In a steep financial challenge for San Jose, newly released documents show the city facing an estimated\u00a0$56 million shortfall in the coming year.<\/p>\n
San Jose has encountered its fair share of budgetary woes over the past few decades, primarily resolving deficits of around $800 million through reducing services and slashing its workforce to the point that the city now has the lowest full-time employees per capita among the major metro areas in the state.<\/p>\n
The latest estimate poses one of the more difficult predicaments for the City Council in years and comes as it prepares to set budget priorities for the upcoming year.<\/p>\n
Before the latest budget forecast release by City Manager Jennifer Maguire, city officials had estimated in December a $55 million to $65 million deficit due to stagnating revenue, leading to a hiring freeze and setting new priorities for some services.<\/p>\n
Now\u00a0San Jose must grapple with how to balance this year\u2019s budget without further harming its already stretched workforce.<\/p>\n
\u201cWhile we anticipate that service reductions and position eliminations will be part of the solution to resolve the general fund shortfall, we will be working hard throughout the budget process to minimize both service impacts to the community and impacts to our workforce,\u201d said Demetria Machado, chief of staff for the city manager. \u201cThis was a key reason why the city manager implemented a hiring freeze in December. Not only does it help control spending through the remainder of the current fiscal year, but the vacancies provide potential landing spots for employees that may see their positions eliminated.\u201d<\/p>\n
San Jose\u2019s base forecasting model shows an overall $69.2 million shortfall over the next five years, driven by deficits that dwindle in size over the next three years before a surplus in 2029-2030. It assumes a slowly expanding economy, with increased revenue from property tax and hotel occupancy tax and limited improvements in sales tax revenue.<\/p>\n
The upcoming year\u2019s estimated sizable shortfall was driven in part by an increase in salary and benefits costs and an overall decline in revenues. While San Jose expects to see an increase in property and business tax revenue, a $22 million decline in sales tax and a $4.49 million drop in revenue from fees and service charges will result in the city\u2019s overall revenue decreasing by an estimated $1.83 million.<\/p>\n
San Jose is not the only Bay Area city facing fiscal challenges. Milpitas anticipates facing a multi-million dollar shortfall<\/a> over the next five years. Walnut Creek plans to keep staff positions vacant to help fill revenue gaps<\/a>. San Francisco Mayor Daniel Lurie also announced this week a plan to cut hundreds of city jobs to help manage his city\u2019s deficit.<\/p>\n However, San Jose\u2019s budget forecast does not account for several important revenue streams that could help and hurt the city\u2019s bottom line in the coming years.<\/p>\n For example, new regulations on blackjack-style games for cardrooms that will take effect on April 1 could take a major chunk of revenue out of the city\u2019s coffers.<\/p>\n In a letter to Attorney General Rob Bonta last month, Mayor Matt Mahan, Vice Mayor Pam Foley and Councilmembers David Cohen, Michael Mulcahy and George Casey asked the Bureau of Gambling Control to rescind the regulations, estimating a $32 million annual hit to the city\u2019s general fund.<\/p>\n \u201cA loss of this magnitude would not be theoretical; it would require real reductions in services,\u201d the group wrote. \u201cPolice officers would be laid off. Fire response times would increase due to firefighter reductions. Homelessness response programs and supportive services would be cut back at a time when our city is working urgently to reduce unsheltered homelessness.\u201d<\/p>\n While a more recent estimate lowered the potential losses to $25 million, the California Department of Justice responded this week \u2014 unmoved by the letter \u2014 and stated that cardrooms would have 60 days to submit compliance plans once the new regulations take effect. In the short term, the city could cover the cardroom business tax losses with reserve funds before revising its future revenue expectations.<\/p>\n On the positive side, the city\u2019s forecast does not assume increased revenues from the upcoming transient occupancy tax ballot measure or business and utility taxes tied to new data centers currently in the development pipeline. Last month, the city reported that PG&E was on track to provide power to a dozen large-load projects<\/a> by 2030. A single 50 MW to 99 MW data center could generate between $3 million and $7 million in annual general fund revenue once fully energized.<\/p>\n