Agenda packet — Hollister City Council, October 2, 2026

City of Hollister
City Council Agenda
Special Meeting

Friday, October 2, 2026, 5:00 p.m.

City Council Chamber, City Hall
375 Fifth Street, Hollister, CA 95023

Roxanne Stephens, Mayor Ana Cortez, City Manager Rudy Picha, Council Member, District 1 Dayna D. Louie, City Attorney Rolan Resendiz, Council Member, District 2
Dolores Morales, Council Member, District 3
Priscilla de Anda, Council Member, District 4

Gordon Machado, City Treasurer

As of January 1, 2023, the Levine Act (Government Code Section 84308) applies to City Council proceedings involving a license, permit, or other entitlement for use.

Pursuant to Government Code Section 84308, no Council Member shall accept, solicit, or direct a contribution of more than $500 from any party or their agent, or from any participant or their agent, while a proceeding involving a license, permit, or other entitlement for use is pending before the City or for 12 months after a final decision is rendered in that proceeding. Any Council Member who has received a contribution of more than $500 within the preceding 12 months from a party or their agent, or from a participant or their agent, shall disclose that fact on the record of the proceeding and shall not make, participate in making, or in any way attempt to use their official position to influence the decision.

Pursuant to Government Code Section 84308(d), any party to a covered proceeding before the Council is required, and any participant to such a proceeding is strongly urged, to disclose on the record of the proceeding any contribution, including aggregated contributions, of more than $500 made within the preceding 12 months by them or their agent to any Council Member. The disclosure must include the name of the party or participant and any other person making the contribution, if any; the name of the recipient; the amount of the contribution; and the date the contribution was made.

The disclosure shall occur in the manner required under Government Code Section 84308 and any applicable state or local regulations, opinions, or policies. No party or their agent, and no participant or their agent, shall make a contribution of more than $500 to any Council Member during the proceeding or for 12 months after a final decision is rendered in that proceeding.

The foregoing statements do not constitute legal advice, and parties and participants are urged to consult with their own legal counsel regarding the requirements of the law.

NOTICE TO PUBLIC
Persons who wish to address the City Council are asked to complete a speaker’s card and give it to the City Clerk before addressing the City Council. Those who wish to address the City Council on an agenda item will be heard when the presiding officer calls for comments from the audience. City related items not on the agenda will be heard under the Public Input section of the agenda. Following

recognition, persons desiring to speak are requested to advance to the podium and state their name and address. If you are joining us by Zoom, please click on the bottom of your screen to raise your hand. If you are joining us by Zoom using a cell phone, please press *9. After hearing audience comments, the public portion of the meeting will be closed, and the matter brought to the City Council for discussion.

Materials related to an item on this agenda submitted to the City Council after distribution of the agenda packet are available for public inspection in the City Clerk’s Office at City Hall, 375 Fifth Street, Hollister, Monday through Friday, 8:30 a.m. to noon, 1:00 p.m. to 4:30 p.m. (City Hall is closed between 12:00 and 1:00 p.m.)

Requests to make presentations to the City Council should be submitted to the City Clerk’s Office at least ten days before the City Council meeting. It is customary for City staff members to review such matters before the formal presentation so that the City Council may have the benefit of all available data. PowerPoint presentations must be presented to the City Clerk by noon on the day of the City Council meeting.

The public may watch the meeting via live stream at:

City of Hollister Website
https://pub-hollister.escribemeetings.com/

Community Media Access Partnership (CMAP):
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City of Hollister YouTube Channel:
https://www.youtube.com/@cityofhollistercalifornia1489

Public Participation:

The public may attend meetings.

NOTICE: The City Council will hold its public meetings in person, with a virtual option for public participation based on availability. The City of Hollister utilizes Zoom teleconferencing technology for virtual public participation; however, we make no representation or warranty of any kind, regarding the adequacy, reliability, or availability of the use of this platform in this manner. Participation by members of the public through this means is at their own risk. (Zoom teleconferencing may not be available at all meetings.)

If you wish to make a public comment remotely during the meeting, please use the zoom registration link below:
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In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the City Clerk’s Office at (831) 636-4300. Notification of 48 hours prior to the meeting will enable the City to attempt to make reasonable arrangements to ensure accessibility to this meeting [28 CFR 35.102-35.104 ADA Title II].

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Notice to anyone attending any public meeting: The meeting may be broadcast live on Cable Channel 17 and/or recorded or photographed. Recent City Council meetings may also be viewed at www.CMAP.com and periodically on Cable Channel 17.

To access written translation during the meeting, please click this link:

Para acceder a la traducción durante la reunión, por favor haga clic en el enlace:

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1.CALL TO ORDER

2.PLEDGE OF ALLEGIANCE

3.ROLL CALL

4.CLOSED SESSION REPORT

5.COUNCIL BUSINESS

5.1 A RESOLUTION DECLARING A STATE OF FINANCIAL EMERGENCY,

ESTABLISHING FINANCIAL RECOVERY AND STABILIZATION PRIORITIES, AND DIRECTING IMMEDIATE ACTIONS TO PROTECT THE CITY’S SOLVENCY AND

CONTINUITY OF ESSENTIAL MUNICIPAL SERVICES
COUNCIL NEXT STEPS:

Approve a declaration of financial emergency that documents financial challenges and organizational elements that have created a financial crisis for FY26-27 and important next steps necessary to protect the City’s financial solvency.

5.2 RESOLUTION AUTHORIZING AN INTERFUND LOAN FROM IMPACT FEE FUNDS TO THE GENERAL AND WATER FUNDS IN THE AMOUNT OF $18 MILLION COUNCIL NEXT STEPS:

Adopt a resolution authorizing a short-term interfund loan of $18M from the City's Impact Fee Funds (Fund 304 – AB 1600 Traffic Impact Fee and Fund 205-Park Dedication Impact Fee) to the General Fund ($11M) and Water Fund ($7M), payable in full by June 30, 2027, at an interest rate of 3%-4%.

5.3 A RESOLUTION AUTHORIZING THE CITY MANAGER TO PURSUE SPECIAL

STATE LEGISLATION PROVIDING THE CITY OF HOLLISTER AUTHORITY TO

IMPOSE, SUBJECT TO FUTURE CITY COUNCIL ACTION AND VOTER

APPROVAL, AN ADDITIONAL TRANSACTIONS AND USE TAX OF UP TO ONE

PERCENT
COUNCIL NEXT STEPS:

1. Adopt a resolution authorizing the City Manager, or designee, to pursue special state legislation that would permit the City of Hollister to impose, subject to future City Council action and voter approval, an additional transactions and use tax of up to one percent (1%) notwithstanding the limitation contained in California Revenue and Taxation Code Section 7251.1; and

2. Further authorize the City Manager, or designee, to work with the City's state City of Hollister City Council Meeting

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legislative delegation, legislative advocates, City Attorney, California Department of Tax and Fee Administration (CDTFA), and other appropriate parties to develop and advance the necessary legislation; and

3. This action would not impose a tax, increase the current sales tax rate, or place a tax measure on the ballot. It would only seek state authorization that would preserve the City's ability to consider such an option in the future.

6.ADJOURNMENT

7.VERIFICATION OF AGENDA POSTING
The agenda for the City Council of the City of Hollister special meeting of October 2, 2026 was posted on the bulletin board at City Hall on October 1, 2026 per Government Code Section 54954.2.

City of Hollister City Council Meeting

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PUBLIC PARTICIPATION NOTICE
The public may attend meetings in person or watch meetings via live stream at:

City of Hollister Website:
https://hollister.ca.gov/government/agendas___minutes.php

Community Media Access Partnership (CMAP):
http://cmaptv.com/government/

City of Hollister YouTube Channel:
https://www.youtube.com/@cityofhollistercalifornia1489

If you wish to make a public comment remotely during the meeting, please use the Zoom registration link below:

https://us02web.zoom.us/webinar/register/WN_MNOr95ZCQrWzERqd5zRuwQ

In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the City Clerk’s Office at (831) 636-4300. Notification 48 hours prior to the meeting will enable the City to attempt to make reasonable arrangements to ensure accessibility to this meeting [28 CFR 35.102-35.104 ADA Title II].

Notice to anyone attending any public meeting: The meeting may be broadcast live on Cable Channel 17 and/or videotaped or photographed. Recent City Council meetings may also be viewed at www.CMAP.com and periodically on Cable Channel 17.

To access written translation during the meeting, please scan the QR Code or click this link | Para acceder a la traducción durante la reunión, por favor escanee el código QR o haga clic en el enlace:
https://attend.wordly.ai/join/NLJC-7137
Choose Language and Click Attend | Seleccione su lenguaje y haga clic en asistir

Use a headset on your phone for audio or read the transcript on your device. | Use sus auriculares para escuchar el audio o leer la transcripción en el dispositivo.

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STAFF REPORT

HOLLISTER CITY COUNCIL
MEETING DATE: October 2, 2026
REPORT # City Manager-2026-46

AGENDA ITEM: A RESOLUTION DECLARING A STATE OF FINANCIAL

EMERGENCY, ESTABLISHING FINANCIAL RECOVERY AND STABILIZATION PRIORITIES, AND DIRECTING IMMEDIATE ACTIONS TO PROTECT THE CITY’S

SOLVENCY AND CONTINUITY OF ESSENTIAL MUNICIPAL SERVICES

DEPARTMENT: City Manager
DEPARTMENT HEAD: Ana Cortez, City Manager

COUNCIL NEXT STEPS: Approve a declaration of financial emergency that documents financial challenges and organizational elements that have created a financial crisis for FY26-27 and important next steps necessary to protect the City’s financial solvency.

RECOMMENDATION
City Manager recommends that the City Council:

1. Adopt the attached Resolution declaring a Financial Emergency in the City of Hollister;

2. Recognize that immediate and sustained corrective measures are necessary to protect the City's liquidity, avoid insolvency, preserve essential municipal services, and restore long-term financial stability;

3. Establish financial stabilization, preservation of essential services, restoration of General Fund reserves, and completion of outstanding financial audits as immediate organizational priorities;

4. Direct the City Manager and Finance Director to provide regular reports to the City Council concerning the City's cash position, revenues, expenditures, liabilities, reserves, interfund activity, and progress toward financial recovery.

BACKGROUND
The City of Hollister is confronting significant financial conditions that require immediate corrective action. The City's current financial challenges did not develop during a single fiscal year. They reflect accumulated structural, financial, administrative, and internal- control issues that have limited the City's ability to accurately evaluate and manage its financial condition. Among the conditions currently facing the City are:

 Lack of adequate General Fund reserves;
 Lack of completed audited financial statements since Fiscal Year 2021-2022  Lack of Annual Comprehensive Financial Reports since Fiscal Year 2021 -2022  Lack of bank reconciliations since Fiscal Year 2021-2022  Historical weaknesses in cash management;
 Insufficient financial reporting to the City Council;  Water enterprise fund that has been insolvent since 2018 and heavily subsidized by the General Fund since then;
 Depletion of the General Fund due to significant subsidies to the Water Enterprise Fund;

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 Historical delays in rate increases for Water and Sewer and absence of revenues funds for stormwater and street sweeping;
 Weaknesses in contract, lease, revenue, and asset administration;  Significant labor, retirement, contractual, and other ongoing obligations;  Insufficient segregation of certain financial duties and internal controls;  Concerns regarding historical interfund activity and the use of restricted and enterprise resources;
 Incomplete information regarding the City's total financial position; and  Insufficient historical coordination and reporting among the City's financial oversight functions.

These conditions have materially limited the City's financial flexibility and require extraordinary attention from the City Council and administration.

CHANGE IN CITY FINANCIAL MANAGEMENT
A new City Manager assumed responsibility for City administration in February 2026, followed by a new Finance Director in March 2026. Upon assuming their responsibilities, the City Manager and Finance Director began a comprehensive review of the City's finances and financial-management practices.

Corrective measures initiated since that time include:

 Securing professional auditing services;
 Implementing strengthened cash-management procedures;  Reviewing and strengthening banking controls;
 Establishing improved payroll protocols;
 Improving contract administration;
 Reviewing leases and outstanding City receivables;
 Reviewing interfund activity;
 Strengthening segregation of financial responsibilities;  Improving financial reporting;
 Reviewing City assets and liabilities; and
 Establishing additional financial controls.

These actions have provided management and the City Council with substantially greater visibility into the City's financial condition. They have also identified financial conditions requiring additional corrective action.

A declaration of financial emergency serves several important purposes.

Most importantly, it establishes a formal legislative record that the City Council recognizes the seriousness of the City's financial condition and is directing the organization to take immediate action. The declaration would establish that protecting liquidity, meeting lawful financial obligations, preserving essential services, protecting restricted funds, restoring reserves, and avoiding in solvency are immediate priorities of the City.

ESTABLISHING THE FACTUAL RECORD
A formal Council declaration documents the conditions confronting the City at the time corrective actions are undertaken. This is particularly important when the City may be

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required to make difficult decisions involving:

 Workforce levels;
 Organizational consolidation;
 Service delivery;
 Capital expenditures;
 Contracts;
 City assets;
 Utility operations;
 Revenue collection;
 Fees and rates;
 Cashflow challenges met with short term solutions;
 Questionable Interfund transactions; and
 Other significant expenditures.

A documented legislative record demonstrates that legislative and operational decisions are being considered within the context of an identified financial condition and a comprehensive recovery strategy.

The City Manager and Finance Director recommend specific elements of a comprehensive recovery strategy:

1. Preserve Cash and Liquidity
The City must maintain sufficient available cash to meet payroll, contractual obligati ons, essential operating expenses, and other lawful obligations as they become due.

Cash preservation should therefore be considered when evaluating all significant discretionary expenditures.

2. Restore General Fund Reserves
The City's lack of adequate General Fund reserves leaves the organization with limited capacity to absorb unexpected expenditures, economic downturns, revenue disruptions, emergencies, or other financial shocks. The proposed Resolution establishes the restoration of reserves as a fundamental financial objective and establishes a goal of rebuilding appropriate General Fund reserves no later than Fiscal Year 2028-29, or sooner if financially feasible.

3. Reduce Ongoing Expenditures
The City must align ongoing expenditures with sustainable ongoing revenues.

This may require workforce reductions, organizational consolidation, elimination or restructuring of programs, changes in service delivery, reduced reliance on overtime, management of vacancies, contract reductions, and other expen diture-control measures. Any personnel actions will remain subject to applicable personnel rules, memoranda of understanding, due-process requirements, and labor law.

4. Collect Revenues Owed to the City
The City should immediately identify and pursue rents, lease payments, reimbursements, accounts receivable, fees, contractual payments, and other revenues legally owed to the City. Where a tenant or lessee is in default, the City should enforce applicable contractual remedies, including default notices, co llection, termination, or

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recovery of possession where appropriate and legally authorized.

5. Review and Monetize Underutilized Assets
The City should identify surplus or underutilized real estate, vehicles, equipment, facilities, and other assets. Where legally and financially appropriate, these assets should be considered for sale, lease, concession, redevelopment, consolidation, or other productive use.

6. Stabilize Utility Enterprises
Water, wastewater, sewer, and other enterprise operations should be evaluated to ensure that revenues appropriately support the lawful costs of providing service.

Staff is separately evaluating public-private partnerships and utility concession structures that could potentially provide capital investment, operating expertise, and risk transfer while maintaining public ownership and public policy control. Any utility-rate adjustment will remain subject to applicable constitutional and statutory requirements.

7. Evaluate a Stormwater Utility
The City should evaluate establishment of a legally compliant stormwater utility or dedicated funding mechanism so that stormwater services have an identifiable and sustainable funding source rather than creating an ongoing burden upon the General Fund.

8. Seek State Assistance
The City's financial recovery strategy should include seeking State legislative assistance where appropriate, including potential legislation addressing limitations on the City's local sales and use tax authority.

9. Strengthen Financial Controls
The City Manager and Finance Director should continue implementing improvements involving:

 Banking;
 Cash management;
 Payroll;
 Procurement;
 Contract administration;
 Accounts payable;
 Accounts receivable;
 Lease administration;
 Interfund accounting;
 Asset management;
 Reconciliations;
 Segregation of duties; and
 Financial reporting.

10. Complete Outstanding Audits, Annual Reports and Bank Reconciliation Completion of the City's outstanding financial audits must remain a priority.

Reliable audited financial information is essential for Council oversight, financing decisions, financial planning, public accountability, and restoration of confidence in the

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City's financial administration.

The purpose of financial recovery is to intervene while the City retains meaningful choices. As liquidity deteriorates, options become progressively more limited. Decisions that can be implemented deliberately today may become unavoidable emergency actions later. The City therefore should not wait for an inability to meet payroll or other obligations before implementing corrective measures. The Council's declaration establishes that the City's financial condition warrants immediate action while management continues developing reliable financial information and implementing a sustainable financial structure.

FISCAL IMPACT: Adoption of a Declaration of Financial Emergency does not have a fiscal impact. The actions recommended in this report will have various impacts.

PREVIOUS COUNCIL OR COMMISSION ACTION:

CEQA: N/A

ATTACHMENTS:

1. Resolution Approving Declaration of Financial Emergency

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CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 Q2 Fiscal Stabilization Strategy
Q1 is complete. The structural measures identified in June remain necessary —and the City now faces an immediate liquidity challenge.

City Manager presentation to City Council
From budget balancing to cash preservation and structural reform 1Page 11 of 48

CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 Q1 ended. The core financial problem did not.

The measures staff recommended in June have not materially changed.

June assessment
The City needed recurring expenditure
reductions, stronger revenue collection,
and structural changes to restore fiscal
sustainability.

Q1 result
Q1 did not produce a change large enough
to eliminate the underlying gap. The same
basic corrective measures remain before
us.

Q2 reality
The issue is no longer only the annual
budget. Cash availability and the ability to
meet payroll now require immediate
attention.

The strategy must address both liquidity now and structural balance over time. 2Page 12 of 48

CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 A key assumption has changed
The anticipated ability to borrow from the Sewer Fund is not available as a near -term solution.

Previous working assumption
Interfund borrowing from Sewer could
provide liquidity while longer-term
corrective actions were implemented.

BORROW
Current position
That borrowing is not available as
assumed. The City therefore cannot rely
on an internal loan to bridge the General
Fund cash problem.

ACT NOW
This removes a major bridge option and increases the urgency of Q2 action. 3Page 13 of 48

CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 Q2 begins with a liquidity threat
The immediate objective is to preserve the City’s ability to meet payroll and essential obligations.

PAYROLL
RISK
Immediate
Protect cash and reduce
discretionary outflows.

Near term
Capture revenues and implement
workforce savings.

Structural
Create recurring revenue and reduce
ongoing costs.

Transformational
Evaluate alternative utility operating
and capital models.

Q2 requires simultaneous action on all four horizons.
4Page 14 of 48

CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 The stabilization strategy
Eight coordinated actions —some immediate, some requiring Council, labor, voter, legislative, or transactional processes. 1 Sacramento
remedy
Seek special legislation addressing the City’s
sales-tax cap.2 Stabilize and
Create utilities
Establish a legally supportable stormwater
funding mechanism; increase rates to ensure
sustainability.
3 Reduce Costs
Reduce staffing costs across the organization
while protecting essential services. Restrict
overtime to emergencies, minimum staffing
and specifically authorized operational needs.
4 Collect what is
due
Collect fees, rents, leases, reimbursements
and other amounts historically waived, under-
billed or not pursued.
5 Complete
Outstanding
Financial
Information
6 Cash
management
Increase investment discipline and lawful yield
within the City’s investment policy, liquidity
needs and California law. Reduce ongoing
expenditures. Collect revenues owed to the
city.
7 Utility
concession
Evaluate competitive procurement of a
qualified concessionaire/operator for utility
operations and capital obligations.
8 Cash controls Sequence payments, purchasing and
commitments around essential services and
available liquidity.
5 Produce essential information: Audits, CAFR,
bank reconciliations

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CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 Revenue strategy: create, collect, and protect
The City cannot solve a structural imbalance only by cutting expenditures.

Legislative remedy
Pursue special state legislation that would
provide Hollister a pathway to additional
local sales-tax capacity. Any tax measure
would still require the applicable local
approval and voter process.

Utility funding
Create a legally compliant stormwater
utility or other dedicated funding
mechanism. Adjust rates for existing
utilities to ensure long term sustainability.

Revenue collection
Inventory every City fee, rent, lease,
franchise payment, reimbursement and
receivable. End informal waivers and non-
collection unless expressly authorized and
legally supportable.

Principle: services and public assets should be priced, billed and collected consistently under adopted law and policy.
6Page 16 of 48

CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 Expenditure strategy: reduce the recurring cost base
The objective is a smaller, financially supportable organization —not temporary savings that disappear next year.

Workforce
Reduce workforce costs across
departments using lawful personnel
processes, attrition, vacancies,
reorganizations and, where necessary,
reductions in force. Protect minimum
service and regulatory requirements.

Reporting
Prioritize production of accurate
financial information for council review.

Ensure that City Treasurer acts
according to the tasks expected of their
office per Municipal Code.

Operating discipline
Freeze or defer nonessential spending,
scrutinize contracts and purchasing,
and require a cash-impact review
before new commitments are made.

Every recurring dollar reduced lowers the amount of new revenue required to reach balance. 7Page 17 of 48

CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 Cash management: liquidity first, yield second
Investment practices can improve earnings, but public funds must remain safe and available when needed. 1 SAFETY
2 LIQUIDITY
3 YIELD
Review idle balances, maturity ladders, banking arrangements and investment options permitted by the City’s adopted investment policy and California Government Code. “More aggressive” should mean more active and disciplined —not more speculative. 8Page 18 of 48

CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 Utility concession: evaluate a different business model A concession can be explored as a competitive, long-term transaction —subject to legal, financial, labor, ratepayer and Council review.

Potential structure
Competitively select a private
concessionaire/operator to operate defined
utility assets and services for a long term,
with performance standards, capital
obligations, rate provisions, reporting and
City oversight.

Potential City objectives
Upfront consideration or committed capital
investment; predictable operating
standards; transfer of specified
operating/capital risks; improved asset
management; and preservation of public
ownership where structured that way.

Required protections
Independent valuation; competitive
procurement; ratepayer protections; labor
analysis; environmental and regulatory
compliance; performance guarantees;
default/termination rights; transparency;
and confirmation of all required approvals.

This is an evaluation path —not a recommendation to transfer the utilities without due diligence and public process.
9Page 19 of 48

CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 Q2 action sequence
Move immediately on actions within administrative authority while preparing Council, labor, legislative and public processes in parallel.

NOW Cash preservation Overtime controls • spending restrictions • receivables/rent collection • cash forecast • investment review
30 DAYS Structural actions Workforce plan • fee/rent inventory • stormwater pathway • legislative strategy • utility transaction advisors/procurement plan
60–90 DAYS
Decisions &
implementation Council actions • bargaining where required • Sacramento advocacy • revenue implementation • concession market/procurement steps
ONGOING Measure results Weekly cash/payroll forecast • monthly savings/revenue dashboard • service impacts • milestones and corrective action
1 0

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CITY OF HOLLISTER | Q2 FISCAL STABILIZATION September 2026 The decision before us
The City needs a coordinated strategy that preserves payroll capacity while changing the long -term financial trajectory.

Q1 confirmed the problem.

Q2 requires execution.

The proposed direction is to pursue all available
lawful tools in parallel: new recurring revenue,
lower recurring costs, full collection of City
revenues, stronger cash management, and
evaluation of a utility concession model.

Q2 PRIORITY

PRESERVE

PAYROLL
while building a sustainable
operating model
1 1

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27244839.2
RESOLUTION NO. 2026-____

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HOLLISTER

DECLARING A STATE OF FINANCIAL EMERGENCY, ESTABLISHING FINANCIAL

RECOVERY AND STABILIZATION PRIORITIES, AND DIRECTING IMMEDIATE ACTIONS TO PROTECT THE CITY’S SOLVENCY AND CONTINUITY OF ESSENTIAL

MUNICIPAL SERVICES
WHEREAS, the City Council of the City of Hollister (“City”) has a fundamental fiduciary responsibility to safeguard public funds, maintain the financial stability of the City, protect restricted and enterprise funds, preserve essential public services, and ensure the long-term fiscal sustainability of municipal operations; and WHEREAS, the City has experienced significant financial and administrative conditions that have materially impaired its fiscal position and its ability to accurately evaluate its financial condition, including the absence of adequate General Fund and Water Fund reserves and the absence of completed audited financial statements since Fiscal Year 2022-2023; and
WHEREAS, the City Council finds that historical weaknesses in the management and oversight of cash, contracts, leases, revenues, assets, and other financial resources contributed to the deterioration of the City’s financial condition; and WHEREAS, the City has substantial contractual, labor, pension, retirement, and other long-term financial obligations that must be considered together with the City's available revenues and cash resources; and
WHEREAS, a new City Manager assumed responsibility for the administration of the City in February 2026, followed by the appointment of a new Finance Director in March 2026; and
WHEREAS, upon assuming their respective responsibilities, the City Manager and Finance Director promptly began bank reconciliations (3 year is arears), financial audits, performing analytical procedures to review the City's financial practices, systems, accounts, cash position, contracts, payroll processes, banking relationships, and internal controls; and
WHEREAS, the City Manager and Finance Director promptly initiated corrective measures, including securing professional auditing services, strengthening cash - management practices, implementing improved contract-administration procedures, establishing additional payroll protocols, reviewing banking authority and administration, strengthening financial controls and accountability, and ensuring segregation of duties and internal controls; and

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27244839.2
WHEREAS, this review has identified significant financial and administrative concerns requiring immediate corrective action;
WHEREAS, this review has identified significant financial and administrative concerns requiring immediate corrective action;
WHEREAS, this review has identified significant financial and administrative concerns requiring immediate corrective action, including:

1. The use or transfer of restricted, special-revenue, and/or enterprise resources for expenditures or cash needs attributable to the General Fund without sufficient documentation, controls, or demonstrated legal and accounting authority;

2. Inadequate internal financial controls and insufficient checks and balances;

3. Insufficient segregation of financial duties and responsibilities;

4. The absence of adequate General Fund reserves;

5. Inadequate, incomplete, or untimely financial reporting to the City Council;

6. Weaknesses in cash management, contract administration, lease administration, revenue collection, asset management, payroll administration, and banking controls; and

7. The absence of reliable and timely audited financial statements necessary to provide the City Council, management, creditors, employees, residents, and other stakeholders with a complete assessment of the City’s financial condition; and WHEREAS, the City Council recognizes that the City must simultaneously address immediate cash-flow and solvency concerns while restructuring operations to establish long-term financial sustainability; and
WHEREAS, failure to take immediate and substantial corrective action could threaten the City’s ability to meet payroll, satisfy contractual and debt obligatio ns, maintain legally required services, operate essential utilities, preserve public safety, and continue other core municipal services; and
WHEREAS, the City Council desires to clearly communicate to employees, labor organizations, residents, businesses, creditors, governmental partners, and the State of California that preservation of the City’s financial solvency and continuity of essential municipal services constitute the City’s highest immediate fiscal priorities; and WHEREAS, the declaration of a financial emergency is intended to establish the urgency and policy direction necessary to restore fiscal stability and does not, by itself, supersede applicable constitutional, statutory, contractual, and all other legal requirements.

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27244839.2

NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF HOLLISTER AS FOLLOWS:

SECTION 1. DECLARATION OF FINANCIAL EMERGENCY
The foregoing recitals are true and correct and are incorporated into this Resolution.

Based upon the conditions described herein, the City Council hereby declares a State of Financial Emergency in the City of Hollister and determines that immediate, sustained, and extraordinary fiscal and administrative measures are necessary to protect the City from insolvency, restore financial stability, maintain essential municipal services, and rebuild public confidence in the stewardship of City resources.

SECTION 2. FINANCIAL STABILIZATION AS AN ORGANIZATIONAL PRIORITY Until the financial emergency is terminated by subsequent action of the City Council, preservation of liquidity, protection of legally restricted funds, payment of lawful obligations, maintenance of essential services, restoration of reserves, and avoidance of insolvency shall constitute primary organizational and budgetary priorities of the City.

SECTION 3. DISPOSITION AND PRODUCTIVE USE OF CITY ASSETS The City Manager is directed to conduct a comprehensive review of City-owned real property, buildings, equipment, vehicles, machinery, and other assets and identify assets that are underutilized, nonessential, surplus, or capable of generating revenue.

The City Manager shall bring forward appropriate recommendations for sale, lease, concession, disposition, consolidation, redevelopment, or other productive use of such assets consistent with applicable law.

SECTION 4. PUBLIC-PRIVATE PARTNERSHIPS AND UTILITY CONCESSIONS The City Manager is authorized and directed to investigate and, where appropriate, initiate competitive procurement processes for concessionaires, operators, public- private partnerships, or other alternative service-delivery arrangements involving City utilities and other revenue-producing municipal assets.

Any final agreement requiring City Council approval shall be returned to the City Council for consideration.

The objective shall be to maximize the financial and operational value of City assets while protecting ratepayers, maintaining public ownership where required or determined appropriate, ensuring service reliability, and protecting the long-term interests of the community.

SECTION 5. STATE LEGISLATIVE ASSISTANCE

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27244839.2
The City Manager is authorized and directed to pursue assistance from the State of California, including special legislation or other available legislative remedies that could provide the City with additional local revenue authority, including relief from or modification of applicable limitations affecting the City's ability to increase local sales and use taxes.

SECTION 6. STORMWATER UTILITY
The City Manager is directed to proceed with evaluation and development of a legally compliant stormwater utility or other dedicated funding mechanism for stormwater services so that the cost of providing stormwater services is appropriately identified and supported by a sustainable revenue source rather than creating an ongoing burden on the General Fund.

Any rate, assessment, fee, or charge shall be established only in accordance with all applicable constitutional and statutory requirements.

SECTION 7. MONTHLY FINANCIAL REPORTING
Beginning immediately, the Finance Director shall provide the City Council with monthly financial reports sufficient to allow the Council and the public to understand the City's financial position.

At a minimum, such reporting should include available cash, General Fund revenues and expenditures, budget-to-actual results, fund balances where reliably available, payroll obligations, accounts payable, major receivables, enterprise fund activity, material interfund balances, debt obligations, and other ind icators determined necessary by the City Manager or Finance Director.

SECTION 8. WORKFORCE AND ORGANIZATIONAL RESTRUCTURING
The City Manager is directed to continue evaluating and implementing workforce reductions, organizational consolidations, vacancies, transfers, restructuring, service- delivery changes, elimination or consolidation of functions, and other personnel measures necessary to align ongoing expenditures with sustainable ongoing revenues.

Such actions shall be implemented consistently with the authority of the City Manager and all applicable law, personnel rules, memoranda of understanding, contractual obligations, and meet-and-confer requirements.

The City Council expressly recognizes that maintaining a workforce structure the City cannot sustainably finance would further threaten essential services and the City's long- term solvency.

SECTION 9. RESTORATION OF GENERAL FUND RESERVES

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The City hereby establishes the restoration of General Fund reserves as a fundamental financial objective.

The City Manager and Finance Director shall develop a financial recovery plan designed to establish and thereafter maintain an appropriate General Fund reserve no later than Fiscal Year 2028-2029, and sooner if financially feasible.

The City Manager shall return to the City Council with recommendations concerning the appropriate reserve target, annual funding requirements, and policies governing the use and replenishment of reserves.

SECTION 10. IMMEDIATE COLLECTION OF CITY REVENUES
The City Manager is directed to immediately identify and pursue all amounts lawfully owed to the City, including rents, leases, concession payments, reimbursements, accounts receivable, fees, contractual payments, and other revenues.

The City shall not informally waive, delay, or fail to collect amounts contractually or legally due unless such action is specifically authorized by law or by the official having lawful authority to do so.

For tenants or lessees in default, the City Manager shall cause appropriate notices of default and collection actions to be initiated and, when payment or an acceptable cure is not timely made, pursue termination, eviction, recovery of possession, or other remedies available under the applicable agreement and law.

SECTION 11. CONSOLIDATION AND REDUCTION OF OPERATING COSTS The City Manager is directed to consolidate positions, functions, facilities, programs, contracts, technology, equipment, and administrative operations wherever such consolidation can reasonably reduce operating costs while maintaining legally required and essential municipal services.

SECTION 12. UTILITY FINANCIAL SUSTAINABILITY
The City Council declares that City utility enterprises must be operated on a financially sustainable basis.

The City Manager and Finance Director are directed to evaluate utility revenues, expenditures, capital requirements, debt obligations, reserves, and rates and to bring forward appropriate rate adjustments and financial recommendations necessary to support the lawful costs of providing utility services.

Any adjustment to rates shall comply with all applicable provisions of the California Constitution legal requirements.

SECTION 13. PROTECTION OF RESTRICTED AND ENTERPRISE FUNDS

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Effective immediately, no restricted, special-revenue, enterprise, trust, bond, impact-fee, grant, or other legally restricted funds shall be used to support General Fund operations except where such expenditure, reimbursement, allocation, or transfer is expressly authorized by the Council and properly documented.

The Finance Director shall establish controls sufficient to document the legal and accounting basis for material interfund transfers, loans, reimbursements, and cost allocations.

SECTION 14. INTERNAL FINANCIAL CONTROLS
The City Manager and Finance Director are directed to continue strengthening the City's internal control environment, including:
 segregation of financial duties;
 cash-management controls;
 banking authorization and reconciliation procedures;
 payroll controls;
 procurement and contract controls;
 accounts payable and receivable controls;
 lease administration;
 asset management;
 interfund accounting;
 investment controls;
 reconciliation procedures; and
 periodic financial reporting.

No single employee should exercise incompatible financial functions when reasonable segregation of duties can be established.

SECTION 15. AUDITS AND FINANCIAL REPORTING
Completion of the City's outstanding annual financial audits shall remain a priority of the City.

The City Manager and Finance Director are directed to provide the City's independent auditors with the personnel, records, information, and administrative support reasonably necessary to complete outstanding audits as expeditiously as practicable.

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Material audit findings, management-letter comments, internal-control deficiencies, and corrective-action plans shall be presented to the City Council.

SECTION 16. CITY TREASURER PARTICIPATION AND REPORTING
Consistent with the lawful authority of the independently elected City Treasurer, the City Manager and Finance Director shall establish procedures for regular coordination and reporting regarding the investment, custody, safeguarding, and financial condition of City funds.

Nothing in this Resolution shall expand, diminish, or alter the statutory or locally established authority of the City Treasurer.

SECTION 17. ADDITIONAL EMERGENCY FINANCIAL MEASURES
The City Manager is authorized and directed, within the authority delegated to the City Manager by law, ordinance, resolution, adopted budget, personnel rules, and City policy, to take any additional lawful administrative and financial measures reasonably necessary to avoid insolvency, preserve liquidity, protect restricted funds, meet payroll and other lawful obligations, and maintain essential City services.

Where a proposed action requires approval of the City Council, voter approval, compliance with Proposition 218, collective bargaining, competitive procurement, or another legally required process, the City Manager shall initiate the necessary process and return the matter to the appropriate decision-making body.

SECTION 18. FINANCIAL EMERGENCY RECOVERY PLAN
The City Manager and Finance Director shall maintain a Financial Emergency Recovery Plan identifying, to the extent reasonably ascertainable:

1. Current and projected General Fund cash position;

2. Current and projected revenues and expenditures;

3. Outstanding liabilities and obligations;

4. Interfund balances and obligations;

5. Workforce savings;

6. Asset disposition opportunities;

7. Revenue enhancement measures;

8. Utility stabilization measures;

9. Progress toward completion of outstanding audits;

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27244839.2

10. Progress toward restoration of General Fund reserves; and

11. Additional corrective measures necessary to maintain solvency.

Progress under the Financial Emergency Recovery Plan shall be reported to the City Council as part of the City's regular financial reporting.

SECTION 19. NO IMPAIRMENT OF LEGAL OBLIGATIONS
Nothing contained in this Resolution shall be interpreted as authorizing the impairment of legally enforceable obligations, the expenditure of legally restricted funds for unauthorized purposes, or the circumvention of applicable labor, pension, contracting, procurement, public-finance, constitutional, or due-process requirements.

Rather, this Resolution establishes the City Council's policy that every lawful mechanism available to the City shall be evaluated and, where appropriate, implemented to restore the City's financial stability.

SECTION 20. CONTINUING DECLARATION
The financial emergency declared by this Resolution shall remain in effect until the City Council determines, based upon reliable financial information and recommendation from the City Manager and Finance Director, that the City has achieved sufficient liquidity, financial controls, structural budget balance, reliable financial reporting, and progress toward adequate reserves to terminate the declaration.

SECTION 21. SEVERABILITY
If any provision, section, subsection, sentence, clause, or phrase of this Resolution is for any reason held invalid or unenforceable, such determination shall not affect the validity of the remaining provisions of this Resolution.

SECTION 22. EFFECTIVE DATE
This Resolution shall take effect immediately upon its adoption.

PASSED AND ADOPTED by the City Council of the City of Hollister at a regular meeting held on ____________, 2026, by the following vote:

AYES:

NOES:

ABSTAIN:

ABSENT:

Roxanne Stephens, Mayor

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27244839.2
ATTEST:

City Clerk
APPROVED AS TO FORM:

City Attorney

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27240882.3

STAFF REPORT

HOLLISTER CITY COUNCIL
MEETING DATE: October 2, 2026
REPORT # Finance-2026-48

AGENDA ITEM: RESOLUTION AUTHORIZING AN INTERFUND LOAN FROM

IMPACT FEE FUNDS TO THE GENERAL AND WATER FUNDS IN THE AMOUNT OF $18 MILLION

DEPARTMENT: Finance Department
DEPARTMENT HEAD: Jessica O'Connell, Finance Director

COUNCIL NEXT STEPS: Adopt a resolution authorizing a short-term interfund loan of $18M from the City's Impact Fee Funds (Fund 304 – AB 1600 Traffic Impact Fee and Fund 205-Park Dedication Impact Fee) to the General Fund ($11M) and Water Fund ($7M), payable in full by June 30, 2027, at an interest rate of 3%-4%.

BACKGROUND
The City Manager and Director of Finance have met with Council on several occasions to communicate the City's fragile financial outlook and the need for short-term and long- term financial solutions and workforce reductions. The City has not conducted an audit of its financial records since FY21-22; the City has not submitted Consolidated Annual Financial Reports to the State nor had conducted any bank reconciliations since FY21 -

22. This lack of management discipline poses a high financial risk that has also contributed to a downgraded S&P credit rating; higher interest rates on the City’s debt, depletion of reserves and impacted the City's ability to access third party financing.

Inadequate past financial monitoring practices have resulted in several active and inactive funds with negative balances. These negative balances are reflected as General Fund expenditures that were inappropriately posted to funds with no matching revenue. In short, the City has several negative balances in funds with no revenue source to pay these amounts. These negative balances will need to be covered by the General Fund if no other source is appropriate.

Eleven funds are currently under internal audit. As a resu lt of that review, City staff have determined that the General Fund is overdrawn by $2M and the Water Fund is overdrawn by $3.4M.

DISCUSSION
To remedy the overdrawn condition of the General Fund and Water Fund, City staff is recommending several proposals to address both short-term and long-term financial needs. In the short term, a loan from the Impact Fee Funds is necessary to ensure the City can make payroll by October 6, 2026. If the City does not have a reasonable belief

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27240882.3
that it can make payroll in subsequent pay cycles, allowing employees to continue working will subject the City to claims.

Sewer Fund Not a Feasible Source
Finance evaluated the possibility of borrowing from the Sewer Fund, but determined this is not a feasible approach because existing Sewer revenue is pledged against the Wastewater Bond.

Impact Fee Funds as the Proposed Source
The City's options for a source of loan funds are limited due to existing negative fund balances and the restricted nature of many of the City's funds. In consultation with the City's legal counsel, it was determined that the City may borrow from impact fee fund balances as a short-term loan, payable within the same fiscal year. The proposed terms are repayment of the loan by June 30, 2027, with an interest rate of 4%, which is comparable to the City's current investment earnings.

Two Impact Fee funds have been identified as ha ving sufficient uncommitted cash balances to support this loan without impacting on planned capital projects:

Impact Fee Fund Available Cash
Fund 304 – AB 1600 Traffic Impact Fee $33,000,000
Fund 205 – Park Dedication Impact Fee $13,400,000
Total Available $46,400,000

Legal Framework – Mitigation Fee Act (AB 1600)
Use of Impact Fee funds is governed primarily by the Mitigation Fee Act (California Government Code § 66000 et seq., "AB 1600"), which restricts the use of development impact fees to the purposes identified in each fund's nexus study. A short -term loan that is fully repaid with interest within the same fiscal year, and that does not delay or displace the capital projects the fees were collected for, is not an improper "use" of impact fee revenue. With respect to the proposed interfund loan, the City Attorney has confirmed the proposal is consistent with the Mitigation Fee Act.

With immediate implementation of the short-term interfund loan, combined with immediate operational and workforce reductions, the City will be able to meet its current financial obligations and avoid more harmful impacts, while working toward positive cash flow and long-term sustainability. The City retained a public accounting firm to complete the outstanding financial audits. It is anticipated that the Fiscal Year (FY) 2023 audits will be completed in October 2026, FY 2024 audits will be completed in June 2027, and FY 2025 audits will be completed in March 2028. Completed financial audits will give the City access to more options to resolve its current financial crisis.

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FISCAL IMPACT
The proposed loan totals $18M, drawn from Fund 304 (AB 1600 Traffic Impact Fee) and Fund 205 (Park Dedication Impact Fee), and is structured as follows:

Borrowing Fund Loan Amount Principal + Interest Term Rate General Fund $11,000,000 $11,259,000 Less than
1 year 4%
Water Fund $7,000,000 $7,165,000 Less than
1 year 4%
Total $18,000,000 $18,424,000

Total interest earned by the Impact Fee funds on this loan is $424,000, combined across both borrowing funds. This interest accrues to the Impact Fee funds, offsetting any opportunity cost of the loan and keeping the funds whole relative to their current investment yield. The combined $18M loan represents approximately 39% of the $46.4M in available Impact Fee cash, leaving a substantial remaining balance in b oth funds to support their designated capital projects.

Item Amount Note
Total Loan $18,000,000 Term Less than 1 year, 4%
interest
GF – Principal + Interest $11,259,000 Repaid to Fund 304 – AB 1600 Traffic Impact Fee
WTR – Principal + Interest $7,165,000 Repaid to Fund 205 – Park Dedication Impact Fee
Total Principal + Interest $18,424,000
Interest Earned – Impact Fund $424,000 Accrues to Impact Fee funds

The loan will cover immediate operating needs, including payroll, utilities, and monthly expenditures, as well as the one-time payout of accrued legal and leave liabilities associated with the workforce reduction. This bridge funding is intended to sustain operations while the City awaits receipt of quarterly General Fund revenues and the implementation of increased Water Rates and delinquent-account shut-offs, both of which are expected to bring Water Fund revenues back into balance with appropriations and restore the General Fund's normal cash flow cycle. This loan mechanism will allow the City to meet its current near-term obligations and avert more damaging outcomes.

CEQA: Approval of this Resolution does not constitute a project approval for purposes of CEQA.

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ATTACHMENTS
● Attachment A – Resolution Authorizing Short-Term Interfund Loan ● Attachment B-Interfund Loan Agreement
● Attachment c – Amortization Schedules (General Fund and Water Fund Loans)

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27241076.1
RESOLUTION NO. 2026-XX

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HOLLISTER

AUTHORIZING AN INTERFUND LOAN FROM IMPACT FEE FUNDS TO
THE GENERAL AND WATER FUNDS IN THE AMOUNT OF $18 MILLION

WHEREAS, the City of Hollister ("City") is in a financial crisis and needs an immediate, short-term financial solution to cover payroll and minimum operations; and

WHEREAS, the City established Fund 304 – AB 1600 Traffic Impact Fee and Fund 205 – Park Dedication Impact Fee ("Impact Fee Funds") in accordance with California Government Code Section 66000 et seq. ("the Mitigation Fee Act"); and

WHEREAS, the Mitigation Fee Act contemplates interfund transfers and loans; and

WHEREAS, the City desires a short-term interfund loan ("Loan") be made from Fund 304 – AB 1600 Traffic Impact Fee and Fund 205 – Park Dedication Impact Fee to the General and Water Funds in the amount of $18 million , with $11 million loaned to the General Fund and $7 million loaned to the Water Fund; and

WHEREAS, the Impact Fee Funds have sufficient uncommitted cash balances to support a loan without impacting planned capital projects; and

WHEREAS, with immediate implementation of the Loan, combined with immediate operational and workforce reductions, the City will be able to meet its current obligations while working toward positive cash flow and long-term sustainability; and

WHEREAS, the Loan will be repaid by June 30, 2027; and

WHEREAS, the rate of interest that the Impact Fee Funds will receive on the Loan to the General and Water Funds will be 3-4%.

NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of Hollister hereby adopts a resolution authorizing a short-term interfund loan of $18 million from Fund 304 – AB 1600 Traffic Impact Fee and Fund 205 – Park Dedication Impact Fee to the General Fund ($11 million) and Water Fund ($7 million), payable in full by June 30, 2027, at an interest rate of 3-4%; and

BE IT FURTHER RESOLVED, that the City Manager, or her designee, is authorized to take further actions necessary to give effect to this Resolution.

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Resolution No. 2026-XX

27241076.1
PASSED AND ADOPTED, by the City Council of the City of Hollister at a special meeting held on October 2, 2026, by the following vote:

AYES:

NOES:

ABSTAINED:

ABSENT:

Roxanne Stephens, Mayor

ATTEST: APPROVED AS TO FORM:

Hanson Bridgett LLP

____
Merab Talamantes, City Clerk Dayna D. Louie, City Attorney

I, Merab Talamantes, City Clerk of the City of Hollister, do hereby certify that the attached Resolution No. 2026-XX is an original resolution, or true and correct copy of a City resolution, duly adopted by the Council of the City of Hollister at a special meeting held on October 2, 2026 at which meeting a quorum was present.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of Hollister on October 2, 2026.

Merab Talamantes
City Clerk of the City of Hollister

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27223331.3

INTERFUND LOAN AGREEMENT
This Loan Agreement ("Agreement") is executed as of October 2, 2026 ("Effective Date"), between the City of Hollister Fund 304 – AB 1600 Traffic Impact Fee and Fund 205 – Park Dedication Impact Fee (together, "Lender"), and the City of Hollister General Fund and Water Fund (together, "Borrower").

RECITALS
A. The City owns and operates a municipal water system that provides service to its water customers (the "Water Utility").

B. The City maintains the Water Fund as an enterprise fund for the purpose of owning and operating the Water Utility.

C. The General Fund and Water Fund currently lack sufficient cash on hand to meet their near-term obligations, including payroll, accounts payable, utilities, and other operating expenses (collectively, the "Obligations").

D. Fund 304 – AB 1600 Traffic Impact Fee and Fund 205 – Park Dedication Impact Fee ("Impact Fee Funds") each maintain fund balances in excess of amounts needed for their own current and anticipated obligations and reserves and are able to loan a portion of those balances to the General Fund and Water Fund without impairing their own operations.

E. The City desires to loan funds from the Impact Fee Funds to the General and Water Fund to pay the Obligations (the "Loan").

F. The Loan serves a public purpose by ensuring the continued operation of the Water Utility and the provision of water service to the City’s water customers, and by maintaining the City’s ability to meet its payroll and other obligations.

G. This Agreement has been authorized by the City Council pursuant to Resolution No. [NUMBER], adopted October 2, 2026.

NOW, THEREFORE, based upon the foregoing Recitals, which are true and correct and incorporated into this Agreement by this reference, Lender agrees to lend to Borrower, and Borrower agrees to repay Lender, an amount not to exceed the Principal Amount and interest accrued on the unpaid loan balance, in accordance with the following:

1. Purpose of the Loan:

To provide funds for use by the Borrower to pay the Obligations described in Recital C. Loan proceeds may not be used for any purpose other than payment of the Obligations.

2. Principal Loan Amount:

Not to exceed $18 million, consisting of $11 million from the [304-AB1600-Traffic Impact Fund] to the General Fund and $7 million from the [205-Park Dedication Impact Fee] to the Water Fund. The loan will be recorded as receivable to each Lender fund and a payable to each Borrower fund, in proportion to each fund’s contribution.

3. Term of the Loan:

The term of this loan begins on the Effective Date and shall be repaid in full as of June 30, 2027.

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4. Scheduled Payments.

Borrower shall make two payments [end of February and end of June] against principal and interest. The first payment shall commence on [02/28/26]. At a minimum, each scheduled payment shall equal the amount of any accrued interest through the date of payment, plus a principal payment equal to [fifty percent] of the original principal amount. Payments will be credited first to interest then due, then to principal, and shall be applied to each Lender fund in proportion to its share of the Principal Loan Amount.

Borrower may make partial or complete payment of principal and earned interest at any time before its due date without any prepayment penalty.

5. Rate of Interest.

Interest shall accrue at a rate of 4% per annum on the outstanding balance.

6. Subordination.

The indebtedness under this Agreement, and under any future interfund loans to the General and Water Funds, shall be junior and subordinate to (i) all existing and future bonds, loans, or other direct indebtedness of the General and Water Funds; (ii) all existing and future financing agreements and other contractual obligations of the General Fund and Water Funds; and (iii) all operations and maintenance costs of the General and Water Funds; provided, however, that the General and Water Funds may incur indebtedness that is subordinate to this Loan if expressly determined by the City Council.

7. Non-Liability of City Officials, Officers, and Employees.

No officer, official, employee, agent, representative, or volunteer of the City shall be personally liable f or any amount that may become due to Lender hereunder.

8. Successors Bound.

This Agreement shall be binding upon the parties hereto and their respective successors and assigns.

9. Severability.

If one or more of the provisions of this Agreement is invalid, illegal, or unenforceable in any respect under any law, the validity, legality, and enforceability of the remaining provisions shall not be affected or impaired thereby.

10. General Provisions.

This Agreement constitutes the full agreement between the parties, and no other representations have been made regarding its contents. This Agreement shall not be amended, modified, or altered in any respect unless reduced to writing and executed by both parties.

LENDER (FUND 304 – AB 1600 TRAFFIC IMPACT FEE)
_____________________________
[Name], [Title]
City of Hollister
LENDER (FUND 205 – PARK DEDICATION IMPACT FEE)
_____________________________

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27223331.3
[Name], [Title]
City of Hollister

BORROWER (GENERAL FUND)
_____________________________
[Name], [Title]
City of Hollister

BORROWER (WATER FUND)
_____________________________
[Name], [Title]
City of Hollister

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Short-term (less than 1year) Interfund Impact Fee Loan Amortization Schedule

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27241177.2

STAFF REPORT

HOLLISTER CITY COUNCIL
MEETING DATE: October 2, 2026
REPORT # City Manager-2026-42

AGENDA ITEM: ADOPT A RESOLUTION AUTHORIZING THE CITY MANAGER TO

PURSUE SPECIAL STATE LEGISLATION PROVIDING THE CITY OF HOLLISTER

AUTHORITY TO IMPOSE, SUBJECT TO FUTURE CITY COUNCIL ACTION AND

VOTER APPROVAL, AN ADDITIONAL TRANSACTIONS AND USE TAX OF UP TO

ONE PERCENT

DEPARTMENT: City Manager
DEPARTMENT HEAD: Ana Cortez, City Manager

COUNCIL NEXT STEPS:

2. Further authorize the City Manager, or designee, to work with the City's state legislative delegation, legislative advocates, City Attorney, California Department of Tax and Fee Administration (CDTFA), and other appropriate parties to develop and advance the necessary legislation; and

DISCUSSION: The City of Hollister continues to evaluate long-term strategies to achieve fiscal sustainability, maintain essential municipal services, and establish a structurally balanced financial position. As part of this effort, the City has evaluated its existing revenue structure and its ability to generate additional locally controlled revenues.

Hollister's current sales and use tax rate is 9.25 percent. CDTFA currently identifies San Benito County's rate as 8.25 percent and Hollister's rate as 9.25 percent.

California Revenue and Taxation Code Section 7251.1 generally provides that the combined rate of transactions and use taxes impo sed within a county may not exceed 2 percent.

Because the applicable district taxes within Hollister have reached this statutory limitation, the City does not presently have authority under the ordinary provisions of state law to impose an additional local transactions and use tax.

The Legislature, however, has established a mechanism for providing individual jurisdictions with additional taxing authority beyond the Section 7251.1 limitation.

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27241177.2

STATE LEGISLATIVE PRECEDENT
In 2024, the California Legislature enacted Assembly Bill 2443, establishing special transactions and use tax authority for the Cities of Victorville, Lancaster, and Palmdale.

The legislation allows each of these cities to impose a transactions and use tax of up to an additional 1 percent, notwithstanding the normal limitation established by Revenue and Taxation Code Section 7251.1.

Importantly, the legislation did not itself impose a tax.

For example, the Palmdale authorization requires that the City Council adopt an ordinance proposing the tax, that the proposal b e submitted to the electorate, and that voters approve the ordinance under the applicable constitutional voting requirement.

This provides a recent legislative model that could be considered for Hollister.

PROPOSED HOLLISTER LEGISLATION
Staff recommends that the City seek legislation providing Hollister with authority similar to that granted to Victorville, Lancaster, and Palmdale.

Conceptually, the legislation would provide that:

Notwithstanding Revenue and Taxation Code Section 7251.1, the City of Holl ister may impose a transactions and use tax for general or specific purposes at a rate not exceeding one percent (1%), subject to adoption of an ordinance by the applicable City Council vote and approval by the voters in accordance with the California Cons titution and applicable law.

The requested legislation should provide the City with authority for up to 1 percent, rather than specifying that a full 1 percent tax must be imposed.

This distinction provides maximum flexibility.

If the Legislature grants the authority, a future City Council could separately consider whether to propose a tax and, if so, determine an appropriate rate. For example, Council could consider 0.25 percent, 0.50 percent, 0.75 percent, or 1 percent, subject to applicable law and voter approval.

EFFECT OF POTENTIAL FUTURE RATES
If legislative authority were obtained and Hollister voters subsequently approved an additional tax, the resulting rates could be:

Potential Additional City TUT Potential Total Hollister Rate None – Current Rate 9.25%

0.25% 9.50%

0.50% 9.75%
.75% 10.00%

1.00% 10.25%

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27241177.2

These examples are provided for illustration only. Council is not being asked at this time to select a tax rate or approve a tax measure.

WHY SEEK AUTHORITY NOW
Obtaining legislative authorization is separate from deciding whether to impose a tax.

Without special legislation, the City does not currently possess the statutory authority to consider an additional transactions and use tax beyond the existing limitation.

Obtaining enabling legislation would therefore preserve an additional fiscal option for the community without obligating the Council or voters to exercise it.

This approach provides several benefits.

First, it preserves local control. If authority is granted, Hollister residents—not the Legislature—would ultimately determine whether a proposed local tax should be approved.

Second, it provides the City with flexibility. Council would retain discretion regarding whether a measure should ever be proposed, its amount, its duration, its purposes, and the timing of an election, subject to applicable law.

Third, it allows the City to evaluate an additional revenue option as part of a broader fiscal sustainability strategy rather than waiting until financial conditions require immediate action.

Finally, recent legislation demonstrates that the Legislature has provided comparable authority to individual California cities. The Victorville, Lancaster, and Palmdale provisions were added in 2024 and became effective in 2025.

PROPOSED LEGISLATIVE STRATEGY
If authorized by Council, staff would proceed with the following steps:

1. Prepare a legislative proposal modeled substantially on the statutory authority provided to Victorville, Lancaster, and Palmdale.

2. Request sponsorship from the City's state legislative delegation for introduction of a Hollister-specific bill.

3. Develop a statement of legislative need describing Hollister's fiscal circumstances, service responsibilities, revenue limitations, infrastructure obligations, and need for additional locally controlled fiscal tools.

4. Coordinate with the City Attorney and CDTFA regarding statutory language and administration.

5. Engage regional and statewide partners, where appropriate, to support the legislation.

6. Monitor the legislation throughout the legislative process and return to Council as necessary regarding substantive amendments or policy issues.

7. If legislation is ultimately enacted, return to the City Council in a separate public

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27241177.2
process before taking any action concerning a potential local ballot measure.

PROTECTING LOCAL VOTER AUTHORITY
Staff recommends that the City's legislative proposal be deliberately structured so that receiving authority from Sacramento does not automatically result in a tax increase.

The legislation should simply remove the statutory barrier that currently prevents Hollister from considering an additional transactions and use tax.

Any future tax proposal would remain subject to all applicable Council approval, election, voter-approval, constitutional, and statutory requirements.

The distinction is important:

The Legislature would give Hollister the authority to ask its voters. The Legislature would not impose the tax, and the Council's action requested through this memorandum would not impose the tax.

FISCAL IMPACT:

Authorization to pursue legislation would have no direct tax or revenue impact.

There may be limited costs associated with legislative advocacy, legal review, and staff time. Any material expenditure outside existing appropriations would be returned to Council for authorization as appropriate.

The potential revenue associated with any future transactions and use tax is not analyzed in this report because no tax measure is presently proposed. If the City later considers such a measure, staff should obtain updated taxable-sales data and prepare revenue projections for the specific rate under consideration.

ALTERNATIVES
The City Council may:

1. Authorize staff to pursue legislation allowing an additional transactions and use tax of up to 1 percent;

2. Direct staff to seek authority for a smaller maximum rate;

3. Direct staff to modify the proposed legislative approach;

4. Direct staff to conduct additional analysis before seeking legislation; or

5. Take no action.

CONCLUSION
The City of Hollister has reached the generally applicable transactions and use tax limitation established by Revenue and Taxation Code Section 7251.1.

Recent California legislation demonstrates that the Legislature can provide individual cities with additional authority beyond that limitation while preserving local voter approval. Victorville, Lancaster, and Palmdale provide particularly recent statutory models for such legislation.

Seeking similar authority for Hollister would not constitute approval of a new tax. Rather, it would provide the City and its residents with an additional option to address future

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27241177.2
fiscal needs.

For these reasons, the City Manager recommends that the City Council authorize the City Manager, or designee, to pursue special state legislation permitting the City of Hollister to seek voter approval for an additional transactions and use tax of up to one percent, notwithstanding Revenue and Taxation Code Section 7251.1 and work with the City's state legislative delegation, legislative advocates, City Attorney, California Department of Tax and Fee Administration, and other appropriate parties to develop and advance the necessary legislation.

PREVIOUS COUNCIL OR COMMISSION ACTION: N/A

CEQA: N/A

ATTACHMENTS:

1. Resolution

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27241178.2
RESOLUTION NO. 2026-XX

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HOLLISTER

AUTHORIZING THE CITY MANAGER TO PURSUE SPECIAL STATE

LEGISLATION PROVIDING THE CITY OF HOLLISTER AUTHORITY TO

IMPOSE, SUBJECT TO FUTURE CITY COUNCIL ACTION AND VOTER

APPROVAL, AN ADDITIONAL TRANSACTIONS AND USE TAX OF UP
TO ONE PERCENT (1%) NOTWITHSTANDING REVENUE AND
TAXATION CODE SECTION 7251.1

WHEREAS, City of Hollister continues to evaluate long-term strategies to achieve fiscal sustainability, maintain essential municipal services, and establish a structurally balanced financial position; and

WHEREAS, the City has evaluated its existing revenue structure and its ability to generate additional locally controlled revenues, and Hollister's current sales and use tax rate is 9.25 percent; and

WHEREAS, California Revenue and Taxation Code Section 7251.1 generally provides that the combined rate of transactions and use taxes imposed within a county may not exceed two percent (2%), and the applicable district taxes with in Hollister have reached this statutory limitation; and

WHEREAS, as a result, the City does not presently have authority under the ordinary provisions of state law to impose an additional local transactions and use tax; and

WHEREAS, the California Legislature has previously enacted special legislation providing individual jurisdictions with transactions and use tax authority beyond the limitation in Revenue and Taxation Code Section 7251.1, including authority enacted in 2024 for the Cities of Victorville, Lancaster, and Palmdale to impose, subject to applicable local approval requirements, an additional transactions and use tax of up to one percent (1%); and

WHEREAS, the City Council desires to pursue similar special state legislation that would authorize the City of Hollister to impose a transactions and use tax for general or specific purposes at a rate not exceeding one percent (1%), notwithstanding Revenue and Taxation Code Section 7251.1, subject to future City Council action, adoption of an ordinance by the applicable City Council vote, voter approval, and all other requirements of the California Constitution and applicable law; and

WHEREAS, authorization to pursue such legislation would not itself impose a tax, increase the City's current sales and use tax rate, or place a tax measure on the ballot, but would preserve the City's ability to consider such an option through a separate public process in the future; and

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Resolution No. 2026-XX

27241178.2
WHEREAS, authorization to pursue the legislation has no direct tax or revenue impac t, and any material expenditure for legislative advocacy, legal review, or other related costs outside existing City appropriations will be returned to the City Council for separate authorization, as appropriate.

NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of Hollister hereby authorizes the City Manager, or designee, to pursue special state legislation providing the City of Hollister authority, notwithstanding Revenue and Taxation Code Section 7251.1, to impose a transactions and use tax for general or specific purposes at a rate not exceeding one percent (1%), subject to future City Council action, voter approval, and all applicable constitutional and statutory requirements; and

BE IT FURTHER RESOLVED, that the City Manager, or designee, is authorized to coordinate with the City's state legislative delegation, legislative advocates, City Attorney, California Department of Tax and Fee Administration (CDTFA), and other appropriate entities to develop and advance the necessary legis lation; and

BE IT FURTHER RESOLVED, that the authority granted by this Resolution includes preparing a legislative proposal modeled substantially on comparable statutory authority provided to other California cities, requesting legislative sponsorship, de veloping supporting materials, coordinating regarding statutory language and administration, engaging appropriate regional and statewide partners, and monitoring the legislation through the legislative process; and

BE IT FURTHER RESOLVED, that this Resolution does not approve or impose a transactions and use tax, increase the City's current sales and use tax rate, select a future tax rate or duration, or authorize placement of a tax measure on the ballot; and

BE IT FURTHER RESOLVED, that if the requested legislation is enacted, any future proposal to impose an additional transactions and use tax shall return to the City Council through a separate public process and shall be subject to all applicable Council approval, election, voter-approval, constitutional, and statutory requirements; and

BE IT FURTHER RESOLVED, that any material expenditure associated with pursuing the legislation that is outside existing City appropriations shall be returned to the City Council for authorization, as appropriate.

PASSED AND ADOPTED, by the City Council of the City of Hollister at a special meeting held on October 2, 2026, by the following vote:

AYES:

NOES:

ABSTAINED:

ABSENT:

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Resolution No. 2026-XX

27241178.2

Roxanne Stephens, Mayor

ATTEST: APPROVED AS TO FORM:

Hanson Bridgett LLP

____
Merab Talamantes, City Clerk Dayna D. Louie, City Attorney

IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of Hollister on October 2, 2026.

Merab Talamantes
City Clerk of the City of Hollister

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Hollister City CouncilOctober 2, 2026

Hollister City Council
October 2, 2026