avenue may be thriving during the current period of economic boom, he reasoned, but what will happen if the city's economic fortunes turn? Will the restrictions on retail create retail "dead zones" that would be even worse than chain stores?

"I want the street to thrive, and I'm worried that if the economy turns, will we have bigger problems later on?" Tanaka asked.

Commissioner Przemek Gardias observed that California Avenue has been "unique" even since its origin as the main commercial strip in the former town of Mayfield. The area, he said, is changing because "the structure of Palo Alto retail is changing."

Gardias suggested differentiating between the types of retail that should be encouraged for California Avenue and the types that would be more suitable for Cambridge and Park. Under this "structural distinction," streets peripheral to the main corridor could feature small spaces for mom-and-pop shops and start-up businesses. The main strip, California Avenue, would be left for the larger businesses capable of paying the higher rents.

"Small businesses that we'd like to protect here with some regulations on formulas – they're pretty much being pushed out," Gardias said. "Because we don't have a structure to accommodate that changing character, they have no place to go and they have to ... close down because there is no other alternative for them in Palo Alto."