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Section 3: Strategic Observations & Frustrations
1. General Fund Structural Deficit
The General Fund balance dropped to $640.9 million (a decrease of $34.2 million).
Frustration: Despite a 6% increase in revenues (driven by Property and Utility Taxes), expenditures rose by 7% (driven by personnel costs and liability claims).
We are seeing a "structural deficit" where the cost of providing the same level of service is rising faster than our natural revenue growth.
2. Construction Market Vulnerability
The report notes a decline in residential and industrial construction valuation.
While commercial valuation was up (driven by data centers), the broader slowdown in housing permits reduces our fee revenue and future property tax base expansion. This is a
3. Reliance on Grants
We saw a significant drop in Capital Grants and Contributions (down nearly 28%). Our reliance on state and federal grants for housing and homelessness solutions is a risk factor; when these grant cycles end, the General Fund is often left to pick up the operational tab.
Section 4: Recommendations
Based on this review, I recommend the Council consider the following three priorities for the upcoming budget cycle:
1. Strict Adherence to "One-Time" Rules: We must stop using one-time funds (like Measure E shifts or vacancy savings) to balance ongoing operational deficits. The General Fu
2. Infrastructure Preservation Strategy: With construction taxes slowing, we need a dedicated funding stream for capital renewal. We cannot afford to let the $1.7B backlog grow
3. Liability Management: Continue the aggressive pay-down of the pension liability. The slight decrease this year proves that discipline works; we must maintain our full actuaria Conclusion
San José is well-managed and transparent, but we are fiscally constrained. The city attained a "clean" audit, but a "messy" balance sheet due to legacy liabilities and infrastructure needs. The focus for 2026 must be on structural alignment—bringing our ongoing expenses down to match our reliable, recurring revenues.
Respectfully,
Brian Darby
I wish everybody happy holidays and a very happy new year.
12/9/25, 9:03 AM Mail - City Clerk - Outlook
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