AS SAN JOSE crunches the numbers in its upcoming budget, a larger than expected shortfall looms on the horizon, along with another round of department cuts and potential layoffs.
San Jose initially anticipated a budget shortfall of $39 million for the upcoming 2025-26 fiscal year, but it has since ballooned to $60 million, according to a memo from City Manager Jennifer Maguire. The almost 50% increase is due in part to an 11% drop in sales tax revenue from the previous year.
The unexpected shortfall has led the City Manager’s Office to propose $50 million in budget cuts “as a starting point” — including $12.6 million from the police department, $9.6 million from parks, recreation and neighborhood services and $5.9 million from the fire department. Every city department is required to submit its budget with proposed cuts by Jan. 31.
Demetria Machado, spokesperson for the city manager’s office, said if councilmembers approve a $50 million reduction for the upcoming year, it may result in eliminated positions, which would be effective July 1, the start of the new fiscal year.
“The general fund reduction targets included in the 2025-26 operating budget development planning memorandum are an early starting point in the budget process,” Machado told San José Spotlight. “We want to stress that issuing targets by department and office does not mean that reductions will be applied uniformly across the organization. Rather, these proposals will help the organization evaluate options that can best address the budgetary shortfall while still prioritizing the most critical needs of our community.”
She said the projected budget shortfall will be reexamined before Mayor Matt Mahan’s March budget message, and a new forecast will be released at the end of February.
“Looking ahead toward future budget cycles, we are also exploring new revenue sources for city services, including a potential ballot measure in 2026,” Machado said. “We anticipate sharing the early results of this exploration at the Feb. 11 study session.”
Pierluigi Oliverio, a San Jose planning commissioner and former councilmember, said layoffs should be anticipated if the revenue shortfall exceeds city reserves.
“Regardless, local government should have already responsibly modeled scenarios anticipating ‘what if,’” he told San José Spotlight.
Effect on public services
San Jose Police Officers’ Association spokesperson Tom Saggau said the police department is already down about 120 officers, and with millions in further cuts the outcome could be a thinly operating staff.
“The proposed defunding of the police department will only further degrade 911 emergency response times that, on average, exceed 20 minutes for priority two crimes,” Steve Slack, president of the police union, told San José Spotlight.
Priority two crimes are related to whether a suspect is still on the scene and a threat to life or property.
Another department with pending multimillion-dollar budget cuts includes the Department of Public Works, which is already struggling with an infrastructure backlog due in part to insufficient developer fees. A department spokesperson referred San José Spotlight back to Machado’s statement.
The Dec. 13 memo from Maguire also anticipates a $30 million budget shortfall for the 2026-27 fiscal year. She said the city needs to be in a position to propose “realistic” recommendations to address the general fund deficit before Mahan’s March budget message.
“… I will not sacrifice core services … that are crucial to maintaining the quality of life in our community.” Councilmember David Cohen
Mahan’s office declined comment and directed San José Spotlight back to comments made by the city spokesperson.
District 4 Councilmember David Cohen said the city has been fortunate to have a good budget for the past few years, and the anticipated difficult budget cycle will require strong leadership to make sure community needs are met.
“As we continue to tackle homelessness and public safety priorities, I will not sacrifice core services that matter to our residents, including our parks, vibrant libraries and other essential programs that are crucial to maintaining the quality of life in our community,” Cohen told San José Spotlight.
Sluggish pandemic recovery
Nicole Neditch, governance and economic policy director at nonprofit public policy group SPUR, said tax revenue hasn’t fully bounced back from the COVID-19 pandemic shutdowns, and downtowns along with city centers are still suffering as a result.
“Sluggish real estate markets, the shift to hybrid work that reduced foot traffic and increased office vacancies in downtown centers, a decline in business travel, tourism and retail sales tax and other economic factors have dragged down local tax revenues,” Neditch told San José Spotlight. “From 2020 to 2023, many cities used American Rescue Plan Act funds to backfill budget gaps, but these funds expired last year, and revenues haven’t returned at the levels expected.”
District 9 Councilmember Pam Foley, who chairs the city’s Community and Economic Development Committee, said navigating a budget shortfall of this magnitude will require strategic prioritization, creativity in finding efficiencies and a collaborative approach to minimize the impact on community services.
“As incoming vice mayor, I am committed to making tough decisions and working diligently with my colleagues and the city manager’s office to explore innovative solutions, ensure fiscal responsibility and maintain the quality of life our San Jose residents deserve,” she told San José Spotlight.
Contact Vicente Vera at vicente@sanjosespotlight.com or follow @VicenteJVera on X.
This story originally appeared in San Jose Spotlight.