Mahan Calls for Belt-Tightening in San José Budget Plan

Facing a projected budget shortfall of $56 million, San José Mayor Matt Mahan on Tuesday called for a round of belt-tightening at City Hall in his annual spending plan.

Mahan, who is running for California governor, acknowledged that cuts are likely unavoidable given sluggish tax returns and rising employee costs — but he called for the preservation of funding for five city “focus areas” that have defined both his mayoralty and his nascent statewide campaign: unsheltered homelessness, public safety, housing production, neighborhood cleanup and economic growth.

“Our current fiscal outlook demands that we make difficult trade-offs to maintain critical core services for our residents,” Mahan wrote in his March Budget Message. “Recommitting to focus reinforces our commitment to fiscal sustainability and cost-effective service delivery.”

Mahan did not identify specific positions for cuts. Under San José’s weak-mayor system, that work will be left to the city manager, who oversees the municipal workforce and crafts a detailed budget based on the mayor’s budget message.

In his message, Mahan called broadly for reductions to come with minimal service impacts; investments in downtown to spur economic activity; and the pursuit of new revenue, including a potential expansion of the parcel tax that supports libraries.

And he vowed to reduce the ongoing cost of his signature program: a network of shelters and tiny homes for people experiencing homelessness that Mahan has credited for a drop in the city’s unsheltered homeless population.

The city council will review Mahan’s initial budget plan on March 17. That vote will be followed by months of hearings and negotiations, before the council votes on a final budget in early June.

John Tucker, senior union representative for AFSCME Local 101, said there is a “pretty big concern” that layoffs could be coming. AFSCME represents most unionized municipal employees, including workers at San José Mineta International Airport and city libraries.

“San José already runs with one of the leanest city workforces of any major city in the country,” Tucker said. “So, when budget pressure like this hits, there’s not really a lot of cushion — and what that usually looks like then is reduced library hours and longer response times for services.”

In a budget forecast released last week, San José’s city manager wrote that while city revenues are only slightly lower than anticipated last year, projected expenditures are running $54.2 million higher — largely driven by increases in employee compensation and retirement contributions.

Last fall, the city council unanimously approved a new contract with San José’s police union with wage increases of 7%, 5% and 3%, which will cost an estimated $14.3 million in the upcoming fiscal year, according to the city’s director of human resources.

The forecast also pointed to the cost of the city’s interim housing program, which has rapidly expanded during Mahan’s time as mayor to include nearly 2,200 shelter spots across a network of tiny homes, converted motels and RV parking lots.

The vast majority of interim housing costs are covered using money in a voter-approved homeless fund — the result of previous budget debates during Mahan’s tenure. But operating costs for the shelters are currently projected to outstrip that Measure E funding, requiring a projected $15 million infusion from the general fund in the upcoming budget year and $29 million in 2027-28.

“We have essentially shifted all of that money to [interim housing], and it is still not enough,” Councilmember Pamela Campos said in an interview. “It is unsustainable to be addressing our homelessness crisis at a level that is so focused on one faction of the issue.”

Mahan has described those forecasts as “pessimistic” and is promising to drive down interim housing costs by re-bidding contracts, obtaining funding from the state government and Santa Clara County and exploring the idea of charging interim housing residents a fee for their stay or having them assume maintenance tasks at the properties.

“As we complete this phase of shelter expansion, we are shifting focus to system optimization: building on our progress by lowering operating costs without compromising outcomes,” Mahan wrote.

City budget analysts are projecting that this year’s shortfall will be followed by smaller deficits of $26.8 million in 2027-28 and $11.8 million in 2028-29, before expected surpluses at the end of the decade.

Retirement costs, the subject of bitter political fights last decade, are expected to decrease in future budget years — from $405.1 million in 2026-27 to $382.6 million in 2030-31.

Still, labor relations remain a volatile political issue in California’s third-largest city.

In 2023, Mahan was the lone vote against a wage agreement with two unions representing nearly 4,500 city workers that narrowly avoided a strike. In a recent interview with KQED’s Political Breakdown, Mahan said the city’s current fiscal outlook has vindicated him.

“Over my warning, our council, under an incredible amount of pressure from some of our unions, gave a 14.5% raise over three years,” Mahan said. “This year we will be cutting services, we will be laying off unionized workers as a result, and it was avoidable.”

Tucker, the union representative, called Mahan’s comment “concerning.” He pointed to the wage increase for police officers and questioned the administration’s downtown spending related to major sporting events and future upgrades to the SAP Center.

“If the city can spend on hockey arena upgrades and global events like the Super Bowl and the World Cup and March Madness, it should be able to fund the workforce that continues to deliver services,” Tucker said.

A new infusion of tax revenue could be on the way to help ease future cuts. City leaders are asking San José voters to approve a 2% increase in the city’s hotel tax that could raise $10 million annually.