February 11, 2025
0 Lee Wilcox, Assistant City Manager
Jim Shannon, Budget Director
Sarah Zárate, Director of Administration, Policy, and Intergovernmental Relations City Council
2025-2026 Budget Priorities
Study Session
0 1
Budget Priorities Study Session
Today’s Agenda
Introduction and Opening Comments1
2 Preliminary General Fund Forecast and Budget Process
3 Resident Priorities
4 Potential Budget Balancing Strategies for 2025-2026 and Beyond 5 Administration Perspective on Preserving Key City Services 6 City Council Discussion on Budget Priorities
7 Reducing Unsheltered Homelessness Strategic Planning
8 City Council Discussion on Reducing Unsheltered Homelessness Strategic Planning 9 Next Steps and Closing
Part IPart II
2 Budget Priorities Study Session
Today’s Agenda
Introduction and Opening Comments1
2 Preliminary General Fund Forecast and Budget Process
3 Resident Priorities
4 Potential Budget Balancing Strategies for 2025-2026 and Beyond 5 Administration Perspective on Preserving Key City Services 6 City Council Discussion on Budget Priorities
Part I
Jim Shannon, Budget Director
Bonny Duong, Assistant Budget Director
Claudia Chang, Deputy Budget Director
3 Though relatively healthy, the local economy is experiencing only modest growth and battling headwinds
• Residential real estate prices are increasing, but transaction volume is low • Office vacancies remain high
• Technology sector impacted by layoffs and lower levels of venture capital investment • Low levels of private development activity
• Stagnant employment growth and slight population declines • Federal actions create future uncertainty
2025-2026 Preliminary General Fund Forecast
Economic Conditions
Property Tax,
$515,000,000 , 35%
Sales Tax,
$340,000,000 , 23%
Franchise Fees,
$57,100,000 , 4%
Utility Tax,
$145,200,000 , 10%
Business Tax,
$86,000,000 , 6%
Licenses and Permits &
Fees, Rates, and
Charges, $51,600,000 ,
4%
Transfers and
Reimbursements,
$145,400,000 , 10%
Other, $116,600,000 ,
8%
Total = $1.53 Billion
2025-2026 Preliminary General Fund Forecast
Preliminary Revenue Estimates
4 5
Secured Prop
Unsecured Property Tax
SB813 Property Tax
Aircraft Property Tax
Homeowner's Property Tax Relief (HOPTR)
Property Tax Revenue Components
2025-2026 Preliminary General Fund Forecast
Property Tax Preliminary Estimates
Average Santa Clara County Property Tax Allocation
6 Mountain View
$882
Palo Alto
$687
Sunnyvale
$591
Santa
Clara
$496
Cupertino
$329
San Jose
$344
2025-2026 Preliminary General Fund Forecast
Property Tax Per Capita
7 Secured Property Tax Collections
Category 24-25 Est.
(Millions)
25-26 Est.
(Millions)
General Secured $398 $416
Educational Revenue
Augmentation Fund
(ERAF)
$42 $43
Successor Agency to the
Redevelopment Agency
(SARA)
$25 $27
2025-2026 Preliminary General Fund Forecast
Property Tax Preliminary Estimates
The State of California Controller’s Office
does not agree with the methodology used
by Santa Clara County to calculate the
ERAF distribution
• Preemptive litigation initiated by the
County is in process
• Potentially at risk to the City is
approximately $8 million ongoing and
a one-time claw back of
approximately $30 million
8 $370 $391 $414
$449 $474 $494 $515
$-
$100
$200
$300
$400
$500
$600
19-20 20-21 21-22 22-23 23-24 24-25
Est.
25-26
Est.
Property Tax Collections (Millions)
20-21 21-22 22-23 23-24 24-25
Est.
25-26
Est.
%
Growth 5.8% 5.9% 8.4% 5.5% 4.3% 4.3%
2025-2026 Preliminary General Fund Forecast
Property Tax Preliminary Estimates
Property Tax growth is slowing compared to
recent years
While residential valuation remains strong,
property transactions are relatively low
Commercial sector is relatively weak and
some existing valuations are under appeal
Overall low levels new of construction
9 Agency
Distribution
Percentage
State of California 5.500%
City of San José (Bradley Burns) 1.000%
City of San José (Local Tax) 0.250%
Public Safety Fund (Proposition 172)* 0.500%
Santa Clara County (Including VTA) 2.000%
Peninsula Corridor Joint Powers Board
(Caltrain)
0.125%
Total 9.375%
*City is allocated a small share in accordance with a Statewide allocation 2025-2026 Preliminary General Fund Forecast
Sales Tax Preliminary Estimates - Breakdown
10 Cupertino
$716
Palo Alto
$545
Santa Clara
$460
Sunnyvale
$235
Mountain
View
$266
San Jose
$292
2025-2026 Preliminary General Fund Forecast
Sales Tax Per Capita
11 Economic Sector 2021-2022
% Change
2022-2023
% Change
2023-2024
% Change
Business-to-Business 14.2% 28.3% 2.3%
General Retail 23.4% 0.7% (2.2%)
Transportation 24.3% 3.8% (2.0%)
Food Products 26.7% 9.8% 3.2%
Construction (7.4%) (1.6%) (1.2%)
County Pool* 4.9% 3.9% (11.5%)
Business-to-
Business
20%
General Retail
18%
Transportation
18%
Food Products
14%
Construction
9%
Miscellaneous
1%
County Pool
20%
2023-2024 Actuals
General Sales Tax by Economic Sector
% Change by Sector from the Prior Year (Economic Basis) 2025-2026 Preliminary General Fund Forecast
General Sales Tax – Economic Sectors
*Captures the majority of online transactions. Revenue is distributed to all cities within Santa Clara County based each jurisdiction’s total General Sales Tax receipts divided by the Total General Sales Tax receipts for the entire County. The City typically receives between 45%- 50% of the total County Pool.
12 $261 $284
$323 $343 $333 $326 $340
$-
$50
$100
$150
$200
$250
$300
$350
$400
19-20 20-21 21-22 22-23 23-24 24-25
Est.
25-26
Est.
Sales Tax Collections (Millions)
20-21 21-22 22-23 23-24
24-25
Est.
25-26
Est.
%
Growth 9.0% 13.8% 6.3% (2.9%) (2.2%) 4.3%
2025-2026 Preliminary General Fund Forecast
Sales Tax Preliminary Estimates
Last two quarters of General Sales Tax collections
were significantly lower than prior years:
• Apr – Jun: -9%
• Jul – Sep: -10%
Underperformance is expected to continue through
most of 2024-2025
Growth is anticipated for 2025-2026, but from a lower
starting point than previously forecasted
Data from Oct – Dec will be received at the end of
February, which will further inform these estimates
$0
$10
$20
$30
$40
$50
$60
19-20 20-21 21-22 22-23 23-24 24-25
Est.
25-26
Est.
Franchise Fees Collections (Millions)
$0
$20
$40
$60
$80
$100
$120
$140
$160
19-20 20-21 21-22 22-23 23-24 24-25
Est.
25-26
Est.
Utility Tax Collections (Millions)
20-21 21-22 22-23 23-24
24-25
Est.
25-26
Est.
%
Growth 7.5% (3.2%) 20.0% 4.4% 7.3% 4.2%
20-21 21-22 22-23 23-24
24-25
Est.
25-26
Est.
%
Growth 2.7% 6.0% (7.3%) 17.1% 5.9% 2.7%
2025-2026 Preliminary General Fund Forecast
Utility Taxes and Franchise Fees Preliminary Estimates
Surcharge on electricity, gas, water,
and telephone bills
Payment by companies providing electricity,
gas, water, commercial solid waste, cable,
nitrogen/jet fuel, and cable services 13
14 $0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
19-20 20-21 21-22 22-23 23-24 24-25
Est.
25-26
Est.
Business Tax Collections (Millions)
20-21 21-22 22-23 23-24
24-25
Est.
25-26
Est.
% Growth (1.1%) 21.9% 5.0% (4.0%) (0.1%) 0.0%
2025-2026 Preliminary General Fund Forecast
Business Taxes Preliminary Estimates
Category 24-25 Est.
($ in millions)
25-26 Est.
($ in millions)
Cardroom $32.0 $32.0
Cannabis $12.0 $11.0
Disposal
Facility
$12.0 $12.0
General
Business
$30.0 $31.0
Total $86.0 $86.0
15 0 100 200 300 400 500 600 700
Police Department
Fire Department
Parks, Recreation and Neighborhood Services Department
Public Works Department
Transportation Department
Library Department
Information Technology Department
Office of the City Manager
Finance Department
Office of the City Attorney
Planning, Building and Code Enforcement Department
Mayor and City Council
Other Departments
Capital Contributions & Committed Additions
Transfers to Other Funds
City-Wide - Interim Housing
City-Wide - Other
Reserves
Millions
Non-Personal Personal
DepartmentalNon-Departmental
2025-2026 Preliminary General Fund Forecast
Base Budget Expenditures by Category (Preliminary)
16 Salaries and Other
Compensation
43.7%
Health and Other Fringe
Benefits
5.5%
Retirement Contributions
24.3% Non-Personal/Equipment
11.8%
City-Wide (Other)
5.4%
City-Wide (Interim Housing)
1.9%
Contingency Reserve
3.3%
Earmarked Reserves
2.0%
Transfers to Other Funds
1.7%Capital Contributions & Committed Additions
0.4%
Other
26.5%
Total Preliminary Forecast Expenditures: $1.59 billion 2025-2026 Preliminary General Fund Forecast
Expenditure Components (Preliminary)
17 2025-2026 Preliminary General Fund Forecast
Expenditure Components (Preliminary)
0 1,000
2,000
3,000
4,000
5,000
6,000
7,000
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26* Annual Growth of Budgeted Positions (All Funds)
General Government Public Safety Capital Maintenance Community Service
59.0% 59.0% 60.0% 59.4%
34.0% 33.0% 33.0% 33.0%
7.0% 7.0% 7.0% 7.6%
$998
$1,220
$0
$300
$600
$900
$1,200
$1,500
0%
20%
40%
60%
80%
100%
FY23 FY24 FY25 FY26*
Millions
Personal Services Cost Drivers (General Fund)
Salaries and Other Compensation Retirement Contributions Health and Other Fringe Benefits Total Personal Services (General Fund) 18 $46.3
$366.1
6.5%
17.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
$0
$50
$100
$150
$200
$250
$300
$350
$400
% OF GENERAL FUND
GENERAL FUND CONTRIBUTION
($ MILLIONS)
2025-2026 Preliminary General Fund Forecast
Retirement – Historical Perspective
19 • The most recent actuarial projections for
contributions to the City’s retirement system is
similar to previous forecasts
• By the end of this decade, the City’s contribution is expected to peak and then decline as the
unfunded actuarial liability (UAL) is paid down
• Future projections include a number of
assumptions, including that future years average a
return of 6.625%
• Potential UAL impacts in future years resulting
from wage increases higher than actuarial
projections
Police and Fire
Based on June 30, 2024 Valuation
2025-2026 Preliminary General Fund Forecast
Retirement Contributions Actuarial Forecast
20 • Like all forecasts, actuarial projections are based on assumptions that will likely differ from reality
• The high market returns in 2020-2021, even after
applying multi-year actuarial smoothing, resulted in
significantly lower projections of future retirement
contributions…assuming that future years average
a return of 6.625%
• However, returns in 2021-2022 did not meet
assumptions and future retirement contributions
needed to increase
Police and Fire
Based on June 30, 2021 Valuation
2025-2026 Preliminary General Fund Forecast
Retirement Contributions - Proceed with Caution
21 Non-Personal/Equipment
• Electricity costs have increased about 26% since Jan 2023, but future increases expected to slow • Water rates expected to increase 9% next year due to cost of water and capital investments • Further increases for information technology application subscriptions, janitorial and security services, and equipment leases
2025-2026 Preliminary General Fund Forecast
Other Costs Continue to Increase
Committed Additions
• Costs to operate and maintain completed capital projects; notably Measure T projects starting to come online in early 2026 through 2028
• Fire Station 32 (~$13 M), Fire Station 36 (~$7 M), Police Training Facility (~$2 M) • Category tentatively scheduled to increase from $5 M in 2025-2026 to $30 M in 2026-2030 City-Wide Expenses
• Ongoing General Fund contribution to support the Interim Housing Portfolio tentatively forecasted at $30 M in 2025-2026 and increase to approximately $90 M by 2029-2030 • Cost of living increases for support of community-based organizations 22 The General Fund preliminary forecast shows a shortfall of approximately $60 million in 2025-2026 followed by another $30 million in 2026-2027 [subject to change] • A reduction in Sales Tax revenue, modest revenue growth elsewhere in the General Fund, and continuing cost increases result in a structural imbalance that will need to be addressed in the 2025-2026 Proposed Operating Budget
• The forecast does not include costs associated with unmet/deferred infrastructure and maintenance needs, the approximately $8.5 million of one-time services/programs currently funded in the General Fund, or any new targeted investments for service level enhancements
2025-2026 Preliminary General Fund Forecast
Ongoing General Fund Shortfall
Local Perceptions of Top Issues 2024
(Source: Auditor’s Annual Services Report 2024)
We asked residents:
If the City government could change
one thing to make San José a better
place to live, what change would you
like to see?
These are the top issues (in rank
order) for San José residents in 2024.
Addressing Homelessness
Housing Affordability
Improve Public Safety, Reduce Crime
Beautify City, Landscaping
Reduce General Cost of Living
23 Local Perceptions of Top Issues: Over Time
Residents' priorities have largely stayed the same over the last three years (Source: Community Opinion Survey Report 2024, 2023, 2022, 2021) Provide
More
Affordable
Housing
5 24
Addressing
Homelessness
Housing Affordability
Improve Public Safety,
Reduce Crime
Beautify City,
Landscaping
2023
Improve Police
Response, Presence
Addressing
Homelessness
Housing Affordability
Improve Public Safety,
Reduce Crime
Beautify City,
Landscaping
2021
Not Sure / Cannot
Think of Anything
Addressing
Homelessness
Housing Affordability
Improve Public Safety,
Reduce Crime
Beautify City,
Landscaping
2022
Improve Police
Response, Presence
Addressing
Homelessness
Housing
Affordability
Improve Public
Safety, Reduce
Crime
Beautify City,
Landscaping
2024
General Cost of Living
Improve Police
Response, Presence
Top Issues Facing People in California.
Top Issues for San José vs. Californians Overall
Addressing
Homelessness
Housing Affordability
Improve Public
Safety, Reduce Crime
Beautify City,
Landscaping
Cost of living, economy,
inflation, jobs
Housing costs, availability
Homelessness
Crime, gangs, drugs
General Cost of Living Environment, pollution,
climate change
San José California
(Source: Auditor’s Annual Services Report 2024) (Source: PPIC Statewide Survey, Dec 2024) 25 Top Issue. Ten Highest Ranked City Services Similar to Last Year Resident Perceptions of City Services
(Source: Annual Report on City Services 2024) 26
2024 Rank Service
YoY
Rank
Change
1 Operating the San José International Airport --
2 Providing Public Library Access --
3 Providing Fire Protection and Prevention Services +1
4 Providing Trash, Recycling, and Yard Waste Services -1 5 Providing Emergency Medical Services (EMS) --
6 Ensuring New Construction Follows Codes +3
7 Providing Bicycle Lanes and Paths --
8 Maintaining the City's Utility Infrastructure +3
9 Variety of Arts and Cultural Offerings +11
10 Providing Paths and Trails +3
Top Issue. Ten Lowest Ranked City Services Similar to Last Year Resident Perceptions of City Services
(Source: Annual Report on City Services 2024) 27
2024 Rank Service
YoY
Rank
Change
20 Providing police protection in your neighborhood +3
21 Creating a vibrant downtown San José --
22 Reducing gang activity +4
23 Managing the city’s growth and development -1
24 Managing traffic on city streets -4
25 Removing graffiti from buildings -1
26 Cleaning up trash on streets, sidewalks, public areas +1 27 Facilitating the creation of market rate housing -2
28 Facilitating the creation of affordable housing --
29 Addressing homelessness --
Attracting Investment in
Jobs and Housing
Cleaning Up Our
Neighborhoods
Reducing Unsheltered
Homelessness
Increasing Community
Safety
Residents Top Issues and Lowest Ranked Services are Aligned with Current Focus Areas Alignment with City Focus Areas
Reducing Gang Activity
Providing Police Protection
in your Neighborhood
Managing Traffic on City
Streets
Addressing Homelessness
Removing Graffiti on
Building
Cleaning up Trash on
Streets, Sidewalks, Public
Areas
Facilitating the Creation of
Affordable Housing
Creating a Vibrant
Downtown
Managing the City’s Growth
& Development
Facilitating the Creation of
Market Rate Housing
28(Source: Annual Report on City Services 2024)
Addressing
Homelessness
Provide More Affordable
Housing
Improve Public
Safety, Reduce Crime
Beautify City,
Landscaping
29 Administration Perspectives/Priorities
2024-2025 CSA Outcomes and Key Priorities
Core Services (98) and
Programs (264)
CSA
Key
Priorities
Multi Year Initiatives
Requiring Significant
Leadership and/or Staff
Capacity Commitment
Administration Perspectives/Priorities
2024-2025 Administration Priorities in Context
30 Core Services (98) and
Programs (264)
CSA
Key
Priorities
Multi Year Initiatives
Requiring Significant
Leadership and/or Staff
Capacity Commitment
Administration Perspectives/Priorities
2025-2026 Administration Priorities in Context
31 Pursue budget balancing strategies that responsibly
address the ongoing General Fund shortfall, work to
minimize the immediate impact on vulnerable
communities, and preserve capacity to make progress
on Focus Areas and CSA Key Priorities
32 Potential Budget Balancing Strategies – Historical Context Resolved Ongoing General Fund Shortfalls Exceeding $760M -$120
-$100
-$80
-$60
-$40
-$20
$0
$20
$40
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 ($ in millions)
33 Potential Budget Balancing Strategies – Historical Context Budgeted Positions Well Below peak in 2001 – 2002 (All Funds) 7,481 7,445
7,240
6,814
6,699
6,870 7,019 7,012
6,650
5,867
5,4275,522 5,655 5,759
5,945
6,159 6,250
6,413
6,647 6,592 6,647
6,884 7,040 6,994
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
34 The 2025-2026 City Manager’s Budget Request will
recommend a set of general budget balancing strategy
guidelines for the development of the 2025-2026
Proposed Budget
Overarching goal is to align limited resources with the City Council’s most import priorities, acknowledging that a robust service delivery framework is necessary to
achieve these priorities
Five key budget-balancing strategies are highlighted
below for City Council discussion and feedback
Potential Balancing Strategies
Holistic Approach to Balance the Budget
Consider a permanent change to Measure E policies, allowing for more flexible use of Measure E revenues for homeless sheltering and support 35 • The City has become a major provider of homelessness sheltering and support services, a role that it did not occupy prior to the pandemic
• Without strong economic growth or a new revenue source, the level of ongoing General Fund support for homeless sheltering and related services previously directed by the City Council – and the community’s top priority – will require deep cuts to other core existing community services
• The Administration recommends changing City Council Policy 1-18, Section 22, to allow more flexible use of Measure E revenues for homelessness support programs and interim housing construction and operations
Potential Balancing Strategies
#1 – Measure E Policy Change
36 Expenditure Category Existing
Allocation
Spread
2025-2026 Measure E
Revenue Estimate
(Millions)
Program Administration* 5% $2.75
New Affordable Housing:
Extremely Low-Income
40% $20.90
New Affordable Housing:
Low-Income
30% $15.67
New Affordable Housing:
Moderate-Income
5% $2.61
Homelessness Prevention 10% $5.23
Homelessness Support 15% $7.84
Total 100% $55.0
* 5% of the total amount is allocation for administration purposes, with the remaining amount allocated in accordance with the listed percentages.
Up to $39 million
could be made
available for interim
housing and other
homelessness support
programs, thereby
reducing the
preliminary shortfall
from $60 million to
$21 million
Potential Balancing Strategies
#1 – Measure E Potential Reallocation
37 A permanent change to City Council Policy 1-18, Section 22, would give the City Council budgetary flexibility to address the urgency of homelessness, one of the City Council’s and community’s most important priorities. Potential options:
• In years where the General Fund would otherwise experience an ongoing shortfall, up to 90% of Measure E revenues could be budgeted for homelessness sheltering and support services with a majority vote; the policy change would include a mechanism to restore ongoing funding for affordable housing uses when the General Fund improves • Permanently change spending allocation percentages to instead be fully spent on homelessness prevention, support, and sheltering services; in high-performance years when Measure E revenues exceed ongoing homeless support and sheltering costs, any excess revenue in that year would be allocated for affordable housing preservation and development In either scenario, the Administration has identified strategies and is conducting due diligence to fund affordable housing preservation and development Potential Budget Balancing Strategies
#1 – Measure E Policy Change Options
While the Administration will investigate revenue offsets (e.g. ensuring that most fees are cost recovery) and identify any cost efficiencies without service reductions, ongoing cost service reductions are necessary to address the preliminary size of the ongoing shortfall
Only 53% of the General Fund Base budget can be considered “discretionary”, making reductions that much harder to achieve Non-Discretionary Budget: Unfunded Actuarial Liability (UAL), Other Post Employment Benefit (OPEB), revenue-offset expenditures
2025-2026 General Fund Base Budget = $1.59 billion
Other Non-
Discretionary
and Revenue
Offset Expenses
22%
UAL & OPEB
Retirement
Contributions
25%
Discretionary
53%
Potential Budget Balancing Strategies
#2 – Cost Reductions: Discretionary vs. Non-Discretionary 38 Public Safety Departments: 3.5% Mayor & City Council, Appointees: 6.0% All Other Departments: 12.0% City Department/Offices Amount
Economic Development and Cultural Affairs $870,000
Environmental Services $392,000
Finance $1,734,000
Fire $5,896,000
Housing $892,000
Human Resources $1,382,000
Information Technology $1,907,000
Library $4,590,000
Parks, Recreation & Neighborhood Services $9,536,000
Planning, Building, and Code Enforcement $551,000
Police $12,597,000
Public Works $5,011,000
Transportation $1,498,000
Mayor, City Council & Appointees $3,144,000
ONGOING TOTAL $50,000,000
2025-2026 ONGOING GENERAL FUND REDUCTION TARGETS
Issuing targets by department and
office does not mean that
reductions will be applied uniformly
across the organization
Instead, these proposals help the
organization evaluate options that
can best address the budgetary
shortfall while still prioritizing the
most critical needs of our
community
Continued focus on the
consideration of racial and social
equity as we work to balance the
budget
Potential Budget Balancing Strategies
#2 – Cost Reductions: Department Reduction Targets
39 While each budget cycle brings new opportunities to identify new revenues, as well as cost reductions and service level efficiencies with minimal to no impact, closing a shortfall of this size will require service reductions Potential Budget Balancing Strategies
#2 – Cost Reductions: Potential Cost and Service Reductions Cost Allocation Shifts Janitorial Services
Departmental Reorganization and Restructuring Mayor and City Council Office Budget Evaluation of Supplies, Materials, Contractual Services, etc. Neighborhood Center Partner Program Vacant Position Eliminations Office of Equality Assurance Contract Security Services Park Activation and Placemaking California Room Access Parks Maintenance
Child and Youth Services Police Main Lobby Weekend Closure City Attorney Staffing Police School Liaison Elimination City Auditor Staffing Police Training Center (defer opening) City Clerk Staffing Preventative Maintenance of City Facilities City Manager Staffing Project Hope
Citywide Planning Recreation Services
Code Enforcement Recreation of City Kids Afterschool Program Community Forest Regional Parks, Monday Closure
Enterprise Resource Planning Replacement Safe School Campus Initiative Extended Parking Stay Enforcement San José Works
Finance Recovery Division School Crossing Guard Program Library Hours SJ Learns
Fire Station 32 (deferral of truck staffing) Traffic Enforcement Unit Firefighter Recruit Academy Tree and Sidewalk Hardship Program Fire Communications Staffing Vehicle Replacement
Information Technology Infrastructure and Support Workforce Pipeline Development Partial listing of services that have
previously been considered for
reductions or may be considered for
future reductions
Though the Administration will work
to minimize any employee impacts,
up to 180 positions could be
impacted
40 41
The City has a Budget Stabilization Reserve consisting of one-time funds of $53.0 million The purpose of this reserve is to provide budget stability when there are fluctuations that result in lower than projected revenues and/or higher than projected expenditures that cannot be re-balanced within existing budget resources in any given year. This reserve is intended to provide a buffer, or bridge funding, to protect against reducing service levels when these fluctuations occur.
City Council Policy 1-18, Section 3
While $53.0 million is a large figure, it is very small for a City of our size This resources must be carefully managed to:
• at least partially address the one-time lack of ending fund balance in 2024-2025 • provide some limited one-time funding for critical needs in 2025-2026 • provide an additional buffer if conditions worsen further in 2025-2026 • potentially help mitigate the additional shortfall preliminarily forecasted for 2026-2027 Potential Budget Balancing Strategies
#3 – Budget Stabilization Reserve (Limited Use)
42 Expenditure Category Amount
(Millions)
2024-2025 Adopted Budget $61
Actions in the 2024-2025 Mid-Year Budget
Review
($8)
Estimated Offset to One-Time Shortfall of
2024-2025 Ending Fund Balance/
2025-2026 Beginning Fund Balance
($25)
Remaining Available for 2025-2026 and
2026-2027
$28
The City typically assumes an ongoing
Ending Fund Balance of $25 - $30 million
that is used as an ongoing source of
revenue in the following year of the
forecast model
Due to the unexpected drop in Sales Tax
revenues in 2024-2025, very little, if any,
ending fund balance is expected
The Budget Stabilization Reserve will
likely be needed to offset this one-time
fund balance shortfall
It is likely that only half of the existing Adopted Budget amount will remain available for use in the 2025-2026
Proposed Operating Budget
We are already using it
Potential Budget Balancing Strategies
#3 – Budget Stabilization Reserve (Limited Use)
43 Strategically leverage the Budget Stabilization Reserve to:
• Offset, as needed, the one-time shortfall of 2024-2025 Ending Fund Balance/2025-2026 Beginning Fund Balance
• Provide a funding source for a very limited amount of strategic one-time investments
• Ensure that a reasonable balance remains to address future uncertainty Potential Budget Balancing Strategies
#3 – Budget Stabilization Reserve (Limited Use)
44 City Council Focus Areas:
• Reducing Unsheltered Homelessness
• Increasing Community Safety
• Cleaning Up Our Neighborhoods
• Attracting Investment in Jobs and Housing
Other select areas of important core service work within other community services, strategic support, and deferred infrastructure areas
In areas where funding is preserved, apply recent lessons learned to improve, experiment, and refine service delivery
Potential Budget Balancing Strategies
#4 – Preserve Gains from Recent Budget Cycles (Where Possible) 45 Address a very select few new investments for urgent priorities and imminent risk mitigation
• Critical unmet or deferred infrastructure/maintenance needs • Furniture, fixtures, and equipment associated with the opening of Measure T facilities (non-bond eligible)
• Address the most urgent service deficiencies
• Allow for the safe and successful facilitation of 2026 sporting events • Identify targeted investments that could generate future savings or opportunities Potential Budget Balancing Strategies
#5 – Extremely Limited and Targeted New Investments
46 Budget Balancing Strategy #1
Change City Council Policy 1-18 to flexibly use Measure E for homelessness support and sheltering services
Budget Balancing Strategy #2
Carefully consider cost reductions and work to minimize service level reductions/employee impacts Budget Balancing Strategy #3
Strategic use of the Budget Stabilization Reserve to fund one-time investments Budget Balancing Strategy #4
Preserve gains made in recent budget cycles
Budget Balancing Strategy #5
Address a very select few new investments for urgent priorities and imminent risk mitigation Ongoing reallocation of Measure E resources
is fundamental to fully implement
Strategies #2 - #5
Potential Budget Balancing Strategies
Holistic Approach to Balance the Budget
47 For Illustration Purposes Only
Identify changes to fee cost recovery levels and identify any other sources of new revenue (expected to be
limited)
Review all available reserves for potential liquidation as a one-time funding source
Careful use of the Budget Stabilization Reserve to fund one-time needs
Reallocate eligible ongoing General Fund costs for
homelessness support and interim housing to Measure E
(Real Property Transfer Tax Fund)
Still requires service level cuts, but the potential cuts in this example would only be half of the full department
reduction target
Small handful of targeted investments
2025-2026 Ongoing
2025-2026 GENERAL FUND SHORTFALL [A] (60) (60)
SOURCE OF FUNDS
Fees and Charges Cost Recovery Adjustments 1 - Overhead Reimbursement Changes 1 1 Other Miscellaneous Revenues 2 1 Liquidation of Available Reserves TBD -
Budget Stabilization Reserve 5 - Total Revenue Changes [B] 9 2 USE OF FUNDS 2025-2026 Ongoing
Shift of Interim Housing/Homeless Support Costs to Measure E (39) (39) Cost Reductions/Service Delivery Efficiencies/Fund Shifts (25) (25) Unmet/Deferred Technology, Infrastructure, and Maintenance 2 Previously One-Time Funded Services 5 4 Service Enhancements (Targeted Investments) 5 2 Essential Services Reserve 1
Total Expenditure Changes [C] (51) (58) TOTAL CHANGES [D] = [B] - [C] 60 60 Remaining Surplus/(Shortfall) [E] = [A] + [D] - -
POTENTIAL BALANCING STRATEGY - MEASURE E REALLOCATION
Potential Budget Balancing Strategies
Reallocation of Measure E for Homelessness
48 Potential Budget Balancing Strategies
Reallocation of Measure E for Homelessness
For Illustration Purposes Only
Without the reallocation of Measure E resources, even
with the full $50 million of cost and service reductions and eliminating all other increases, the General Fund
would still have an ongoing shortfall
The City would likely experience significant cuts to
community services, with up to 180 positions
eliminated
Additional use of the Budget Stabilization Reserve would be required to balance 2025-2026, but since it is only a one-time funding source, an ongoing shortfall remains
Any remaining ongoing shortfall exacerbates the
following year’s projected ongoing shortfall
In this example, the $30 million shortfall preliminarily forecasted in 2026-2027 increases to $38 million
2025-2026 Ongoing
2025-2026 GENERAL FUND SHORTFALL [A] (60) (60)
SOURCE OF FUNDS
Fees and Charges Cost Recovery Adjustments 1 - Overhead Reimbursement Changes 1 1 Other Miscellaneous Revenues 2 1 Liquidation of Available Reserves TBD -
Budget Stabilization Reserve 6 - Total Revenue Changes [B] 10 2
USE OF FUNDS 2025-2026 Ongoing
Shift of Interim Housing/Homeless Support Costs to Measure E - - Cost Reductions/Service Delivery Efficiencies/Fund Shifts (50) (50) Unmet/Deferred Technology, Infrastructure, and Maintenance - Previously One-Time Funded Services - - Service Enhancements (Targeted Investments) - - Essential Services Reserve -
Total Expenditure Changes [C] (50) (50) TOTAL CHANGES [D] = [B] - [C] 60 52 Remaining Surplus/(Shortfall) [E] = [A] + [D] - (8)
NO MEASURE E REALLOCATION
49 2025-2026 City Manager’s Budget Request / 2026-2030 Five-Year Forecast and Revenue Projections (February 28)
Public Hearing and City Council review and approval of the Mayor’s March Budget Message for Fiscal Year 2025-2026 (March 18)
Release of City Manager’s Proposed Budget Documents (late April through early May) City Council Budget Study Sessions on the Proposed Budget (May 7 -15) Initial Public Hearing on the Proposed Budget (May 13)
Community Budget Meetings (TBD throughout May)
Final Public Hearing and review/approval of the Mayor’s June Budget Message and Proposed Budget (June 18)
2025-2026 Preliminary General Fund Forecast
Next Steps in the Budget Process
Gauging Support for Revenue Concepts. ”. . . as one part of its long-term budget planning process, the City of San Jose is looking at the possibility of placing a revenue measure on a future ballot. Keeping in mind that these discussions are preliminary, please consider the following potential measures the City is exploring. After each short summary, please indicate whether you would vote yes or no on each measure.” Potential Future Revenue Measures – An Early Perspective 50(Source: City of San José Revenue Concepts Poll, Jan. 2025) 52% 46%42% 46%
6% 8%
0%
10%
20%
30%
40%
50%
60%
70%
Parks Bonds Parks Parcel Tax
Definitely Yes, Probably Yes, or Leaning Yes Definitely No, Probably No, or Leaning No Undecided Voter threshold Looking Ahead
Gauging Support for Revenue Concepts. ”. . . as one part of its long-term budget planning process, the City of San Jose is looking at the possibility of placing a revenue measure on a future ballot. Keeping in mind that these discussions are preliminary, please consider the following potential measures the City is exploring. After each short summary, please indicate whether you would vote yes or no on each measure.” Potential Future Revenue Measures – An Early Perspective 51(Source: City of San José Revenue Concepts Poll, Jan. 2025) 35% 40%
55% 55%
10% 6%
0%
10%
20%
30%
40%
50%
60%
Utility User Tax Extension (Streaming Services) Sales Tax Increase Definitely Yes, Probably Yes, or Leaning Yes Definitely No, Probably No, or Leaning No Undecided Voter threshold Looking Ahead
City Council Discussion
52 Preliminary General Fund Forecast
Resident Priorities and Administration Perspectives
Potential Budget Balancing Strategies
Questions, comments and reaction:
What do we need to:
Prioritize our limited resources toward?
Protect from budget reductions where possible?
Pause or stop, to free up resources for higher priority efforts? Given budget constraints and the continued need to progress on City Council Focus Areas…
53 Budget Priorities Study Session
Today’s Agenda
Introduction and Opening Comments1
2 Preliminary General Fund Forecast and Budget Process
3 Resident Priorities
4 Potential Budget Balancing Strategies for 2025-2026 and Beyond 5 Administration Perspective on Preserving Key City Services 6 City Council Discussion on Budget Priorities
7 Reducing Unsheltered Homelessness Strategic Planning
8 City Council Discussion on Reducing Unsheltered Homelessness Strategic Planning 9 Next Steps and Closing
Part IPart II
54 Budget Priorities Study Session
Today’s Agenda
7 Reducing Unsheltered Homelessness Strategic Planning
8 City Council Discussion on Reducing Unsheltered Homelessness Strategic Planning 9 Next Steps and Closing
Part II
Erik L. Soliván Director, Housing Department
Banu San Deputy Director, Housing Department
Cupid Alexander Deputy Director, Housing Department
There are about
5,477 unsheltered people
living in San José.
55 56
FY 2025-2026 Budget Priority Session
Scope of the Problem
Currently, the City and County
operate 2,968 units across a variety of shelter options in the City of San Jose and are building 1,723 more units and managed spaces.
Even with the units/spaces we are building,
there is not enough shelter space
for the 5,477 unsheltered people.
57 FY 2025-2026 Budget Priority Setting
Community Goal: Functional Zero in Unsheltered Homelessness Reduce the inflow of unsheltered residents, whereby
more persons enter shelter and permanent housing than
experience unsheltered homeless measured on a monthly
and yearly basis.
Provide shelter or housing for persons experiencing
unsheltered homelessness
Limit the time-period of unsheltered homelessness
experience to 30-days or less to mitigate chronic
homelessness and its according per capita health impacts and costs
Intervention Point
Cost
Health
Needs
Prevention
Assistance
Rapid Rehousing &
Tenant Based Rental
Assistance
Shelter
System
Permanent
Supportive
Housing
Per Capita Impact
FY 2025-2026 Budget Priority Session
Cost Increases by Point of Intervention
58 Prevention
Unhoused
Outreach
Encampment
Resolution
Lived in
Cars & RV
PSH Units
Rent Subsidized
& Restricted
Rent Stabilized
Market Rate
Units
Subsidized
Homeownership
Home
Ownership
Board & Care Beds
[County]
Safe Sleeping & Parking
[City]
Congregate
Shelter Beds [County]
Interim Housing
Tiny Homes
Unit
Preservation
ED
NSE
Unit
Preservation
Prevention
Hoteling & Congregate
[City]
Interim Housing
Hotels
FY 2025-2026 Budget Priority Session
“Shelter” Within the Context of the Housing Continuum
59 Interim Housing
2016 2017 2018 2019 202520242023202220212020
Encampment Abatements
Warming Centers at City Facilities
Affordable Housing
The City has
expanded its
shelter
programs
considerably
over the past
ten years.
Hotel / Motel Sheltering
Safe Parking Program
FY 2025-2026 Budget Priority Session
City’s Evolving Approach to Shelter
60 Variety of Shelter Types
Hotel/ Motel Sheltering Tiny Homes Congregate Shelter Safe Sleeping Sites Safe Parking 61 62
Even with all the shelter units/spaces we are
building, there is not enough shelter
for the existing 5,477 unsheltered population.
FY 2025-2026 Budget Priority Setting
Scale of the Problem: Supply Gap
Annual Inflow
Point in
Time
4,387
City of San
Jose Counts
4,308
(PRNS, DOT, WW)*
Homeless
Management
Information System
5,318
Annual
Placement
2,586
Estimated Total
Unsheltered
Homelessness
5,477
1,418
Net Inflow
1,168
FY 2025-2026 Budget Priority Session
Scale of the Problem: Calculating Unsheltered Homeless
*Parks, Recreation and Neighborhood Services (PRNS), Department of Transportation (DOT), Waterways (WW)
63 2,018,
68%
950,
32%
Current Supply
County Total City Total
Total = 2,968 Total: 4,691
2,313,
50%
2,342,
50%
Supply + Production
County Total
City Total
295,
17%
1,428,
83%
Current Production
County Total
City Total
Total = 1,723
FY 2025-2026 Budget Priority Session
Scale of the Problem: City and County Shelter Units in San José The City and County currently operate 2,968 units across a variety of shelter options and are building 1,723 more units in San Jose. 64 2,018,
68%
950,
32%
Current Supply
County Total City Total
Total = 2,968
FY 2025-2026 Budget Priority Session
Scale of the Problem: City and County Shelter Units in San José Importantly, the current
supply of shelter has high
utilization, resulting in very
low vacancy rates.
On average, there is a
5% vacancy rate or just 148
available spaces.
65 FY 2025-2026 Budget Priority Setting
Scale of the Problem: Supply Gap (Baseline)
1871
728
2336
541
0 1000
2000
3000
4000
5000
6000
Projected Shelter Gap:
3,064
Total Unsheltered: 5,477
Available Supply + Production
[1,723+ 148]
Program Resistant
New Tiny Homes, Hoteling,
Safe Sleeping, Congregate,
Interim
New Safe Parking
66 Site Unit Count
Mabury 38
Felipe 38
Monterey/ Bernal 78
Rue Ferrari 82
Evans Lane 49
Guadalupe 96
Branham-Monterey 204
First Street Hotel 76
Plaza Hotel 43
Arena Hotel 89
Pacific Motor Inn 72
Pavilion Hotel 43
Santa Teresa Supportive Parking 42
FY 2025-2026 Budget Study Session
The City’s Current Shelter Portfolio
The City's current
Shelter System
portfolio is
comprised of
950 units/spaces
67 FY 2025-2026 Budget Study Session
Current Supply Pipeline (Existing City Council Direction)
FY 2025-2026 Budget Study Session
Current Supply Pipeline Continued (Existing City Council Direction)
FY 2025-2026 Budget Study Session
Current Supply Pipeline Continued (Existing City Council Direction) 70 FY 2025-2026 Budget Priority Setting
Supply Gap – Estimated Costs of Reaching Functional Zero 1871
728
2336
541
0 1000
2000
3000
4000
5000
6000
Total Onetime Capital Costs for Gap:
$255 million
Available Supply +
Production
Program Resistant
New Tiny Homes,
Hoteling, Safe
Sleeping,
Congregate, Interim
New Safe Parking
Total Annual
Operating Costs for City Shelter System:
$234 million
To achieve functional zero, closing the 3,064-unit gap
requires ~$255 million in Capital funding, and ~$234
million annually to operate a full shelter system.
71 Production Per Unit Costs
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
[City] Hoteling
/ SS /
Congregate
[City] Safe
Parking
[City] Interim
Housing - Tiny
Homes
$62,704 $114,697 $82,317
$78,380
$143,371
$102,896
Capital PUC @ 20% Reduction
Capital PUC [Average]
Operating Per Unit Costs
FY 2025-2026 Budget Priority Setting
Historical and Projected Costs & Savings to Produce & Operate Units $0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
[City] Hoteling / SS /
Congregate
[City] Safe Parking [City] Interim
Housing - Tiny
Homes
$28,744
$57,759 $48,820
$35,930
$72,199
$61,025
Operating PUC 20% Reduction
Operating PUC
72 FY 2025-2026 Budget Study Session
Shelter Construction and Clearing Encampment Process
Site
Identification
Project
Design Construction and/or Contracting
Shelter
Construction
and Operation
Preserve and Restore
Encampment Site
Shelter Operation
Shelter
Opens
Moving
People from
Encampments
to Shelter
Abate
Encampment
Engage Encampment
Residents
Move to Shelter
These
activities
result in
additional
costs
73 1,871
5,477
2,099
0 1,000
2,000
3,000
4,000
5,000
6,000
Shelter Supply Housing Supply
FY 2025-2026 Budget Study Session
Many Paths Forward, but Funding Remains a Major Obstacle Current Production & Existing Vacancies
Annual Operating :$85M+
Achieving Functional Zero
One-time Capital: $255M
Annual Operating: $234M
Standing Shelter System
Annual Operating: $90M
Number of Unhoused Residents Receiving Shelter
This is where
we’re headed
with current
Council
direction.
This is what it would take to
build out the shelter gap and
reach functional zero.
74 1,871
5,477
2,099
2,682
3,378
0 1,000
2,000
3,000
4,000
5,000
6,000
Shelter Supply Housing Supply
2,829
3,577
FY 2025-2026 Budget Study Session
Many Paths Forward, but Funding Remains a Major Obstacle Clear the Waterways:
One-time Capital: $132M
Annual Operating: $121M
Current Production & Existing
Vacancies
Annual Operating :$85M+
Clear Waterways & LIV
One-time Capital: $165M
Annual Operating: $152M
Achieving Functional Zero
One-time Capital: $255M
Annual Operating: $234M
Compress the System
Capital :$575M
Standing Shelter System
Annual Operating: $95M
Transference In the System
$457M Capital
Number of Unhoused Residents Receiving Shelter
75 We need to:
Expand the shelter system;
Build significantly more permanent supportive housing and transfer people to it from the shelter system;
Compress the shelter system due to the high shelter
operating costs;
Prevent homelessness to stop the inflow
FY 2025-2026 Budget Study Session
Many Paths Forward, but Funding Remains an Obstacle
If the goal is functional zero…
…and find the resources to pay for it
76 Public Private Partnerships
• Asset Financing
• Philanthropic Donations
• Incorporate Faith-based Shelter Service Network
Ballot Measures
• Bond Issuance for Capital Expenditures
• Operating Subsidy
• Others
State and Federal
• Expanding Tax Credit Financing
• Ongoing Funding for Operations
• Explore Operating Subsidies
Budget Study Session
The City Can’t Do it Alone - Alternative Revenue Options 77 Budget Study Session
Alternative Revenue Options: Public-Private Partnerships 24%
20%27%29%
$255M In Capital Funding – Shelter System
30%
50%
20%
$575M In Capital Funding – Housing Production
Public–Private-Partnerships are required to solve this problem through philanthropy, leveraged funding, and financing
78 Prevention
Unhoused
Outreach
Encampment
Resolution
Lived in
Cars & RV
PSH Units
Rent Subsidized
& Restricted
Rent Stabilized
Market Rate
Units
Subsidized
Homeownership
Home
Ownership
Board & Care Beds
[County]
Safe Sleeping & Parking
[City]
Congregate
Shelter Beds [County]
Interim Housing
Tiny Homes
Unit
Preservation
ED
NSE
Unit
Preservation
Prevention
Hoteling & Congregate
[City]
Interim Housing
Hotels
FY 2025-2026Budget Study Session
Staff will Continue Driving Solutions Towards the Housing Continuum 79 FY 2025-2026Budget Study Session
Staff will Continue Driving Solutions Towards the Housing Continuum Alternative Revenue Options
Policy and Programmatic Efforts
General Plan Four Year Review
Housing Catalyst Team Work Plan
Increasing Capacity for Prevention
Site Identification + Community Engagement (to prepare for capital funding) Realizing capital and programmatic efficiencies
Strategic planning for shelter system compressions
Moderate Income Workforce Housing Strategy
Prevention System Expansion
Intergovernmental Advocacy
Advocating for State and Federal government to do their fair share Sponsoring a Credit Bill
State Health Care Services rule on transitional rent
Strategies for the program resistant
80 City Council Discussion:
Reducing Unsheltered Homelessness
Strategic Planning
81 82
Budget Priorities Study Session
Today’s Agenda
Introduction and Opening Comments1
2 Preliminary General Fund Forecast and Budget Process
3 Resident Priorities
4 Potential Budget Balancing Strategies for 2025-2026 and Beyond 5 Administration Perspective on Preserving Key City Services 6 City Council Discussion on Budget Priorities
7 Reducing Unsheltered Homelessness Strategic Planning
8 City Council Discussion on Reducing Unsheltered Homelessness Strategic Planning 9 Next Steps and Closing
Part IPart II
February 11, 2025
83 Lee Wilcox, Assistant City Manager
Jim Shannon, Budget Director
Sarah Zárate, Director of Administration, Policy, and Intergovernmental Relations City Council 2025-2026 Budget
Priorities Study Session
83