TO: HONORABLE MAYOR
AND CITY COUNCIL
FROM: Erik L. Soliván
SUBJECT: See Below DATE: September 4, 2026
Approved
Date:
9/4/26
COUNCIL DISTRICT: Citywide
SUBJECT: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
RECOMMENDATION
(a) Accept the status report on the Housing Department’s updated functional zero model for unsheltered homelessness.
(b) Approve amendments to the Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan, as described in this memorandum.
SUMMARY AND OUTCOME
This memorandum responds to City Council direction to update the City of San José’s functional zero framework for unsheltered homelessness and refine the Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan. The Housing Department (Department) recommends accepting the status of the updated functional zero model and approving amendments that better align the work plan with current system conditions, lessons learned, and the shared responsibilities of the City, County of Santa Clara (County), state, and other partners.
The proposed amendments preserve the Focus Area’s long-term goal and most existing Fiscal Year 2026-2027 work while reorganizing the logic model into four problem areas composed of three tactical Fiscal Year 2026-2027 implementation problem areas and a new strategy and systems planning problem area. Key changes include reorganizing the former “System Gaps,” “Limited Shelter-to-Housing Throughput,” and “Sustainable Funding Sources” problem areas into two revised tactical areas focused on system functionality and sustainability and throughput to permanent placement; realigning existing goals across those two problem areas and consolidating related Coordinated COUNCIL AGENDA: 9/15/26
FILE: 26-950
ITEM: 3.5
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
Entry System (CES) integration and referral-workflow goals to better distinguish site operations and sustainability from referral and placement pathways; adding two exploratory throughput goals; establishing a new “Functional Zero, Regional Flow, and Downtown Concentration” problem area, focused on applying the functional zero methodology, building shared accountability, segmenting unsheltered sub-populations by pathway, and informing state or regional policy changes; revising the Focus Area’s top-level indicators to emphasize operation optimization and increased permanent placements from the current baseline; and adding a “Functional Zero, Baseline and Flow” indicator for frequent tracking. Together, these changes are intended to strengthen near-term execution while providing a clearer multiyear framework for measuring progress, identifying system barriers, and informing future operational and policy decisions.
BACKGROUND
The City Council’s Focus Area framework organizes cross-departmental work around the City’s highest-priority challenges and uses logic models to connect long-term outcomes to defined problem areas, near-term goals, change initiatives, hypotheses, and success and operational measures. For Fiscal Year 2026-2027, Manager’s Budget Addendum #8 established the work plans for the five City Council Focus Areas, including Reducing Unsheltered Homelessness.
1 The Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Work Plan established the following long-term goal:
“Move toward functional zero in unsheltered homelessness by managing a sustainable shelter system, reducing inflow, increasing throughput to permanent housing, and strengthening coordinated service delivery with the County.”
The work plan organized Fiscal Year 2026-2027 efforts around four problem areas: 1) System Gaps, 2) Shelter-to-Housing Throughput, 3) Sustainable Funding Sources, and 4) Public Space Movement and Cycling. It also established four top-level indicators focused on 1) permanent placements, 2) referrals through the County’s Coordinated Entry System (CES), 3) per-unit operating costs, and 4) response within No- Encampment Zones.
Following the release of Manager’s Budget Addendum #8, the City Council approved the Mayor’s June Budget Message for Fiscal Year 2026-2027, which directed the Department to build upon the functional zero framework and provide an updated model for both near-term and long-term strategic planning. Functional zero does not mean that
1 Manager’s Budget Addendum #8: Fiscal Year 2026-2027 Focus Area Work Plans, May 6, 2026, including the Reducing Unsheltered Homelessness Fiscal Year 2026-2027 Work Plan. https://www.sanjoseca.gov/home/showpublisheddocument/131494/639142042464530000
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
no one will ever experience unsheltered homelessness. It means that unsheltered homelessness is rare, brief, and nonrecurring because the system moves people indoors as quickly as, or faster than, they become unsheltered. The direction called for the model to reflect progress made, the role of prevention, system optimization efforts, and the projected impacts of County commitments. It also directed staff to distinguish between outcomes the City can directly influence and those that require regional partnership.
2 The Mayor’s June Budget Message for Fiscal Year 2026-2027 further directed the City Manager to return to the City Council with an updated Reducing Unsheltered Homelessness Focus Area logic model. In developing that framework, staff were directed to consider strategies that increase successful transitions from interim housing, expand scalable pathways out of homelessness, increase the average number of individuals served per unit or bed, reduce operating costs per unit, and sustainably preserve progress along No-Encampment Zones. The direction emphasized identifying the highest-impact strategic choices that can move San José toward functional zero over a multiyear period rather than creating additional disconnected workstreams.
The proposed amendments are described below.
ANALYSIS
Updated Functional Zero Framework
The City’s functional zero planning has evolved as San José has significantly expanded shelter and safe parking capacity and gained additional information about how residents move through the homelessness response system. While shelter capacity remains important, the updated framework recognizes that moving toward functional zero over time depends on more than the number of shelter spaces available.
Progress also depends on how effectively the system manages the movement, or flow, of residents from unsheltered homelessness into shelter and ultimately permanent housing; how effectively homelessness is prevented; whether available resources are matched to the needs of the remaining unsheltered population; and whether the City, County, and other partners are collectively addressing the parts of the system within their respective control.
The updated approach, therefore, treats functional zero as both an outcome and an operating framework. It is intended to provide a consistent method for producing more frequent estimates of the unsheltered baseline than the biennial Point-in-Time Count
2 Mayor’s June Budget Message for Fiscal Year 2026-2027, approved June 9, 2026, pp. 7-8. Mayor’s June Budget Message for Fiscal Year 2026-2027, approved June 9, 2026, pp. 7-8.
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
and tracking changes over time; understanding geography and concentration; progressively strengthening inflow and outflow analysis as the model is enhanced; segmenting unsheltered sub-populations by the pathways required to achieve permanent placement; clarifying regional and shared accountability; and using those insights to inform operational, state, and regional policy decisions.
If the City can regularly track the unsheltered baseline, build shared accountability, segment unsheltered sub-populations by the pathways required to achieve permanent placement, and use those insights to identify operational and policy barriers, the City can more effectively target limited resources, strengthen warm handoffs, identify system barriers, and make operational, state, and regional policy changes that reduce the persistent unsheltered population over time.
The proposed changes to the Focus Area work plan translate this updated functional zero framework into the Focus Area logic model structure.
Problem Area 1: System Functionality and Sustainability
Manager’s Budget Addendum #8 separately identified “System Gaps” as Problem Area 1, “Limited Shelter-to-Housing Throughput” as Problem Area 2, and “Sustainable Funding Sources” as Problem Area 3. The revised work plan reorganizes portions of these three areas into two more clearly defined tactical problem areas: one focused on the functionality and sustainability of the shelter system itself, and another focused on movement through the system toward permanent placement.
The functionality and sustainability of the City’s shelter system depend on consistent operating procedures and bed-management practices, effective inventory tracking, access to on-site behavioral health services for higher-acuity residents, and sustainable approaches to reimbursement, grant funding, contracting, and operating costs. These functions were previously distributed across multiple problem areas even though they collectively affect how consistently and sustainably individual shelter sites operate.
The Department therefore proposes reorganizing this work into a new Problem Area 1:
System Functionality and Sustainability. The revised structure moves standardized shelter operating procedures and Homeless Management Information System (HMIS) inventory and bed-management work from the former Problem Area 2 into Problem Area 1; retains on-site County behavioral health services from the former Problem Area 1; and incorporates the CalAIM, grant-funding, and operating-cost work from the former Problem Area 3. CES integration and shared referral-pathway work from the former Problem Area 1 are moved to revised Problem Area 2.
The following existing Fiscal Year 2026-2027 work would be reorganized within the revised problem area:
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
• Goal 1.1: By June 2027, finalize and implement an Admissions and Continuing Occupancy Plan (ACOP) across all 22 City shelter sites to standardize intake, referral, and bed-management processes.
• Goal 1.2: By June 2027, implement the Homeless Management Information System (HMIS) inventory module, or a comparable solution, across all 22 City- funded shelter sites to improve visibility into bed availability, utilization, turnover, and placement flow.
• Goal 1.3: By June 2027, seek to establish on-site County behavioral health service delivery at four targeted City-funded shelter sites to improve stabilization, service coordination, and connection to care for high-acuity individuals. • Goal 1.4: By June 2027, pilot and implement CalAIM billing and associated service delivery at three targeted City-funded shelter sites to support reimbursement for eligible services.
The reorganization does not establish a separate new workstream. Instead, it organizes related activities under one problem area to more clearly reflect the relationship between site operations, bed management, service delivery, reimbursement, contracting, and long-term operating sustainability.
The revised structure continues to track per-unit operating-cost reduction as a success measure within Problem Area 1 while replacing it as a top-level Focus Area indicator with an “Operation Optimization” indicator focused on increasing consistency in site-by- site operations. This change preserves cost accountability while broadening the top- level measure to reflect the overall functionality of the shelter system.
Problem Area 2: Throughput Shelter-to-Permanent Placement
The Department proposes reframing the former “Limited Shelter-to-Housing Throughput” problem area as “Problem Area 2: Throughput Shelter-to-Permanent Placement.” Manager’s Budget Addendum #8 identified limited movement from street to shelter to permanent placement as a system constraint because slower turnover reduces the number of individuals who can access available shelter capacity. The revised structure brings together Coordinated Entry System (CES) integration and shared City-County referral pathways from the former Problem Area 1 with CES-aligned referral workflows from the former Problem Area 2. Because the CES integration goal and CES-aligned referral-workflow goal represent related components of the same implementation effort, those two goals are now consolidated. The intent is to organize the work around the movement of residents from outreach and referral through shelter and ultimately toward permanent placement.
The following existing goals would be reorganized and consolidated within the revised problem area:
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
• Goal 2.1: By June 2027, integrate eight additional City-funded shelter sites into the County Coordinated Entry System (CES) and implement CES-aligned referral workflows at those sites, bringing the total number of CES-connected City-funded sites to 10 and improving throughput from outreach to shelter and permanent placement.
• Goal 2.2: By June 2027, establish shared City-County referral pathways, placement protocols, and client movement tracking for high-acuity and vulnerable populations to improve coordination across outreach, shelter, behavioral health services, and permanent-placement pathways.
The revised work plan will add two exploratory goals in response to the Mayor’s June Budget Message for Fiscal Year 2026-2027 direction to consider strategies that increase successful transitions from the shelter system and increase the number of individuals served through each unit or bed.
New Goal 2.3: By June 2027, Evaluate Length-of-Stay Policies and Develop Recommendations to Improve Shelter Throughput.
Change Initiative: Goal 2.3 would explore whether clearer length-of-stay policies could support more consistent movement through the shelter system. The intent is to evaluate whether clearly defined expectations, paired with housing navigation, case management, discharge planning, appropriate exceptions, and warm handoffs, could allow existing capacity to serve more people over time.
This work would not assume that a uniform time limit is appropriate for every resident or site. Staff will evaluate the operational, programmatic, and legal considerations associated with different approaches, including safeguards intended to avoid increasing exits back to unsheltered homelessness.
Hypothesis: If length-of-stay expectations are clearly defined and paired with appropriate case management, housing navigation, and individualized exceptions, residents may move more consistently toward appropriate permanent or longer-term destinations, increasing throughput without increasing returns to unsheltered homelessness.
New Goal 2.4: By June 2027, Evaluate Required Program Participation Policies and Develop Recommendations to Improve Readiness for Permanent Housing.
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
Change Initiative: Goal 2.4 would explore whether clearer expectations for participation in appropriate on-site services and programming could increase engagement and improve readiness for permanent housing, and whether state law changes are required. Shelter residents may have different levels of need and ability to transition independently into permanent housing. For residents who require additional support, greater participation in case management, housing navigation, benefits enrollment, behavioral health services, employment services, or other programming may improve their ability to successfully transition and remain housed.
Staff will evaluate how any future participation expectations should account for reasonable accommodation, disability, behavioral health needs, clinical judgment, program design, and other legal and operational considerations.
Hypothesis: If residents are more consistently and actively engaged in appropriate case management, housing navigation, and supportive programming during their stay, they may be better prepared to successfully transition to permanent housing and sustain that placement after exit, if permitted by state law.
Together, Goals 2.1 through 2.4 establish a more complete throughput strategy that considers CES integration and referral workflows, shared City-County placement pathways, and participant-level approaches intended to increase movement toward permanent placement.
Problem Area 3: Public Space Movement and Cycling
The Department proposes retaining the former Problem Area 4, Public Space Movement and Cycling, and renumbering it as Problem Area 3.
The four existing Fiscal Year 2026-2027 goals would remain:
• Goal 3.1: Through June 2027, maintain No Encampment Zones (NEZs) across 30 miles of priority waterways and around EIHs to prevent re-encampment and support environmental compliance.
• Goal 3.2: By June 2027, reduce the number of large encampments (greater than five structures) in high-impact areas by prioritizing response and intervention when encampments exceed threshold size.
• Goal 3.3: By June 2027, improve response times to reports of trash and bio- waste near lived-in vehicles to reduce environmental discharge and public health impacts.
• Goal 3.4: By June 2027, launch a small-scale, citywide Vehicle Relinquishment Assistance Program (VRAP) pilot to support individuals living in vehicles transitioning to shelter or temporary housing through outreach and direct entry pathways.
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
This work recognizes that progress in priority public spaces is difficult to sustain when individuals are moved between locations more quickly than the homelessness response system can connect them to an appropriate shelter, service, or housing pathway.
The proposed restructuring does not materially change this body of work. Renumbering reflects the broader reorganization of the former Problem Areas 1 through 3 into revised Problem Areas 1 and 2.
Problem Area 4: Functional Zero, Regional Flow, and Downtown Concentration
The Department proposes establishing a new Problem Area 4: Functional Zero, Regional Flow, and Downtown Concentration. Unlike Problem Areas 1 through 3, which primarily organize tactical Fiscal Year 2026-2027 implementation, Problem Area 4 establishes a strategy and systems planning track.
This approach responds to the Mayor’s June Budget Message for Fiscal Year 2026- 2027 direction to use the updated functional zero model for both near- and long-term planning and to distinguish between outcomes the City can directly influence and those requiring regional partnership. It also recognizes that the City’s remaining unsheltered population is not a single group and that different sub-populations may require different pathways, warm handoffs, or partner action to achieve permanent placement.
The proposed area includes four new goals.
New Goal 4.1: By June 2027, Implement Regular Use of the Functional Zero Methodology and Calculation to Track Performance.
Change Initiative: The City will apply the functional zero methodology and calculation to produce regular updates on the unsheltered baseline and track performance between biennial Point-in-Time Counts. The dynamic model uses multiple operational datasets to provide a higher-frequency estimate of the unsheltered population, including information on baseline, geography, and concentration. Inflow and outflow assessment is a planned enhancement as the model and supporting data infrastructure mature.
Updates will occur more frequently than the biennial Point-in-Time Count; the specific update cadence remains under review.
Hypothesis: If the City regularly applies a consistent functional zero methodology and calculation, decision-makers will have a timelier view of the unsheltered baseline, geography, and concentration and can use changes over time to assess performance and adjust operations and investments accordingly.
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
New Goal 4.2: By June 2027, Propose a Strategy for Regional and Shared Accountability that Clarifies Roles, Responsibilities, and Constraints.
Change Initiative: The City will propose a regional and shared-accountability strategy that identifies where the City has direct operational control, where outcomes require County, regional, or state action, and what constraints and dependencies affect pathways to permanent placement.
Unsheltered homelessness is shaped by multiple systems and levels of jurisdiction.
While the City can directly influence shelter operations, outreach deployment, public- space response, and certain housing investments, other outcomes depend on County behavioral health and homeless service systems, regional housing supply and movement, State funding and programmatic policy, and other external conditions.
The strategy will use role clarity to strengthen shared accountability and warm handoffs across systems and to identify where broader policy, funding, or programmatic changes may be necessary.
Hypothesis: If roles, constraints, system dependencies, and accountability are more clearly defined, the City and its County, regional, and state partners can better identify implementation gaps, focus resources on the interventions each entity is positioned to deliver, strengthen handoffs across systems, and calibrate expectations around outcomes that require shared action.
New Goal 4.3: By June 2027, Use Functional Zero Modeling Data to Segment Unsheltered Sub-Populations by the Pathways Required to Achieve Permanent Placement.
Change Initiative: The City will use the functional zero data modeling to segment available unsheltered population data into sub-populations based on the pathways to achieve permanent placement.
The remaining population should not be assumed to represent one uniform group.
Individuals experiencing high behavioral health acuity, chronic homelessness, vehicle homelessness, repeated institutional cycling, barriers to permanent supportive housing, or other circumstances may require different interventions.
Segmentation will be used as a planning tool to identify where existing pathways are working, where gaps remain, and where different interventions, warm handoffs, or partners may be required to achieve permanent placement.
Hypothesis: Better understanding the characteristics, needs, and likely pathways of people who remain unsheltered will allow the City to move from broad systemwide responses toward more targeted interventions matched to specific barriers and
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
populations and identify where County, regional, or state action is needed to close pathway gaps.
New Goal 4.4: By June 2027, Use Sub-Population Data to Identify and Develop Recommendations for State or Regional Policy Changes.
Change Initiative: The City will use sub-population and pathway data to identify policy barriers and opportunities that require state or regional action and develop targeted policy recommendations or priorities.
This work will connect population-specific data to specific barriers in funding, eligibility, service delivery, housing pathways, or jurisdictional responsibility so that policy recommendations are tied to defined pathway gaps.
Hypothesis: If sub-population data is tied to pathway-specific barriers, the City can identify state or regional policy changes most likely to improve access to permanent placement and reduce persistent unsheltered homelessness.
Taken together, Problem Area 4 establishes a multi-year planning framework centered on four linked functions: applying the functional zero methodology to track performance; building a regional and shared-accountability strategy; segmenting the unsheltered baseline by pathway; and using sub-population data to inform state or regional policy changes. This distinction is intentional. Consistent with City Council direction, staff would be accountable for executing the defined work, transparently reporting progress, and identifying barriers and lessons learned, while recognizing that the ultimate rate of change in unsheltered homelessness is also affected by external funding, County commitments, housing-market conditions, regional movement, and other factors outside the City’s direct control.
Updated Focus Area Indicators
The proposed amendments also refine the four top-level indicators used to assess progress toward the Focus Area’s long-term goal.
Under the revised work plan, one existing top-level indicator would remain unchanged, one would be revised, and two new top-level indicators would replace prior measures:
• Indicator 1: Operation Optimization: Achieve consistent operations across 100% of shelter sites.
• Indicator 2: Exit Rate to Permanent Placements: Increase permanent placements by 20% from the current baseline.
• Indicator 3: Respond to reported encampments within No-Encampment Zones within five business days at least 80% of the time.
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
• Indicator 4: Functional Zero, Baseline and Flow: Frequent tracking of the City’s functional zero baseline and flow.
The former CES referral and per-unit operating-cost indicators would no longer serve as top-level Focus Area indicators. CES referral activity would continue to be tracked as a success measure within Problem Area 2, while per-unit operating-cost reduction would continue to be tracked within Problem Area 1. The new “Operation Optimization” indicator provides a broader measure of consistency in shelter-system operations, while the new “Functional Zero, Baseline and Flow” indicator provides a higher-frequency view of changes in the unsheltered population.
These changes retain referral and cost accountability as supporting measures while creating stronger feedback loops between each revised problem area and the Focus Area’s long-term goal. “Operation Optimization” measures progress in establishing more consistent site-by-site shelter operations; permanent placements provide a measure of throughput; NEZ response time measures performance in priority public spaces; and “Functional Zero, Baseline and Flow” provides a higher-frequency view of changes in unsheltered homelessness over time.
EVALUATION AND FOLLOW-UP
Staff will incorporate the amended work plan into ongoing Reducing Unsheltered Homelessness Focus Area reporting. Progress towards the Fiscal Year 2026-2027 goals and associated measures will continue to be reported through the City’s established Focus Area reporting process and performance dashboards.
Staff will establish the baseline and calculation methodology for the permanent- placement indicator and define the site-level operating conditions used to assess the Operation Optimization indicator to support consistent reporting over time.
The “Functional Zero Baseline and Flow” indicator is intended to be updated regularly, with the specific cadence still under review and expected to be more frequent than the biennial Point-in-Time Count, as the methodology and supporting data infrastructure are operationalized. Inflow and outflow assessment will be incorporated as a planned enhancement. Staff will use these updates, together with the segmentation and shared- accountability work under Problem Area 4, to identify implementation barriers, lessons learned, and potential operational or policy adjustments.
Goals 2.3 and 2.4 are exploratory. Any resulting policy proposal requiring separate City Council approval, additional appropriations, or changes to existing agreements will return to the City Council through the appropriate process.
HONORABLE MAYOR AND CITY COUNCIL
September 4, 2026
Subject: Updated Functional Zero Model and Fiscal Year 2026-2027 Reducing Unsheltered Homelessness Focus Area Work Plan
COORDINATION
This memorandum was coordinated with the City Attorney’s Office and the City Manager’s Budget Office.
PUBLIC OUTREACH
This memorandum will be posted on the City Council Agenda website for the September 15, 2026 City Council meeting.
BOARD, COMMISSION, COMMITTEE RECOMMENDATION AND INPUT
No board, commission, or committee recommendation or input is associated with this action.
CEQA
Not a Project, File No. PP17-009, Staff Reports, Assessments, Annual Reports, and Informational Memos that involve no approvals of any City action.
PUBLIC SUBSIDY REPORTING
This item does not include a public subsidy as defined in section 53083 or 53083.1 of the California Government Code or the City’s Open Government Resolution.
/s/
Erik L. Soliván
Director, Housing Department
For questions, please contact Jiri Rutner, Division Manager, Data Operations and Project Support, Housing Department, at [email protected].