San Jose mayor’s budget plan saddled with a shortfall

A looming multimillion-dollar deficit will force San Jose to make cuts in the next budget. Instead of detailing what will be lost, Mayor Matt Mahan has outlined his nonnegotiables.

His March budget message prioritizes addressing street homelessness and blight, increasing public safety and making San Jose easier to invest in. Those may seem like the same goals as last year, but the investments will require a different approach with the city facing a nearly $52.1 million shortfall this year instead of a surplus.

The local economy is slowing, in line with national trends, Mahan wrote in his budget message. Key sources of city funding such as sales and property taxes are projected to trend down over the next five years. And San Jose’s main revenue source for affordable housing development, Measure E, is also expected to shrink 20% year over year.

The city expects property tax revenue to increase next fiscal year because of strong home values. However, it will be offset by the city’s higher operating costs because of raises given to union workers last year. The agreement means an additional $25.3 million in compensation and $14.3 million in retirement contributions.

Mahan said the city has to be leaner, more innovative and more productive to make each city dollar stretch.

“We’re going to have to make some difficult decisions this year around what trade-offs we’re willing to make,” Mahan said at a Wednesday news conference. “But with crisis comes opportunity — the opportunity to reimagine the way that we’ve been governed.”

Mahan’s No. 1 solution is to continue to invest in temporary housing solutions to permanently get homeless people off the streets. San Jose saw its first dip in street homelessness — and Mahan credits it to these quick-build homes. The mayor is also proposing more safe parking sites, sanctioned encampments and a new pilot program called Homeward Bound that would help reconnect and bus homeless residents to their families outside the city.

The mayor said residents can expect continued investments in the San Jose Police Department. He’s proposing paying police cadets a stipend to help encourage more recruits. He also wants SJPD to create a boot camp for women to increase representation in the department from its current 13% to 30% by 2030.

Mahan is also recommending the city focus on ways to “embrace the experience economy.” This means bringing in more concerts, events and restaurants that will bring people together in downtown.

Councilmember Pam Foley said investing in downtown will be a win-win for the city and its residents.

“We want you to come downtown and spend money,” Foley said. “When you’re out looking at places to spend your money. Don’t go to our neighboring cities stay within the city of San Jose because those sales tax dollars mean revenue to us.”

To attract more development, the mayor’s budget message directs city officials to find ways to streamline permit and approval processes. For economic development, the city wants to create incentives for companies to move into San Jose, particularly manufacturing and artificial intelligence.

What to cut?

Doing all the mayor hopes for will be difficult. The slowing economy is backing the city into a corner, and a state mandate is putting San Jose in a hard place.

In addition to lower revenues, San Jose will have to dish out $25 million to clear out the estimated 1,000 homeless people from encampments along creeks and rivers by June in response to a mandate by the San Francisco Bay Regional Water Quality Control Board. If the city fails to do so, it could face litigation and $60,000 in daily fines.

Because the city already does work around encampments, the estimated $25 million may shrink as the city does more analysis.

“Staff threw out a very big placeholder on getting into compliance with stormwater permits and did not give us the details yet,” Mahan said. “We still need to talk to departments around which services do you think we can consolidate or reduce.”

Until then, Mahan is hesitant to name specific programs or services that could get the boot. But he noted the city council and the mayor’s individual budgets may shrink to preserve core services. The city is also looking to cut long-standing vacant positions that will save the city a couple million dollars.

He will also ask the council to once again shift Measure E dollars to spend more on temporary housing. A similar proposal by Mahan last year was met with fierce opposition, and the council settled on a spending plan that favored affordable housing development, as opposed to temporary homeless housing. Measure E is a property transfer tax approved by voters in 2020 that applies to property transfers of $2 million or more.

This year the mayor may have more support. Mahan drafted his budget message with councilmembers from both sides of the political spectrum, from Councilmembers Omar Torres and David Cohen to Councilmembers Dev Davis and Foley.

The mayor’s March budget message will head to the full council for approval on March 19. This will be followed by a detailed budget outlining the costs, done by the city manager’s office.

Over the next few months, councilmembers, city workers and residents will engage in meetings to determine the final budget, which will be adopted on June 18.

Contact Jana Kadah at [email protected] or follow @Jana_Kadah on X, formerly known as Twitter.