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Three months after city officials sought to tap the sewer fund to patch the budget, the Hollister City Council has reversed course. In a Sept. 9 special meeting, the council agreed to scuttle the sewer fund loan proposal after learning that the approximately $2 million would have to be repaid within the same fiscal year.
“At this point in time that is not feasible,” Finance Director Jessica O’Connell said at the Sept. 9 meeting.
According to the staff report in the agenda, though the finance department was given direction by the council in June to cover negative balances on various funds, it did not move forward with the loan.
While the staff report only states the city would be unable to pay back the loan, officials have been working on cutting costs for the 2026-27 budget in order to match expected revenue.
The funds that have negative balances include the Fourth of July rally with a negative balance of $262,941; two funds related to Federal Emergency Management Agency money totaling $1.07 million; and the landscape and lighting district for $609,297.
According to the resolution approved in June, the term of the loan was for five years at a 4.258% annual interest rate. At the June meeting, O’Connell told the council a 3.81% interest rate would be applied to the loan and called it comparable to other city investments.
The resolution approved in June also states that the sewer services would not be negatively impacted because the department had a balance of $28.7 million.
Neither City Manager Ana Cortez nor O’Connell discussed how the city intends to address the funds that are in deficit or what impact this reversal would have on services or staffing.
When the City Council approved the loan as part of its annual budget approval process, Cortez said the city was facing a $17.1 million deficit between its general and potable water funds. At the time, the city proposed to cover the deficits with the loan and city reserves.
At the time, the council approved a loan of $20 million from the sewer fund to cover deficits in the general, potable water and other funds. Cortez said the amounts of the loan and how much reserves money would be used depended on how many city staffers accept a retirement incentive plan.
The city also approved retirement incentives as a strategy to reduce its salary budget. At the Aug. 3 city council meeting, Director of Human Resources Noel Mink said five employees had inquired about the retirement plan. Since then, no further updates have been made to the council.
None of the five council members commented on rescinding the loan proposal.
Hollister resident John Casey, who is running for city treasurer in the Nov. 3 election, said the inability to move forward with the loan reinforces the city’s need to address its financial challenges through structural solutions rather than temporary funding.
“I encourage continued focus on transparency, multi-year financial planning, rebuilding financial flexibility and aligning recurring revenues with recurring expenditures,” Casey said.
In June, Casey questioned the loan’s legality, arguing that not all of its provisions, including the repayment schedule, had been identified.
Also on Sept. 9, the council quickly and without discussion approved a contract with Hanson Bridgett LLP for city attorney and legal services for a base annual retainer rate of $336,000.
There was no reason given in the staff report for the decision to change firms. The agreement was approved on a 4-1 vote with Councilmember Rolan Resendiz dissenting.
Mayor Roxanne Stephens thanked Jennifer Thompson with Lozano Smith Attorneys at Law for the firm’s service to the city before moving on with the meeting. Lozano Smith had held the contract since 2022.
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