The council voted 11-4 on Tuesday to direct the city attorney to draft a proposed sidewalk vending ordinance. The council will return for a second and final vote in a month or two.
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Before the council members voted, dozens of street vendors packed the chambers and urged the council to legalize their business.
The council also rejected a push by some members to keep an option alive that would have allowed nearby brick-and-mortar businesses to have the power to veto vendor licenses.
Instead, Tuesday's approved directive includes an appeals process that would allow adjacent property owners to voice concerns and submit appeals to proposed sidewalk vendors based on health and safety issues.
"The appeal should be based on health and safety. There's some legal reasoning behind that because it gets too arbitrary if we just leave it for any reason," Councilman Jose Huizar said.
City News Service contributed to this report.