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To avoid cutting jobs in the upcoming fiscal year, the Hollister City Council opted on June 22 to loan $20 million from its sewer department to cover projected deficits totalling $17.1 million in its general and water funds.
The City Council also, for the second time in four months, increased water rates to cover the cost of providing the service.
According to the council meeting staff report, the adopted budget for the 2026-27 fiscal year includes a general fund that faces a $6.4 million deficit and a water fund facing a $10.7 million deficit. But with the loan and use of reserves, the city can avoid cuts to staffing and employee benefits under the adopted budget.
City Manager Ana Cortez said though the city is not cutting positions, it will offer incentives for employees to retire or resign.
For the water department specifically, the loan allows the city to maintain its existing 14 full-time positions. In April, Cortez reported the department overspent $26.4 million in the past decade.
City Finance Director Jessica O’Connell said the city will apply a 3.81% interest rate to the loan, comparable to other city investments, and that staff will present a final resolution for the loan once the city has more current financial numbers.
“I’m hoping that by July we’ll probably get a better idea of where things are at least for fiscal year (2022-23),” she said, noting she expects that report to be completed mid-month.
On Sept. 30, 2024, former City Manager David Mirrione revealed the city had not completed financial audits for three years, beginning with the 2020-21 fiscal year. Since then, the city completed the 2021-22 fiscal year in January. That report found deficiencies in internal controls and financial processes.
Cortez said while the City Council approved the loans, the actual loan amounts will be finalized after determining how many employees accept either a retirement incentive plan or a voluntary resignation package.
She said the long-term goal is to reduce the city’s 201 employee positions to 174. Noting that some employees occupy two positions on paper, she said she hopes to have an updated position list in the fall.
“The moment we know exactly what our workforce needs will be, then we can truly calculate payroll,” Cortez said. “Payroll is the biggest impact to the funds, whether it’s the general fund, whether it’s the water or any other funds.”
She said while the city was not currently proposing layoffs, they will be necessary if too few employees accept retirement and resignation incentives.
“There is no money,” she said. “We’re about to take X amount of money from the sewer fund. That’s our line of credit. If we don’t do reductions, the question is where would the line of credit be next year? There’s only so much money in the sewer fund.”
Several city employees spoke about the impact of reducing positions in relation to the existing workload and the impact to the city of losing experienced labor and institutional knowledge.
Jacob Gomer, a water operator for the city, said his department is responsible for maintaining more than 8,000 water meters, 3,000 valves and more than 1,300 fire hydrants, in addition to infrastructure that he said is more than 60 years old—some of it is almost 100 years old.
“I can tell you from first-hand experience that we already struggle to keep up with the workload at our current staffing levels,” he said. “Accomplishing these responsibilities with only five employees or whatever is being proposed will not be possible.”
He noted that older infrastructure requires more attention because it tends to fail more often and thus requires more frequent repairs.
Hollister resident John Casey argued that if the city was going to seek a loan from the sewer fund, the council needed to include an agreement that defines the term of the loan, interest rate and repayment schedule before approval.
“Without those elements it becomes very difficult to distinguish between a temporary loan and a permanent transfer,” he said.
At the June 15 meeting, Casey said the sewer funds were restricted and could not be transferred unless it’s a documented cost of service reimbursement or a temporary interfund loan.
Water rate increase
Also at the June 22 meeting, the council used a six-month-old Prop. 218 public notice to increase water rates again, saying it’s needed to catch up to the cost of providing the service and arguing that the notice allows for a cumulative rate increase.
Prop. 218 requires jurisdictions to notify property owners of a proposed service rate or tax increase.
The city has set an annual rate increase through fiscal year 2030.
According to the city’s resolution in the staff report for the item, the fixed monthly charge rates will increase from a range of $23.98 and $37.52 to between $33.33 and $52.15 for customers with the three smallest meter sizes.
The rates by volumetric usage for single family, multi-family, commercial and landscape will range between $5.81 and $7.42.
Officials initially approved a 30% increase in water rates in February after officials raised concerns over the financial impact an even higher rate increase would have on lower income households. That increase took effect in April.
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