A fierce San Jose City Hall debate this summer between business and labor interests that resulted in wage increases for thousands of municipal workers and avoided a major strike is now raising concerns over what the long-term financial impact of the pay bumps could portend.

The salary hikes forced city councilmembers on Tuesday to make a meager $2.8 million in service cuts — trims that aren’t catastrophic but include a reduction in funding for a major city-run outdoor event.

However, in the next five years, with the police and fire department unions preparing to renegotiate their contracts and a gloomy economic forecast, San Jose’s mayor says the city will soon have to slash the budget by around $10 million a year.

“We’ve signed up for and committed ourselves to unsustainable raises over the next three years,” said Mayor Matt Mahan in an interview. “The spending is certain. The cuts are unknown.” Mahan said a projected downward trend in certain tax revenues and a downtown office vacancy rate that’s reached around 26.6% make the union wage increases particularly untenable for the city’s financial state going forward.

San Jose Fire Department 911 dispatcher Scarlet Darmousseh, center, talks with Debra Grabelle, executive director of IFPTE Local 21, one of the striking unions, after holding a rally in front of San Jose City Hall in San Jose, Calif., on Monday, August 7, 2023. San Jose city workers with MEF-AFSCME Local 101 and IFPTE Local 21 which collectively represent around 4,500 employees voted to authorize a strike starting Aug. 15 to 17.(Dai Sugano/Bay Area News Group)
San Jose Fire Department 911 dispatcher Scarlet Darmousseh, center, talks with Debra Grabelle, executive director of IFPTE Local 21, one of the striking unions, after holding a rally in front of San Jose City Hall in San Jose, Calif., on Monday, August 7, 2023. San Jose city workers with MEF-AFSCME Local 101 and IFPTE Local 21 — which collectively represent around 4,500 employees — voted to authorize a strike starting Aug. 15 to 17.(Dai Sugano/Bay Area News Group) 

The largest cut to services on Tuesday by councilmembers was reducing funding toward Viva CalleSJ events, a beloved open-streets party that attracts tens of thousands of residents. The hope is that staff can fundraise the remaining $200,000 so the city can still get a third event. Other cuts were to budget and staff reductions in the Parks and Recreation and Public Works departments, including four vacant crossing guard positions.

An overwhelming majority of the public supported saving future Viva CalleSJ events on Tuesday, with many pleading for the city to find a way to retain its funding.

“What’s particularly troubling to me about these programs (that are to be cut) are that these address those in our society who have the least,” said James Reber, San Jose Parks Foundation’s Executive Director, during public comment. “The least access to any programs. They’re uplifting. They’re celebratory. And they invite the smallest, the poorest, the most needy among us.”

Tuesday’s council meeting also included the first public vote on the union wage increases — with the mayor being the only one to give a thumbs down to the deal — a move that will almost certainly mark a defining moment in the frosty relationship between Mahan and the city’s labor bloc. On Tuesday, the mayor’s decision led to immediate outcry from South Bay Labor Council’s Executive Director Jean Cohen, who oversees dozens of the area’s unions.

“It has been disappointing, albeit not surprising, to see Mayor Mahan again abdicate his leadership role to the City Council majority and resort to demagoguery, pitting city services against fair compensation for the city workers that provide them,” Cohen wrote in a statement. “Leaders are elected to serve the public, to find solutions and build consensus, not to decry those upon whom they wish to cast blame Since the mayor can’t deliver on his faulty campaign promises nor work well with others, his only option is to blame his colleagues and the city employees.”

In mid-August, two unions negotiating with the city were able to secure 14.5 to 15% wage increases over the next three years for about 4,500 employees, about 3% more than what the city’s best and final offer was before talks broke down in June.

The deal — struck by MEF-AFSCME Local 101 and IFPTE Local 21 — averted what could have become the largest employee-led strike in San Jose since 1981. In fighting for the pay increase, the unions argued salaries were not adequate and have led to low morale and understaffed departments in one of the country’s most expensive cities.

Jesse Perez, a member of IFPTE Local 21’s bargaining team, called the wage increases a “step in the right direction” and referred to a report from the labor-oriented nonprofit Working Partnerships USA which asserts the city has tens of millions of dollars in unspent savings to easily cover worker pay bumps. But Jim Shannon, who oversees the city’s budget, said that the nonprofit’s figure was inaccurate when taking into account that a large portion of the funds already have been budgeted.

“So there’s not a bunch of money that we can just increase wages without a tradeoff,” he said.