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Hollister’s water department has spent $26.4 million more than it has collected in revenue over the past decade.
That’s according to City Manager Ana Cortez, who told the Hollister City Council that the imbalance will require raising water rates again, cutting staff and gradually repaying the city for what Cortez said were likely water department subsidies over time.
Cortez said she suspects the city’s general fund was tapped to subsidize water service for at least a decade, and noted that the fund is facing a projected $3.6 million deficit for the upcoming fiscal year.
Cortez told BenitoLink cost cutting measures would likely include eliminating positions within the department. She told the City Council that each position costs the city roughly $250,000.
In response to Cortez’s report, the council directed Cortez to cut spending within the water fund and to include a $20.7 million “loan” from the city’s general fund as part of her proposed slate of water rate increases which she expects to present to the council in May. Those funds would then be returned to the city’s general fund.
The council did not discuss details of the proposed cuts to the water department or the recommendation to raise water rates.
The city approved an initial 30% water rate increase in February, expecting at that time it would need to consider an additional increase to ensure the city was charging enough to cover the cost of providing water service.
“At that point in time, I did not have an appreciation on how bad our deficit was in water,” she said regarding the results of a 2025 water rate study.
Meanwhile, the council also approved Cortez’s request to allocate between $5 million and $9 million for economic development initiatives, plus beautification and quality of life projects in the upcoming budget, which is required to be approved by June 30.
The council also directed Cortez to maintain the city’s goal of a 20% budget reserve and to continue reorganizing city departments to create efficiencies and reduce overtime costs.
One challenge the city faces in balancing its budget is that its budgets have not been audited since the 2022-23 fiscal year.
Cortez said it’s possible for the city to operate within its revenues, but that the level of services will suffer.
“It’s going to hurt,” she said.
She urged the council to plan expenses based on predictable, consistent revenue, such as taxes, and not rely on potential grants.
“I’m trying to run the city like a business, and part of being a successful business is to live within your means,” she said.
Councilmember Dolores Morales suggested analyzing the benefit of adding an annual 10-15% reserve goal for the time being, noting that not many cities have that goal.
Finance Director Jessica O’Connell said the city has already used $4 million of its current $11 million in reserves to support city operations.
“Relying on reserves for recurring costs masks structural budget issues and delays necessary long-term financial solutions,” she said.
O’Connell said such reserves are put aside to address unexpected emergencies such as recession impacts and natural disasters.
Cortez said she is still pursuing “mergers” within the departments that would result in eliminating management-level positions.
On April 8, the City Council approved Cortez’s recommendation to dissolve the Community Development Department, thus eliminating three positions. The remaining positions were moved to other departments. The move was in response to a group of community members and business owners complaining about difficulties in the building permit and inspection processes.
Last fiscal year, Hollister cut 31 vacant positions to cover a $10 million deficit.
In her report, Cortez provided a list of positions which cost the city the most in salary, benefits, overtime, liabilities and recruitment fees. Positions ranged from her position, which cost the city $333,331 to a director’s position costing $701,410.
Among the other higher-cost positions, ranging from $334,620 and $536,307, were in the police and fire departments, for battalion chiefs, captains and sergeants.
Cortez said Hollister, like Gilroy and Watsonville, spends about 65% of its budget on personnel costs.
She also spoke about taking advantage of the “identity” of the various city districts. She called the west side of Hollister a “microbusiness heaven,” and voiced support for more business development at the Hollister Municipal Airport.
She said the city should strive to host various events that attract people to spend the weekend in Hollister, referencing the Hollister Independence Rally.
“We want people to come to our town on weekends and leave, that way they don’t impact our parks, they don’t impact our streets, they don’t impact our schools,” she said. “Being a tourist destination is a good thing.”
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