Gilroy council approves $70,000 to replace two failed HVAC units at Old City Hall; warns of possible additional repairs

The Gilroy City Council on Oct. 20 unanimously approved a budget amendment to appropriate $70,000 to replace two failed upstairs heating, ventilation and air‑conditioning units at the Old City Hall restaurant and to cover associated installation costs.

The city’s facilities manager told council the building’s HVAC system is more than 35 years old and two of the three upstairs units recently failed, leaving a single unit unable to adequately cool the upstairs meeting spaces. Lianne McPhillips, interim facilities manager, told the council the $70,000 estimate covers replacement of the two units plus electrical, drywall, permitting and a contingency if engineering services are required.

McPhillips said the city could pay under the city administrator’s authority but brought the item for council direction because the building is a visible downtown asset and the tenant has been a long‑standing business. “The HVAC system is over 35 years old and our urgent issue is that two of three upstairs HVAC units have failed and need immediate replacement,” McPhillips said during her presentation.

Why it matters

Old City Hall, constructed in 1905 and on Gilroy’s historic registry, houses a popular restaurant that also rents upstairs meeting space. The city is the landlord under a month‑to‑month lease that, staff said, obligates the city to maintain and repair building systems including roofs, exterior walls, HVAC and elevator. Staff advised council the property also has failing cast‑iron sewer piping that recently produced kitchen pooling and a $15,000 repair; staff estimate further kitchen sewer repairs could run $40,000–$50,000 and require the restaurant to close five to seven days for trenching.

Council deliberations and next steps

Councilmember Bracco moved and Councilmember Marks seconded the budget amendment resolution, which passed 7–0. Councilmembers expressed support for repairing the HVAC promptly to avoid further disruption to the tenant and downtown activity. Several members also urged a longer‑term review of the city’s ownership and lease strategy for Old City Hall so the city can plan for recurring major repairs.

Public works and facilities staff said they would solicit two additional quotes to meet purchasing rules, finalize a contractor agreement, and schedule the work; staff estimated 30–60 days to order equipment and begin work. McPhillips told council the developer/tenant lease payments are current and that rent collected since FY21 totals roughly $427,000.

Staff cautioned the council the $70,000 appropriation covers the HVAC replacement work only. If excavation shows broader cast‑iron pipe failure or other hidden damage, the city may need to return for additional appropriations. McPhillips told the council the city spent about $36,000 on outside contractor repairs at Old City Hall in FY25 and about $28,000 so far in FY26, not including the recent P‑trap kitchen repair.

Quotes

“The replacement cost for the two units is a little over $35,000. There’s also additional work required for electrical, drywall and permits which could run about $15,000, and then depending on what we find when we get in there, engineering work could be needed,” McPhillips said.

“I have no problem with funding this HVAC project — sooner the better — and we’re here to protect them,” Councilmember Marx said during deliberations.

Ending

Council directed staff to proceed with obtaining the remaining quotes and to return if additional authority or budget amendments are required because of further cast‑iron pipe failure or other unforeseen issues. Staff also said it will discuss longer‑term lease options with the tenant and report back to council on options for balancing downtown historic‑building stewardship with fiscal responsibility.