San José Council Approves Budget, with 'Historic' Shift in Unhoused Spending

San José’s City Council approved a budget on Tuesday with a landmark shift in unhoused spending — delivering a signature victory to Mayor Matt Mahan in his effort to change the city’s strategy for reducing its unsheltered population.

Most of the earmarked allocated unhoused funding in the $5.3 billion spending plan will now be spent on constructing interim housing and establishing sanctioned lots for residents to live in RVs or tents — instead of building affordable apartments. Mahan failed to pass a similar spending pivot in last year’s budget. But a year later, with the same council, he secured a unanimous vote.

“This is the most strategic investment we’ve ever made in ending unsheltered homelessness, this era of encampments we’ve been plagued with in San José,” Mahan told KQED after the vote.

Affordable housing advocates expressed feeling whiplash. In 2020, San José voters approved Measure E, a tax on the transfer of real estate valued at $2 million or more.

Although the funding was technically unrestricted, the council initially earmarked 90% of the tax revenue for building new affordable housing. Now, 65% of Measure E revenue, projected at $30.7 million in the coming year, will go toward interim housing and shelter. Just a quarter, or $12 million, will go toward affordable housing.

“It’s historic, and it’s devastating,” said Jennifer Loving, CEO of Destination: Home, a South Bay housing nonprofit. “Even worse, I think we did this in three years, maybe four [since the passage of Measure E]? We got here fast.”

Across California, big-city mayors have shifted their focus toward housing unsheltered residents who are visibly experiencing homelessness on sidewalks and along local waterways — often at the expense of building new affordable units. Few have been as deliberate in this approach as Mahan, who won two elections in the span of 16 months with a call to focus city dollars on short-term solutions to unsheltered living.

In his first year in office, Mahan’s calls for a seismic shift in city unhoused spending were met with organized resistance from housing advocates and local progressives. The council rejected his Measure E proposal last June and instead approved a modest increase in funding for temporary housing.

As mayor, Mahan initiates the budget process but has only one vote on the final spending plan, and any change to Measure E spending requires an eight-vote supermajority.

A turning point in the debate came in January.

The San Francisco Bay Regional Water Quality Control Board rejected a piece of San José’s stormwater permit for the third time, decreeing that the city was not doing enough to prevent trash and human waste from encampments from entering local waterways. Mahan argued that a pivot toward funding shelter was necessary to avoid potential lawsuits or fines.

A new water permit was only recently accepted “when we laid out very clearly through the budget process what we were going to do to get people out of unmanaged encampments near our waterways,” Mahan said Tuesday. “They wanted to see that plan.”

The city manager estimated that compliance with the permit would cost nearly $27 million in the fiscal year beginning July 1: to abate existing encampments, establish managed encampments (known as safe sleeping sites) and maintain police patrols along the Coyote Creek and Guadalupe River trails.

“It was a surprise that we had to deal with immediately because it’s critical we obtain a stormwater permit and then we avoid any future penalties,” Councilmember Pam Foley said. “The pressure on us was really from the stormwater permit, and that was an unexpected expense.”

Further supporting Mahan’s case was the council’s commitment to fund the operation of its temporary housing units, known as emergency interim housing, through the general fund. As the program expands, so too does the cost to the city, which could reach $70 million by 2029.

Across the entire budget, the shortfall facing the council was a manageable $4.5 million. However, the council needed to solve for a $50 million shortfall when taking into account the needed stormwater investments and several programs with funding set to expire.

Although a recent uptick in local sales tax revenue led city analysts to brighten their projections and increase funding for affordable housing, critics of the plan said cuts still fell disproportionately on those programs. Funding for the construction of rental housing will be $23.6 million less than under the previous Measure E spending formula. Advocates argue the funding loss will leave approved projects stuck in limbo.

“This was the mayor’s campaign promise, he’s been able to change Measure E,” Loving said. “It’s not rooted in policy or research or data that this is an effective strategy in the absence of affordable housing.”

Councilmember Peter Ortiz offered the sharpest critiques, saying the stormwater issue “twisted our arms and forced us to cough up funding to implement this plan.”

“The current strategy of prioritizing EIHs [emergency interim housing] over affordable housing isn’t ending the crisis of homelessness, it’s hiding it,” Ortiz said. “Let’s call it what it is, it is a bridge to nowhere.”

Ortiz co-authored an amendment to reinstate Measure E’s previous emphasis on affordable housing when the council enters next year’s budget planning.