San José Mayor Proposes Permanent Shift in Homeless Funding From Housing to Shelter

Armed with a new council majority, San José Mayor Matt Mahan will propose permanently reshaping the city’s strategy to reduce homelessness in his upcoming budget proposal.

During his first two years in office, Mahan has centered his plan to reduce street homelessness on steering Measure E tax dollars away from the construction of affordable apartments toward the development of interim housing and shelter. The mayor now wants to make that shift permanent, a move that could end yearly budget fights with supporters of affordable housing and cement his vision for homeless spending.

“Our strategy for ending unsheltered homelessness in San José has shifted dramatically,” Mahan told KQED. “The council has voted in line with that strategy, but now we need to actually make permanent the Measure E funding to sustain it.”

Mahan wants funds from Measure E, a tax on property sales of $2 million or more, to pay for the costs of interim shelter. Only once those costs are covered will excess transfer tax revenue go to building affordable housing.

“That’s the ‘nice to have,’” Mahan said. “The ‘need to have’ is getting people into a safe, dignified place today.”

San José currently has 499 units of interim housing spread across six communities — which typically consist of small studios with in-unit bathrooms and communal kitchens. City officials plan to open several new sites this year, in addition to a second managed parking lot for people living in their vehicles.

While Measure E tax revenue can technically be spent on any city service, voters approved it in 2020 specifically to increase housing affordability and reduce homelessness. Under the current formula, 75% of Measure E revenue goes to affordable housing, 15% to shelter and 10% to homelessness prevention.

In his first two budgets, Mahan pushed to temporarily change this allocation. In 2023, he was largely rebuffed by the council, but last year, he secured unanimous support for spending 65% of Measure E revenue on temporary housing and shelter — arguing that short-term projects were necessary to clear encampments along the city’s waterways and avoid water quality fines.

When the council backed Mahan’s funding shift last year, they also approved an amendment clarifying that the Measure E spending formula favoring affordable housing would remain the default heading into this year’s budget talks.

“It’s a policy decision as to whether or not we’re going to have this fight every single year and have Groundhog Day — or we just acknowledge that this is our strategy and we need to make clear how we’re going to fund it,” Mahan said.

Mahan appears to have a six-vote path to implementing these changes in the budget year beginning July 1. Last month, the council appointed Carl Salas, an engineering executive supported by Mahan, to the vacant District 3 seat.

During his interview for the job, Salas told the council he agreed with Mahan that the city needs to focus its funding on short-term housing.

The mayor’s proposal will likely draw pushback from affordable housing advocates, who have called Mahan’s strategy shortsighted. Without city funding for the construction of new affordable apartments, they argue that people experiencing homelessness won’t have a place to go after staying in shelters and tiny homes.

“It slows the housing production in our community down to a crawl,” said Ray Bramson, chief operating officer of housing nonprofit Destination: Home.

“We’ve got a lot of great projects off the ground and running, but now they’re struggling to find that local funding that is so necessary so that they can apply for tax credits and move forward.”

Mahan said the shift would allow the city to shave $40 million from an estimated $60 million budget shortfall. That’s because the council previously voted to absorb the construction and operating costs of interim housing into the general fund — an ongoing cost without a dedicated funding source. A city budget forecast released last year found that without a change to Measure E, the interim housing program will require increasing amounts of general fund spending — reaching $70 million in the 2028-29 fiscal year.

“This is what we knew was going to happen all along,” Bramson said. “As you build more of these [interim] sites and more of these units, there is a fixed cost you are committing yourself to in perpetuity to keep these places running.”

Mahan will provide details of his spending plan when he releases his proposed budget in early March. On Tuesday, the council will review updated budget estimates and begin discussion on closing the $60 million shortfall. The deficit is largely the result of weaker-than-expected sales tax revenue, according to the city manager’s office.