Mahan’s Final San José Budget Focused on Controversial Homelessness and Pay Plans

San José Mayor Matt Mahan on Wednesday unveiled his final city budget plan, setting up a handful of contentious votes next week on city spending, homelessness and council pay.

In his June Budget Message, the mayor asked the council to shift city funds toward interim housing and shelter, in order to fill a $35.6 million budget shortfall in the fiscal year beginning July 1. The council will vote on that idea on Tuesday, along with a pair of ambitious Mahan proposals: one to potentially arrest unhoused people who refuse multiple offers of shelter and another that would tie the pay of city leaders to a series of performance metrics.

“This budget message is all about focusing on the basics and increasing accountability for results,” Mahan told KQED. “I think accountability for the leadership at city hall is important, I’m calling on the city and county to be accountable for expanding shelter … and I’m saying that individuals in our community should be held accountable for coming indoors when there’s an appropriate shelter or treatment placement that is repeatedly offered to them.”

San José’s budget is in relatively good shape compared to the large deficits faced by city leaders in San Francisco and Oakland. As a result, Mahan wrote that the balancing plan “avoids virtually all layoffs,” and adds five new positions to the city workforce.

The budget plan also sets aside $27 million in reserves, in anticipation of a larger $52.9 million deficit in the fiscal year beginning July 1, 2026.

The balanced budget this year was largely achieved by using revenue raised from a tax on property sales of $2 million or more — approved by voters through Measure E in 2020 — to pay for the interim housing the city uses to shelter people experiencing homelessness.

By default, three-quarters of the money raised through Measure E goes to build new permanently affordable housing. Mahan successfully pushed to shift more of that money toward temporary housing in his first two budgets.

This year, he proposed to spend up to 90% of Measure E revenue on shelter — a nearly $40 million shift that will cover the ongoing costs of the city’s interim housing units and erase the deficit — and to make that change permanent.

The move has drawn criticism from affordable housing advocates and some council members who argue a permanent funding shift will make it harder for new affordable apartments to get off the ground.

“When we create opportunities for folks to come indoors through shelter, we need a place for folks who have stability to then transition and move forward,” Councilmember Pamela Campos told KQED. She called for investments “both in creating shelter opportunities and creating the outflow of affordable housing that allows people to continue on their journey to improving their lives.”

Campos also said the city should be spending more on programs that prevent homelessness (which receive 10% of Measure E funds ), such as rental assistance. She said that revenue would be a targeted investment to reduce the “hidden homelessness” experienced by 2,200 students in the city.

“Our prevention dollars are one of the most impactful ways that we can stop the inflow of individuals, families, young adults and seniors on a limited income who are becoming homeless,” Campos said.

The council will also vote Tuesday on Mahan’s plan to arrest people experiencing homelessness who have turned down multiple offers of shelter. The mayor has said the plan would open pathways for unhoused people into court-ordered treatment and encourage people experiencing homelessness near shelters to come indoors. County leaders have come out against the idea, arguing it will lead to a revolving door of citations and releases given the local shortage of shelter, affordable housing and treatment beds.

Mahan is also asking the council to withhold 5% of the mayor and council members’ salaries, to be paid or proportionally reduced based on whether the city meets a series of council-approved goals, such as reducing homelessness or crime. Mahan has billed the idea as building a greater level of accountability into city leadership, while some council members say it will restrict their flexibility and incentive to respond to emerging issues such as a wildfire or earthquake.

The Measure E allocation and Mahan’s Responsibility to Shelter and Pay for Performance initiatives will each be voted on separately from the overall budget at Tuesday’s meeting. On Monday, the council will hold a hearing to solicit public comment on the city’s spending plan.