San José’s reserve has dropped to $12.5 million while financial discipline and new revenue proposals move forward at the same time.
San José’s Budget Stabilization Reserve has fallen from $63 million to just $12.5 million in roughly 18 months. At the same time, the City is projecting a $55–$65 million General Fund shortfall and signaling difficult budget decisions ahead.
Residents feel these pressures most clearly in their neighborhoods. Illegal dumping lingers longer. Graffiti stays up. Code enforcement is stretched. The explanation from City Hall is familiar: revenues are slowing, and costs are rising.
Those pressures are real.
But as the City weighs future service decisions, clarity matters.
A Much Smaller Financial Cushion
The Budget Stabilization Reserve is San José’s financial buffer against revenue swings and rising operating costs.
Falling from $63 million to $12.5 million in 18 months significantly reduces that cushion. It limits flexibility just as revenue growth slows and expenses continue to climb.
A shrinking reserve does not automatically signal mismanagement. But it does require discipline and transparency. If structural pressures required drawing it down that quickly, are those pressures ongoing — and how sustainable is that path?
Before reducing neighborhood-facing services, the City should clearly define what flexibility remains and how it plans to rebuild that buffer.
Structural economic challenges take time to address. Clean books and disciplined reserve management can be addressed immediately.
The Encumbrance Question
There is another issue that deserves attention: encumbrance accuracy.
Encumbrances are standard accounting tools. When San José approves a contract, funds are set aside until work is completed and invoices are paid. In a well-managed system, those encumbrances are regularly reviewed and closed when obligations end.
The City Auditor has previously identified weaknesses in encumbrance reporting and financial tracking systems. If outdated encumbrances remain open longer than necessary, funds can appear unavailable even when obligations have expired.
That creates artificial scarcity.
Artificial scarcity shapes real decisions — including whether departments feel they can expand code enforcement, accelerate cleanups, or maintain service levels.
Before we accept service reductions as inevitable, we should be confident the numbers guiding those decisions are precise.
The Hotel Tax Measure Is Part of the Solution
At the same time, San José leaders are moving forward with a June ballot measure to increase the transient occupancy tax from 10% to 12%, a change expected to generate roughly $10 million annually for the General Fund.
I support this proposal.
Visitors helping fund essential services — public safety, homelessness response, neighborhood cleanups, park maintenance — is sound policy. San José’s hotel tax remains competitive with peer cities, and broadening the revenue base strengthens long-term fiscal stability.
New revenue is part of the solution.
But new revenue and strong internal discipline must move together.
If voters are being asked to approve additional funding to protect essential services, the City should also demonstrate that reserves are being rebuilt responsibly and that financial tracking systems are accurate and current.
One strengthens the balance sheet. The other strengthens credibility.
Discipline Before Contraction
San José does face real structural pressures. Revenue growth has moderated. Operating costs continue to rise. The projected General Fund deficit is serious.
Before scaling back neighborhood services that residents see every day, we should ensure:
- The reserve strategy is sustainable
- Encumbrances are fully reconciled
- Financial reporting is reliable
- Available flexibility is clearly understood
San José may need to make difficult budget choices in the coming year. But if we are going to say there is no money for code enforcement or neighborhood cleanups, we should be absolutely certain that is true.
San José has the opportunity to do this right. We can strengthen our fiscal foundation, ask voters to support smart revenue measures like the hotel tax, and rebuild our reserves with discipline. But that only works if financial management is as strong as our ambitions. Leadership isn’t just about raising revenue or cutting costs — it’s about clarity, credibility, and long-term stability. If we get that right, we won’t just balance a budget. We’ll build a city that residents trust to manage it wisely.