City manager’s proposal to privatize water services draws criticism, council seeks study

Lea este artículo en español aquí.

Days after the city declared a fiscal emergency, a proposal for the city of Hollister to seek a concessionaire to operate its water utilities for 30 years drew heavy criticism and questions from both city employees and the public. 

At the Hollister City Council’s Oct. 5 meeting, after City Manager Ana Cortez unveiled the concessionaire proposal, the council requested a study session before making any decision. 

Cortez told the council that contracting with a concessionaire to provide water, wastewater and sewer services would bring money into the city, which she said is needed for the city to avoid bankruptcy. 

The public, however, criticized the proposal by saying the city has already increased water rates with the aim of stabilizing the department. 

Cortez previously identified deficits in the potable water department as one of several reasons the city has spent through the general fund and reserves. 

Rodrigo Aguilera, who works for the water department, went as far as accusing Cortez of trying to “abolish” the union representing most city employees, the Service Employees International Union (SEIU).

“The heart of our union is the public works [department],” Aguilera said. “You’re trying to get rid of all of us. That’s very disrespectful.”

Cortez sought council approval to begin accepting proposals from companies to operate the water, wastewater and sewer utilities. 

“We’re at a crossroads,” she said. If we don’t get an infusion of funds in the general fund, then we’re going to Chapter 9 [bankruptcy].”

Councilmember Dolores Morales proposed scheduling a study session to explore the concept, calling for experts in water and sewer services to be included, as well as an analysis of potential water rate increases and the impact on the water department’s finances.

“I think it’s premature right now to make a decision on the procurement process,” Morales said. “I’d like to have the study session to analyze, are there local options? Are there alternative options? Is this the best option for the city of Hollister? What does this mean for our community?”

Councilmember Priscilla De Anda said she opposed pursuing the model but supported having study sessions.

“I personally do not like this idea whatsoever, so to be able to use this as a means for us to get creative and to work together as a community, I think, would be extremely beneficial in us moving forward,” De Anda said. 

Councilmember Rudy Picha also said he supported a study session and said he needed time to conduct his own due diligence.

“I don’t even know what questions to ask at this point,” he said.

Cortez said the 30-year commitment would require the selected contractor to pay the city upfront as much as $30 million for the right to provide services while the city maintains the ownership of the assets and authority over rates, policy and major capital project approval. 

The contractor would take on operations, staffing, maintenance, regulatory compliance, financing and other defined financial risks, according to her presentation.

Cortez outlined three general scenarios she called “stabilization,” “comprehensive,” and “transformation,” whereby the city would receive between $10 million and $30 million. She did not explain how she got to the projections and the “stabilization” scenario is considered the most conservative approach.

“We’ll have to do a lot more homework before we know how realistic it is for us to seek out a transformative partner versus a stabilization partner,” she said. 

The tradeoff, she said, is the 30-year term of the contract, which is unusually long compared to other city contracts, and the cost of potentially ending it early if the city is not happy with the services.

Currently, Hollister contracts with Veolia Water West Operating Services to operate the wastewater treatment plant. In February, the state found eight violations at the plant, some dating back to 2024, ranging from excessive odor to overflow from basins. 

The city blamed Veolia for poor management, while Veolia maintained it had completed all maintenance authorized by the city and met its operations responsibilities. 

Though Cortez hinted at one point that the city might consider a search for a new wastewater treatment plan operator, the council in June unanimously approved a one-year extension to Veolia through Aug. 2, 2027. The city is paying $1.5 million for the services during the extension.

As an example of the concessionaire model, Cortez highlighted the city of Rialto’s 2012 partnership with the Rialto Utility Authority. 

She said Rialto secured $35 million for its coffers, $41 million for capital improvements and $168.7 million for concession-related borrowing under the agreement, though she didn’t explain how.

“They have currently an outstanding balance in their principal of $138 million,” she said.

However, Hollister storm water department employee Frank Garcia with SEIU said that despite what Cortez presented, Rialto’s city council had identified priority project delays two years into the agreement and added that a 2024 water revenue shortfall led to a $5.3 million loan from the general fund to cover the gap.

“My ask is for the council to stop and abandon the procurement process,” he said.

Garcia was among 13 public speakers who opposed Cortez’s proposal.

Public speaker Olivia Martinez said a New York Times article reported Rialto residents saw their water rates increase by about 68% between 2012 and 2016. Martinez added that water rates increased in Bayonne, New Jersey by 28% when a private firm took over operations despite officials promising a four-year rate freeze.

“Companies like Veolia and others prioritize profits over public interests,” Martinez said.

No date or timeframe was set for the City Council study season. 

We need your help. Support local, nonprofit news! BenitoLink is a nonprofit news website covering San Benito County. Our team is committed to this community and to providing essential, accurate information to our fellow residents. Producing local news is expensive, and community support keeps the news flowing. Please consider supporting BenitoLink, San Benito County’s public service nonprofit news.