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Hollister city officials are set to hold a special city council meeting on Oct. 2 to consider declaring a financial emergency and exploring fiscal measures including a possible tax increase and an interfund loan aimed at addressing a budget shortfall.
The city council meeting is set for 5 p.m. in council chambers at City Hall.
The city’s largest union, Service Employees International Union, is expected to hold a rally ahead of the meeting in opposition to any workforce cuts, which city officials have indicated might be necessary if the city fails to find a solution to its fiscal challenges.
According to an agenda staff report, the city’s financial status is a result of multiple years of structural, administrative, and internal control issues “that have limited the city’s ability to accurately evaluate and manage its financial condition.”
When the city approved its 2026-27 budget, it projected a $17.1 million deficit in its general and water funds, which has yet to be resolved.
The report adds that such issues include a lack of completed audited financial statements, annual comprehensive financial reports, and bank reconciliations since the fiscal year 2021-2022.
Another ongoing issue identified by staff includes the general fund, which covers the city’s general operation costs, which staff says is “heavily” subsidizing expenses of the potable water department.
In addressing the financial crisis, the council is slated to consider an $18 million interfund loan from two impact fee funds into its general and water funds to cover current and future expected costs.
The council will also consider pursuing an additional 1% transaction and use tax through state legislation.
Reports in the agenda also repeated warnings by City Manager Ana Cortez that workforce reductions are necessary to meet the city’s financial obligations.
According to the staff report on the proposed loan, the city would borrow from its traffic and parks dedication impact fees, which have a combined $46.4 million in available cash.
Of the total proposed loan, $11 million would go to the general fund and $7 million to the water fund.
The loan is required to be paid back by June 30, 2027, which is the end of the current fiscal year, at up to a 4% interest rate.
According to the report, the loan is a strategy to meet short-term and long-term needs, which includes addressing a $2 million overdrawn general fund and a $3.4 million overdrawn water fund.
The needs identified in the report include payroll, utilities, monthly expenditures, and a one-time payout of accrued legal and leave liabilities associated with the workforce reduction.
“In the short term, a loan from the impact fee funds is necessary to ensure the city can make payroll by October 6, 2026,” the staff report states.
The council recently backed off from a proposed $2 million loan from the sewer fund saying it could not repay it within the same fiscal year, which is a requirement by law.
In order to increase revenues, the council will also consider pursuing state legislation that would allow Hollister to impose up to a 1% transaction and use tax. If legislation is achieved, the proposed tax would still need city and voter approval, according to the agenda report.
According to the California Department of Tax and Fee Administration, a transaction tax is a sales tax and a use tax is a fee for goods purchased from retailers in transactions not subject to the sales tax.
The staff report states the city is considering pursuing a state legislative path because the law prohibits Hollister from taking “ordinary provisions,” because there cannot be a difference in tax rates that exceeds 2% within a county, unless approved through the legislature.
The current sales and use tax in Hollister is 9.25% while the unincorporated area is 8.25%.
“If authority is granted, Hollister residents—not the legislature—would ultimately determine whether a proposed local tax should be approved,” according to the staff report.
Generally, voters approve a sales tax increase through a ballot measure placed by the local jurisdiction.
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