San Jose officials have reshuffled this year’s budget and agreed to a hiring freeze after deficits forced them to identify millions in savings — but next year’s financial “headwinds” are still yet to come.
The San Jose City Council voted 10-1 Tuesday to update the 2024-25 budget and dip into at least $10 million in reserve funds. City Budget Director Jim Shannon told councilmembers they needed to shake up the budget as sales tax revenues continue to stall and unforeseen expenses pile up. Even with the reserve funds, city officials say general fund revenues through the end of the current fiscal year are still anticipated to be $15 million to $20 million below budgeted levels.
“General Fund (expenses) through December totaled $692.8 million, or 31.6% of the total 2024-2025 Modified Budget,” Shannon said. “Silicon Valley’s economy is modestly growing, though there are areas of concern.”
He said the city needs to take $8 million from existing budget stabilization reserves of $61 million to address the shortfall — as well as tap into the $2.5 million Cultural Facilities Capital Maintenance Reserve. Those funds are normally used to rehabilitate cultural facilities, but Shannon said there were no projects planned for 2024-25.
Councilmember Rosemary Kamei, the sole no vote, said she wanted to preserve $150,000 in the budget to aid in the relocation of the historic Sakauye House to History Park. History Park San Jose had already committed to fundraising the required amount.
The city’s shortfall is compounded by a projected $60 million budget deficit for fiscal year 2025-26, which has ballooned by almost 50% due in part to an 11% drop in sales tax revenue from the previous year. City officials said it may result in eliminating positions, which would be effective July 1.
Shannon recommends liquidating part of the city’s reserve funds to pay for unexpected 2024-25 expenses, which include $5.3 million for the upcoming District 3 special election and $4.5 million in workers compensation claims. He also said the city should reallocate $3 million in police department backfill reserves to address higher overtime costs resulting from officer vacancies.
“The sum of the reserves, by city council policy, should be 10% of general fund operating expenditure,” Shannon said Tuesday. “We’ve never really been close to that amount. So right now, we are under 7%. So we are sort of below where council policy is.”
The budget also reflects a $9.1 million cash injection from the state to help build out a 136-bed temporary emergency shelter site for homeless residents on Cherry Avenue. While housing advocates called for Measure E funding to be reallocated from short-term homelessness solutions back to development of permanent affordable housing, the mid-year report specifically states the money won’t be reallocated for that.
Reallocation of funds, to address the updated expenses, includes $2.6 million from the mayor and the city council offices and $1 million between departments like public works, transportation and city manager’s office.
“Absent future city council direction, the spending of Measure E revenues in 2025-2026 would align with the existing spending categories,” Shannon said.
Contact Vicente Vera at [email protected] or follow @VicenteJVera on X.
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