San José’s budget is in relatively good shape compared to the large deficits faced by city leaders in San Francisco and Oakland. As a result, Mahan wrote that the balancing plan “avoids virtually all layoffs,” and adds five new positions to the city workforce.
The budget plan also sets aside $27 million in reserves, in anticipation of a larger $52.9 million deficit in the fiscal year beginning July 1, 2026.
The balanced budget this year was largely achieved by using revenue raised from a tax on property sales of $2 million or more — approved by voters through Measure E in 2020 — to pay for the interim housing the city uses to shelter people experiencing homelessness.
By default, three-quarters of the money raised through Measure E goes to build new permanently affordable housing. Mahan successfully pushed to shift more of that money toward temporary housing in his first two budgets.
This year, he proposed to spend up to 90% of Measure E revenue on shelter — a nearly $40 million shift that will cover the ongoing costs of the city’s interim housing units and erase the deficit — and to make that change permanent.
The move has drawn criticism from affordable housing advocates and some council members who argue a permanent funding shift will make it harder for new affordable apartments to get off the ground.
“When we create opportunities for folks to come indoors through shelter, we need a place for folks who have stability to then transition and move forward,” Councilmember Pamela Campos told KQED. She called for investments “both in creating shelter opportunities and creating the outflow of affordable housing that allows people to continue on their journey to improving their lives.”
