San Jose mulls diverting affordable housing funds — again

San Jose needs millions of dollars it doesn’t have to clear homeless residents from city waterways and place them into temporary shelter. Officials are considering raiding an affordable housing fund to make it happen.

The city manager is proposing two options for the 2024-25 budget that would divert monies out of Measure E, an affordable housing fund, while facing a $50 million structural shortfall. One option would be to use all $35.6 million of available Measure E affordable housing dollars to clear out the unhoused to meet a state mandate and construct temporary shelters. The other option would be to divert $24.6 million and hope to keep $11 million for affordable housing with state grant funding.

The San Jose Housing and Community Development Commission will make recommendations to the City Council on both options on Thursday. Meanwhile, community leaders plan to protest the proposal before the council’s May 14 budget hearing.

“San Jose residents have named affordable housing and housing affordability as one of their top priorities — consistently,” Regina Celestine Williams, executive director of housing advocacy nonprofit SV@Home, told San José Spotlight. “All the efforts to address what residents are most concerned about would be at risk if we don’t have consistent investment and prioritization by leadership into affordable housing. That means longer timelines of getting to homes for people who are at lower income or risk of displacement.”

The draft budget follows Mayor Matt Mahan’s council-approved March budget message that prioritizes addressing street homelessness and blight, increasing public safety and making San Jose easier to invest in.

“Our city manager has put forward a proposed budget that accounts for our multimillion-dollar shortfall without significantly impacting city services our residents rely on and while continuing to make progress on the issues that matter most, including investing millions in affordable housing,” Mahan told San José Spotlight.

Much of the issue is driven by a mandate over the city.

San Jose expects to spend $27 million clearing out the estimated 1,000 homeless people living along creeks and rivers by June 2025, in response to orders by the San Francisco Bay Regional Water Quality Control Board due to high pollutant levels. If the city fails to do so, Mahan has claimed the city could face litigation and $60,000 per pollutant in daily fines.

Roughly $15 million of the proposed spending will come from Measure E, according to the budget proposal. Instead of affordable housing, the money will go toward developing more safe sleeping sites, housing outreach to people living along the waterways, and the expansion of the Recreational Vehicle Pollution Prevention Program from 150 vehicles served every two weeks to 600, to prevent waste from vehicles entering the waterways.

Measure E is a property transfer tax approved by voters in 2020 for the purpose of building affordable housing, which advocates say is the most effective long-term homelessness solution. The tax applies to property transfers of $2 million or more, and is expected to rake in $50 million this next fiscal year — and $55 million in fiscal year 2025-26.

The bulk of Measure E dollars is supposed to go toward affordable housing, according to priorities approved by councilmembers in 2022. While 25% of the money goes to homelessness prevention, rental assistance and shelters, 75% is aimed at affordable housing construction.

The proposal to divert Measure E funds mirrors one Mahan made last year, which met fierce opposition. The council settled on a compromise that still favored affordable housing development over temporary homeless housing. But it marked a shift in the fund’s priorities — a direction city leaders are leaning further into this year.

If the city can keep $11 million for affordable housing this upcoming budget cycle, $5.8 million would go toward the developing of extremely low-income housing and $5.2 million for low-income housing, according to a city memo.

Even with continued state grant funding in the following fiscal year 2025-26, the allocation for affordable housing further decreases in city budget projections to just $6 million.

While proponents say Measure E is critical for affordable housing development, it’s not the only revenue source available to fund construction. The city in its report to housing commissioners said it has six funds that can support such development.

In addition to these funds, city officials say the potential sale of Vermont House, a 17-unit permanent housing facility, and construction of the Monterey-Bernal emergency interim housing site could bring in more cash for affordable housing.

Councilmembers are slated to hold budget study sessions and public hearings throughout May, followed by a June mayoral budget message that would need council approval. Councilmembers are expected to formally adopt a budget on June 18.

“We look forward to this city leadership proposing a budget that reflects residents’ priorities at this city,” Williams told San José Spotlight.

Contact Brandon Pho at [email protected] or @brandonphooo on X, formerly known as Twitter.