San Jose City Council Budget Study Session: May 6, 2026

This was the first budget study session for the proposed Fiscal Year 2026-2027 operating budget. The Mayor, City Manager, Budget Director, and the Director of Economic Development presented an overview of the economic context, budget balancing strategies, and key risks. The City Council discussed departmental priorities, workforce development, and the potential impacts of revenue uncertainties. No votes were taken; the session was informational.

Discussion Items

• Mayor’s Opening Remarks: The Mayor thanked staff and highlighted the most challenging fiscal conditions in his tenure. He noted the proposed budget assumes passage of Measure A (Transient Occupancy Tax modification) and identified three major risks: a potential $9 million shortfall if Measure A fails, $9-10 million annual ERAF (Educational Revenue Augmentation Fund) at risk with a possible $35-39 million clawback, and up to $25 million loss from card room revenue due to new state regulations. The Mayor also noted that the transition from large encampment abatements to optimized services (e.g., Beautify SJ) will save $5.4 million in FY 2026-27 and more ongoing.

• City Manager Jennifer McGuire: Emphasized that the proposed budget is balanced and structurally aligns the general fund with minimal community or employee impacts. She warned that if Measure A fails, the contingency plan would result in more significant and noticeable service reductions, including cuts to library hours, parks, police, and council offices.

• Budget Director Jim Shannon: Presented the $50.3 million shortfall resolved with $66 million in additional sources: $18.4 million in ongoing new revenues (including Measure A), $35 million from the Budget Stabilization Reserve for one-time uses, and other adjustments. Ongoing cost reductions of $19.4 million include deferral of Fire Station 32 and the Police Training Center, reductions in Beautify SJ ($4.2 million in FY 2026-27, $6.4 million ongoing), and interim housing portfolio savings ($1.2 million in FY 2026-27, increasing to $14.2 million ongoing). He noted that the Budget Stabilization Reserve would be drawn down to about $32.5 million by July 2026, well below the Council policy target of 10% of general fund operating expenditures.

• Economic Context by Jen Baker (Director of OED): San Jose’s economy is stable but under pressure. Key data: population growth, GDP growth, unemployment at 4.1%, average wage $128,000, but 20% of residents earn less than $55,000. 49% hold a bachelor’s degree. Employment lands (14% of total land area) generate significant net value for the city. She highlighted the need to preserve employment lands and support small businesses. The technology sector continues to attract investment, but layoffs have cooled from recent highs.

• Councilmember Ortiz: Called for stronger workforce development and employer accountability, urging that large employers like Google and Apple hire local youth, especially from communities of color. He stated that “the number one way to stop a bullet is with a job” and that the city must ensure returns on workforce investment.

• Councilmember Foy: Asked about funding for the Momotaro (Peach Boy) statue, a gift from sister city Okayama. Staff confirmed that TOT funds will be used for reinstallation, and the funding source will be documented in the transmittal memorandum.

• Councilmember Candelas: Raised concerns about the San Jose Works Youth Jobs Initiative, noting a $203,000 reduction that would cut 25-30 student placements. He asked if the 30 placements could be restored without the eliminated staff position; staff said it would require extra effort. He also inquired about the 2027 celebration strategy ($350,000 proposed) and the EIFD assessment ($100,000).

• Councilmember Kamei: Expressed concern about shrinking employment lands due to state laws (e.g., SB 79) and called for a stronger strategy to protect these lands. She also emphasized the need to connect workforce programs with local community colleges.

• Councilmember Campos: Raised issues of child care as an economic driver, noting a $1.3 billion loss in Santa Clara County from lack of investment. She questioned the focus on only 20% of residents earning less than $55,000, arguing that a much larger share of renters are housing cost-burdened. She also asked about the General Plan 4-year review scope and staffing levels.

• Councilmember Duan: Asked about aggressive business recruitment and permitting process improvements. He also questioned the plan for Fire Station 32, which is newly built but proposed for deferral. City Manager McGuire responded that options for a modified opening are under evaluation.

• Councilmember Mulkehi: Discussed business improvement districts (BIDs) and the need for continued staff support to help them become self-sustaining. He also questioned the fee structure for public art installations, arguing that philanthropic gifts like the Momotaro statue should not incur city fees. Budget Director Shannon explained that staff time is charged to projects because there is no general fund support for that work.

Key Outcomes

• The proposed FY 2026-2027 operating budget is balanced and includes $66 million in additional sources, $35 million from the Budget Stabilization Reserve, and $18.4 million in ongoing new revenues. Cost reductions total $19.4 million ongoing, with deferral of Fire Station 32 and the Police Training Center.
• The City Council will continue budget study sessions on May 7 (Transportation, Aviation, Environmental Utilities), May 11 (full day covering remaining CSAs, fees, and capital), and subsequent dates.
• The Mayor will release the June Budget Message on June 1, followed by a public hearing on June 8, and final council vote on June 9.
• Several councilmembers expressed intent to explore restoration of certain cuts (e.g., youth jobs, fire station staffing) and to address affordability and workforce equity in future budget cycles.
• The administration will report back on the feasibility of a modified opening for Fire Station 32 during the Public Safety study session on May 11.