San José Faces $60 Million Budget Shortfall As Negotiations Begin

The San José City Council began negotiations to balance the city budget at an informational hearing on Tuesday amid financial headwinds and political uncertainty over federal funding brought on by the Trump administration.

The meeting offered an early look at spending priorities for the mayor and city council members as they began deliberations on the city’s budget for the 2025–26 fiscal year. City leaders will need to close a projected $60 million shortfall in the budget — a modest deficit compared to the fiscal woes of other large Bay Area cities.

“We’ve got some relatively weak revenue growth, and we still have costs that are continuing to increase at the same pace,” said Jim Shannon, the city’s budget director.

Declining sales tax revenue, in particular, has had an impact on city coffers. Shannon said an initial burst of local consumer spending after the COVID-19 lockdowns has petered out. Sales tax receipts in the first quarter of the current fiscal year, from July through September, were down 10% from the previous year.

Among the rising costs are the city’s investments in short-term housing and shelter to reduce street homelessness, a top priority for Mayor Matt Mahan.

Mahan has proposed paying for some of the interim housing costs by using voter-approved money currently slated to build affordable housing — a move that would shave the budget shortfall from $60 million to $21 million.

Shannon said without changes to Measure E spending, up to 180 positions would need to be eliminated.

Riley Knight, an environmental services specialist who has worked for the city for eight years, urged the council to avoid cuts to municipal jobs.

“As a city worker, I’ve seen all too many times scenarios in which we are the last to be fully staffed and the first to be cut,” Knight said.

San José’s budget problem is much less severe than the Bay Area’s other large cities.

Oakland is facing a $280 million shortfall in its upcoming two-year budget cycle that begins on July 1, while San Francisco — which operates a larger budget as a city and a county — has a $876 million deficit over that same window.

Deep cuts in the wake of the Great Recession have left San José with minimal staff compared to neighboring big cities, with seven city positions for every 1,000 residents, compared to roughly 11 per 1,000 residents in Oakland.

“We’re already at a pretty limited capacity,” Shannon said. “Even the small reductions are sort of hard to come by because we don’t have a lot of room left in the budget without really impacting services.”

Recent moves from the Trump administration to expand immigration enforcement have created additional uncertainty in the budget process.

Councilmembers Peter Ortiz and Domingo Candelas said threats of immigration raids have frightened residents and depressed shopping in their Eastside districts. They called for the city to invest more money in Santa Clara County’s Rapid Response Network, a service that provides legal assistance to residents facing deportation.

“Many of our immigrant communities face significant disruption in this national political moment,” Ortiz said. “As a city, we already caught a glimpse of that kind of disruption, and we fear that if this takes hold in our community, we will never be able to reach them with the services that they desire.”

Mahan will submit his initial spending proposal in early March, kicking off months of debate and public meetings on the budget before the council approves a final plan in June.