Slack: San Jose city management’s half-billion-dollar sleight of hand

Sleight-of-hand. It’s the trick of making something appear and disappear without the object traveling anywhere.

You may have experienced your grandfather pulling a quarter out of your ear when you were a kid or watched a skilled magician pull a rabbit out of a hat at a circus. But neither your grandfather or a magician can hold a wand to San Jose’s budget bosses. Their sleight of hand is next level. Unfortunately, their budget trickery has negatively impacted the residents and businesses of San Jose for at least a decade.

The curtain always rises at the end of the city’s yearly budget process, preventing the mayor and City Council from using any of the hundreds of millions of unspent “encumbered” funds to improve city services, pay down debt or invest in the economy. In fact, our elected officials are not even given a chance to discuss the hundreds of projects that didn’t — and aren’t — getting done, and why the unspent money “encumbered” for those projects is not directed toward more pressing city needs.

How does this yearly magic happen? The city uses an accounting gimmick known as “encumbering” projected expenses. As soon as taxpayer money is dedicated to something, it is considered spent and no longer available for use. Even if those funds sit in city coffers and aren’t spent for the entire fiscal year, they are considered off limits. While not illegal, this practice fails to meet Generally Accepted Accounting Principles, a national standard for local government financial reporting created by the Financial Accounting Standards Board.

Every good sleight of hand trick starts by giving the mark something to look at — to distract them from what the magician is doing. For city administrators, that comes every February when the city manager releases her proposed budget and five-year forecast of city finances.

The document predicts that come July, the city’s general fund will be nearly empty. These predictions and forecasts set a tone of fiscal austerity, necessitating cuts to vital city services, reduced investment in our crumbling infrastructure and budget crumbs for the mayor and council to grapple over for pressing needs.

The public budget discourse is framed around saving a few jobs or programs as the clock winds down to the June city council vote. Then, all of a sudden, the city manager waves her magic wand, says “abracadabra” and pulls hundreds of millions of dollars out of her hat to save the city from fiscal ruin.

The reality is the money that seemingly appears out of thin air is actually hidden in plain sight, right where the city manager left it the previous year. It’s not new money, it’s the unspent “encumbered” funds that the city administration scattered across more than 300 different projects within the budget and assigned to the general fund’s “Assigned Fund Balance.”

The city manager will say these are funds the city intended to spend — but didn’t this year. The chart below shows what the city budget bosses projected they were going to spend versus what they actually spent.

The city administration discloses its budgetary chicanery in a single sentence buried deep within the mounds of budget docs it posts each year. In fiscal year 2023-24, the sentence is found on page 235 in the operating budget they’re recommending the council to approve: “The budget is prepared in accordance with Generally Accepted Accounting Principles, except for encumbrances being recognized as expenditures.”

Throughout the yearly budget charade, there is zero discussion about the hundreds of projects and initiatives where “encumbered” funds are parked and the projects and/or initiatives simply didn’t get done.

All the while, the city piggy bank is overstuffed with taxpayer dollars that we taxpayers — or marks — thought was being collected to be spent to improve our city.

Now that the city’s hustle has been exposed, it’s time to put the public’s money back where it belongs, in public view. We need a fresh look at the books and need someone not tainted with decades’ worth of fiscal manipulation to do the looking.

The mayor and council must act now to send a message that these practices are not how San Jose does business and to bring the curtain down on the city administration’s sleight-of-hand budget shenanigans.

San Jose police Sgt. Steve Slack is president of the San Jose Police Officers Association.