Why San Jose Is Barely in the Black Despite the Tech Boom

In most fire stations across America, you’ll find a fire engine ready to fight fires. But in San Jose, budget cuts forced the Fire Department to mothball a handful of engines. So some stations have trucks that can respond to medical emergencies -- but they can't put out fires.

"If you live in those areas, you see a big red vehicle in the building, and you think, 'Oh, we've got a fire engine here; we're OK,' " explains San Jose Fire Capt. Sean Kaldor, who is also vice president of IAFF, Local 230. "The reality is they're not carrying the water it would take to put out a fire, or to stop that fire from spreading in your house."

In fact, two years ago, a house across the street from Station 30 burned. While the neighbors yelled at firefighters to do something, all they could do was call for help from other stations.

San Jose's under-resourced fire stations provide just one example of the fiscal challenges facing California's third-largest city. San Jose is barely in the black after years of deep deficits and painful cutbacks. Yet all around San Jose, the Silicon Valley boom is pumping unprecedented wealth into the Bay Area. Why is San Jose --  the self-described “Heart of Silicon Valley” -- not riding the economic wave?

"In Silicon Valley, in the public sector, we live in a very different world than in the private sector," says Mayor Sam Liccardo. "Many of the employers that drive Silicon Valley innovation and many of the large employers are located just outside our border, and so we don’t get necessarily all the tax revenue from all those companies’ growth."

In other words, being “wealth-adjacent” doesn’t do anything for city coffers.

With 1 million residents, San Jose is the 10th-largest city in the United State, according to the U.S. Census. But each workday, it drops to the equivalent of the 13th-largest city. That's because residents leave San Jose for jobs elsewhere in Silicon Valley.

That has negative consequences for the city budget. Take sales taxes, for instance. San Jose pulls in some of the lowest revenues per capita in Santa Clara County. Every business lunch bought in Los Gatos, every pair of hiking boots in Campbell, helps to cement a regional imbalance. The smaller cities are pulling in more sales tax income relative to their population base. That applies to hotel, business, utility and parcel taxes, too.

The more taxes a city has coming in, the more money it has to pay for services like police and fire protection. Ideally, a city cultivates a healthy mix of residential, corporate and retail taxes to pay the bills. Here again is where San Jose is out of balance: It's housing-heavy. More housing means more people who draw on city services. And in a post-Proposition 13 era when many property tax bills are more or less frozen in time, that’s a big problem.

So how did San Jose get into this budgetary pickle?

Most locals start by blaming A.P. “Dutch” Hamann, city manager back in the '50s and '60s. He was the guy who started paving over farmland to create a sprawling suburb in the image of Los Angeles. (Before the city tied itself to the Silicon Valley moniker, the area was "The Valley of Heart’s Delight.") This video shows how dramatically the city grew after World War II.

It seemed like a good idea at the time. The "Greatest Generation" was raising a bumper crop of baby boomers. Defense firms were hiring locally. And Hamann could count on an ever-growing pot of property taxes because Prop 13 hadn’t passed yet. By the time he left in 1969, San Jose had grown from 17 to 136 square miles, from 95,000 to roughly half a million.

"He was city manager when it was the Divine Right of Kings-era of city managers," says Tom McEnery, mayor through much of the 1980s and the son of "Big John" McEnery, who was good friends with Hamann.

Hamann wasn’t the last housing-happy bureaucrat. Long after San Jose planners should have known better, they kept paving over not just farmland but factories, warehouses and office complexes in favor of housing,  McEnery says.

"Thousands of acres that should have been the tax base for cops, youth workers, firefighters, et cetera, was pretty much gobbled up in a mistaken attempt to satisfy a lot of developers that didn’t deserve to be satisfied in that way," he says.

San Jose is now the biggest bedroom community in Silicon Valley, but it didn’t find the right balance to create the tax base it needs today. This tech boom offers San Jose another chance to get that mix right. Or not.

This story is one of two exploring San Jose's struggles in the midst of this tech boom. Part 2 looks at how the city is finally beginning to capitalize on the wealth of tech companies expanding across the region.