San Jose passes budget, compromises on mayor’s housing plan

A lengthy battle over how to prioritize revenue from a tax measure ended Tuesday with city leaders striking a compromise before approving the city’s multibillion dollar budget.

The most contentious part of Mayor Matt Mahan’s budget plan — how to spend Measure E dollars– failed in a 6-5 vote. Measure E is a 2020 voter-approved property tax to fund homeless and housing solutions, and has become the city’s main tool to fund affordable housing development. The mayor wanted to divert nearly $23 million of dollars from affordable housing development and into homeless shelters, known as interim housing, to quickly address the city’s homeless crisis. Instead, councilmembers voted 10-1 to approve a compromise between two plans that retains the majority of Measure E dollars for affordable housing. Councilmember Bien Doan was the lone dissenter.

The new Measure E plan calls for spending 68% — or $93 million — on affordable housing instead of 75% of the measure’s revenues, as approved last year. This was a compromise struck by Councilmembers Dev Davis and David Cohen, who each shared their own plans. Davis suggested moving $12.3 million from affordable housing to homeless support programs, as well as funding seven new positions to help operate the homeless shelters.

The total revenues from Measure E are expected to be $137 million by 2025. The measure does not expire and will end if repealed.

“I’m happy we could come to a compromise that almost everybody could agree on and move forward with really sending a strong message, to the region, to our affordable housing developers and to our county partners, that we are committed to building new permanent affordable housing,” Davis told San José Spotlight.

She said her main goal was to allocate more than $75 million to fund new affordable housing projects, and this compromise still accomplishes that.

However, Mahan was not as pleased — warning there may not be enough money to fund various interim housing projects the council recently approved.

“It is certainly disappointing that there wasn’t more (for interim housing),” Mahan said during the meeting. “We’ll be back to this conversation next year, but I think it’s certainly a move in the right direction.”

In a separate vote, the San Jose City Council approved a budget for the next year that focuses on public safety, blight and homelessness.

The overall budget

Councilmembers voted 10-1 on in favor of the $5.2 billion budget for the 2023-24 year, with Vice Mayor Rosemary Kamei opposing because she was concerned the council’s plan could lead to relying heavily on reserve funds to support non-urgent projects in the future. The budget was shaped primarily by Mayor Matt Mahan and emphasized investment in police recruitment and retainment, homelessness solutions and cleaning up blight across San Jose. The newly approved city spending plan almost reflects all of Mahan’s priorities, with his biggest spending proposal failing.

San Jose is heading into next year with a $35 million surplus, while bracing for a budget shortfall of $18.8 million forecasted the following year. Budget Director Jim Shannon credits the surplus to the strong economic recovery from the pandemic, aided by a surge of more than 10% in sales and property tax revenue. That means the city won’t face furloughs, layoffs or reduction in services. It has actually added 148 new jobs across city hall.

At Mahan’s request, the city has put half of this year’s surplus in a “rainy day fund” to prevent a budget deficit. Even so, Shannon told San José Spotlight there is no guarantee that there won’t be cuts next year.

Federal dollars that funded programs during the pandemic are also running out – meaning programs that provided food to needy families, assisted with rent relief and early education programs are dwindling down.

Despite the loss of those federal dollars, every city department is seeing a higher budget, according to city documents.

The budget also sets aside $27 million to fund long-deferred repairs to roads, sewers, the airport and other infrastructure projects. About $15.6 million will help clean up neighborhoods and $12 million to support cultural facilities the city owns, like the Center for the Performing Arts and the Tech Museum.

Councilmembers over the last few months have requested $11.1 million to cover a range of community needs – and the mayor incorporated 60 of 81 requests.

But some of those budget requests may be threatened in the coming months. The city planned to use a grant to fund improvements to the Vietnamese Heritage Community Garden, the Alum Rock Arts District and the African American Community Center, but Shannon said the grant may no longer be eligible.

Councilmembers decided if the grant cannot be used, the city could use leftover money from its ending fund balance. That’s why Kamei voted against the budget.

“The dollar amounts are not huge, but the precedent is,” Kamei told Mahan after the vote. “Everybody’s going to look to use the ending fund balance.”

Contact Jana Kadah at [email protected] or follow @Jana_Kadah on Twitter.