San Jose projects a budget shortfall of $110 million due to coronavirus

The crippling economic fallout from the COVID-19 outbreak is expected to trigger a $110 million shortfall in San Jose’s budget over the next two fiscal years.

The grim projection, which city officials presented during a city council meeting Tuesday night, shows the budget falling short $45 million in 2019-2020 and $65 million in 2020-2021 — figures that could grow even more if Santa Clara County’s shelter-in-place mandate lasts a long time.

The new forecast represents a stark contrast to a projection released earlier this year showing the city with a potential $4 million surplus over the next two years.

“This is a fiscal reality that we cannot ignore and we just need to prepare ourselves for seeing less revenue,” City Manager Dave Sykes said during the meeting. “The actions that we’re going to need to take (to balance the budget) are going to be painful — painful to our community and painful to our organization — but we will get through it.”

The projection also indicates an 8.6% drop from one year to the next. By comparison, the city saw a 2.9% year-over-year decline to its budget during the Great Recession, Sykes said.

He said the estimate isn’t firm, but should be used as a “gauge for the level of significance the city will face over the next two years in balancing the budget.”

City Budget Director Jim Shannon added the actual hit to the city’s $4.7 billion budget could turn out to be “a little bit better” or “tens of millions of dollars worse.”

In recent weeks, the city already began seeing substantial losses due to the threat of coronavirus. Hundreds of local businesses have shuttered, unemployment numbers have soared and large swaths of the city’s revenue stream — airport funds, sales taxes and construction and development fees — have come to a screeching halt. Economists expect to see substantially deeper job losses than occurred during the Great Recession, a period in which the city experienced a two-year deficit of approximately $230 million.

Mayor Sam Liccardo said in a memo this week that the city should “prepare itself for the worst.”

“Preparation requires making very difficult decisions in the weeks ahead,” Liccardo wrote in a memo. “All departments––including my own office, Council Offices, and Appointees––will need to do their part in cutting costs while also preserving our capacity to provide essential services to our residents.”

Although the city continues to ramp up spending and resources to fight the spread of coronavirus, officials have begun steps to cut where it can for the current fiscal year. They have instituted a hiring freeze on all positions except for police and fire, halted non-essential travel for employees and suspended city-wide expenses and non-essential capital projects that have not yet started.

For the next fiscal year, city officials said they’ll “initiate responsible downsizing” in the coming months while attempting to minimize layoffs and reductions to community programs. Some plans include eliminating most one-time programs funded during the 2019-20 year, paying down city debt and utilizing the budget stabilization reserve, which currently stands at $32 million.

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There’s live theater to see in the East Bay — all you need is GPS The projections do not take into account $15-$20 million of revenue the city anticipates it will receive from the ‘Revenue Capture Agreement’ that it reached with eBay in September 2019 and could be used to make up some of the deficit.

The city’s 2020-2021 proposed budget is expected to be released May 8 — a week later than initially planned — in order to include updated impacts resulting from the current pandemic.

“Obviously this is just the beginning of what will be many difficult conversations,” Liccardo said during the meeting. “But I think we’re on the right path, and I look forward to working with everyone to make sure that we can do this in a way that keeps everyone on board.”

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