San Jose leaders are warning of “tough” financial decisions and “hard choices” as this year’s budget season officially gets underway.
The months-long process kicked off Thursday with a special study session considering how to balance a projected deficit of up to $65 million. While the city managed to balance last year’s shortfall without laying off any workers, officials said pulling off the same fiscal feat this year could be a daunting task.
“This is the most difficult budget year I’ve seen in my over seven years on the City Council — and the largest shortfall,” Vice Mayor Pam Foley said during the meeting.
Over two hours, councilmembers staked out their budget priorities for Mayor Matt Mahan as he prepares his March budget message, a crucial document that guides city administrators’ work drawing up concrete budget proposals. If all goes to plan, the back and forth budget talks will culminate on June 16 with the approval of a finalized budget for fiscal year 2026-27, which starts July 1.
“As we head into this process, we will collectively have to discuss service reductions,” Mahan said. “None of the tradeoffs will be easy.”
While some amount of fiscal trimming is inevitable, councilmembers spent at least as much time Thursday discussing what they wanted to preserve, with many voicing support for the city’s public safety efforts, libraries, youth programs and parks.
“I think when resources are constrained, the question is not just what we can afford, but what we can’t afford to lose,” District 8 Councilmember Domingo Candelas said.
During the meeting’s public comment section, several speakers urged councilmembers to continue funding legal services to protect immigrants from deportation. Last June, amid widespread alarm over President Donald Trump’s immigration crackdown, councilmembers approved a $1 million allocation to fund local immigrant defense organizations.
“You guys have a difficult decision to make,” Misrayn Mendoza with Amigos de Guadalupe, one of the nonprofits that received funding, said. “Our community has been making those same tough decisions every single day since this administration came into place.”
City Manager Jennifer Maguire said as her staff hammers out a budget proposal, they will try to avoid layoffs or deep cuts to city services, instead seeking cost savings through efficiency gains and eliminating vacant positions.
“I absolutely know, we all have the shared goal of ensuring our budget reductions are as invisible to our residents and businesses as possible and that employee layoffs are minimized,” she said.
San Jose’s budget presently funds 7,009 staff positions.
The city has already taken steps to slow spending, including a hiring freeze put in place in December that has halted recruitment for most open positions.
However, officials have warned that after a long run of lean fiscal years, the city’s bag of creative budgeting tricks may be nearly exhausted.
“I’m very concerned about the potential budget impacts to the city workforce,” Jean Cohen, executive officer of the South Bay Labor Council, told San José Spotlight. “I think we need to make some really hard choices, and those hard choices shouldn’t be placed on the backs of the city employees or working families in San Jose.”
San Jose’s budget outlook has darkened considerably since last June, when councilmembers approved a $5.5 billion budget that balanced this year’s $35.6 million deficit.
At the time, budget officials predicted the coming fiscal year would see a somewhat smaller shortfall. However, tax revenue has not met expectations, and the latest projection pegs the deficit between $55 million and $65 million. 
San Jose is no stranger to deep budget holes. Over the past 20 years, the city’s cumulative shortfalls have added up to $800 million, officials said. But in recent years, the city’s longstanding cash flow problems have only grown worse as an anemic real estate sector and weak job market have sapped income from its two most important revenue generators — sales and property taxes.
“Our local economy right now is really not conducive to revenue growth,” Budget Director Jim Shannon said. “When jobs are stagnant, the revenue growth lags.”
Contact Keith Menconi at [email protected] or @KeithMenconi on X.