Because of a plunge in estimated property tax revenue, San Jose’s budget shortfall has increased from a projected $62 million to $77 million. After news of the $14 million revenue drop and a $1 million decrease in sales tax income, mayor Chuck Reed called for a discussion of the city’s budget during next week’s city council meeting to be held April 14.
Property tax income makes up a quarter of the city’s general fund revenues, according to city budget director Jennifer Maguire. Santa Clara County Assessor Larry Stone indicated property values may drop by as much as 2 percent this year, a sharp decline from last year’s growth of 7 percent.
Stone’s estimates came after an evaluation of 90,000 Santa Clara county homes. The city of San Jose fared even worse than the county, with property values 5.1 percent lower than last year.
City manager Debra Figone said in a statement that the drop would likely be even steeper, as all the city’s homes were accounted for. The decline in values will result in an estimated 6.5 percent decrease in tax revenue. Statewide, property tax revenue is expected to decrease by 10 percent over the next three years.
It’s not exclusive to San Jose. The same thing is happening in cities and counties statewide.
The decline in values is the worst the county has seen since the Great Depression, according to Stone. One-third of condominiums and 20 percent of single-family homes saw their market value dip below purchase prices, with lost value exceeding $18 billion countywide.
The news of falling property tax revenue comes just as the mayor announced his Foreclosure Help Initiative. In 2008, 14,000 homes in San Jose went into foreclosure with an additional 3,700 homes filing since January of this year. The program not only seeks to help those in foreclosure but also to stem the negative effect of vacant and foreclosed homes on neighborhoods. The initiative will call upon $5.6 million in federal funds to help struggling homeowners refinance loans and relocate, among other measures.
Exacerbating the deficit is the decline in sales tax collections this year, which were down 8.5 percent to $35.3 million. This added to the statewide decline of nearly 11 percent.
This is the eighth straight year in which San Jose has faced a budget shortfall. The city, still recovering from the dot-com bust, now also faces a recession that has made the mayor’s promise of closing the budget gap even more difficult to keep.
“We have worked with our community and employee groups and made significant cuts,” said Reed in a statement. “But the state and national economy have undermined any progress we have made.”
Already, 2,600 city managers and public employees, like San Jose’s firefighters, have agreed to cost-cutting measures in the form of a wage freeze to help balance the budget.
The shortfall is so severe, however, that even these sacrifices will not be enough to prevent major layoffs.
The impact of the additional deficit, said Maguire, “will require very difficult choices to close the higher gap and significant service reductions will be unavoidable.”