SAN MATEO COUNTY Supervisor Jackie Speier and state Sen. Josh Becker testified Thursday at the State Capitol in Sacramento, pleading for the state to pay what the county says is more than $150 million in owed revenue.
The county has sued the state over money that is legally owed to the county as part of a 2004 budget agreement known as the Vehicle License Fee Swap, or VLF Swap, in which local governments and counties gave up their vehicle license fee revenues to help the state close its budget deficit. In exchange, cities and counties agreed to receive annual property tax allocations known as the Vehicle License Fee Adjustment Amount, or VLFAA.
But due to a “broken” funding mechanism, the state has repeatedly shorted San Mateo County, neglecting to pay VLFAA funding in full, Becker said. The counties of Alpine and Mono have also joined the lawsuit and are facing a similar issue with receiving the promised revenue.
San Mateo County says that the state has not paid all of what is owed for this year and part of last year, amounting to around $157 million.
Speier and Becker spoke at a hearing in a state Senate Budget and Fiscal Review subcommittee, explaining the possible impact on the county and asking for a solution.
“This isn’t just a technical issue,” Becker said at the hearing. “This is really a matter of fairness, and I’m here today to advocate for every dollar that our county is owed as agreed to with the state and push for a permanent fix so we can end this cycle of uncertainty.”
Speier touched on a few of the potential losses the county could face if the funding is not received. The county’s loss in the budget would be 18% and about 10% for its cities.
The county would have to close eight of its homeless shelters that house nearly 3,000 unhoused people. It would have to eliminate benefits for 3,000 veterans and cut psychiatric services for 600 unhoused people, Speier said.
“This is catastrophic for San Mateo County and its cities, and it’s through no fault of our own,” she said. “It’s just fundamentally unfair and wrong.”
She also said that without a permanent solution for the county to receive all its owed VLF revenue, the county could lose $1 billion in the next five to seven years.
Dozens of members of local nonprofits, school districts, unions, city councils, law enforcement, and first responders from the county spoke out during public comment to explain the impacts if the funding is not restored.
Pacifica Mayor Christine Boles said that the city would face a 10% budget cut.
“We cannot afford any more cuts,” she said. “We would not survive as a city.”
San Mateo County Assistant Sheriff Mark Myers described how possible budget cuts without the funding would result in fewer deputies working and slower response times.
“Without these dollars, public safety is at risk,” he said. “This is not new funding. It’s funding already owed. Public safety and community trust depend on it.”
“This is catastrophic for San Mateo County and its cities, and it’s through no fault of our own.”
Supervisor Jackie Speier
Chris Hill, principal program budget analyst for the state Department of Finance, said to the committee that Gov. Gavin Newsom’s administration believes that much of the requested funding is “a discretionary expenditure that is not supportable in the context of the current fiscal situation.”
The state is facing nearly $3 billion budget deficit for the 2026-2027 fiscal year.
Subcommittee member and state Sen. Christopher Cabaldon, D-Napa, dismissed the suggestion that the funding is discretionary. During last year’s budget discussions, Napa County also had to demand that its VLF funding be paid.
“San Mateo County, Napa County, Alpine County, Mono County, absolutely, by law, do not have to come and beg every year as though this is a discretionary choice,” Cabaldon said. “A continuous appropriation says it will automatically be appropriated every single year.”
Officials press for long-term solution
Speier and Becker also asked that the state figure out a permanent solution to fix the problem, which is connected to the funding models for school districts.
To meet its Vehicle License Fee Swap obligations, the state created a system that ties the promised VLFAA funding to “non-basic aid” school district funding. Non-basic aid school districts are those whose property taxes alone do not cover minimum funding requirements.
However, most school districts in San Mateo County are considered “basic aid,” meaning that they receive minimal state funding because property tax revenues do cover the minimum funding requirements.
“This formula no longer works,” Becker said. “As a result, the county and its 20 cities face an annual funding shortfall that the state this year has refused to address.”
Cabaldon offered an idea to redraw school district boundaries in order to create more non-basic aid districts.
“We have to solve it,” he said. “It’s absolutely imperative with that this house, this subcommittee, get to a solution this year.”
Negotiations between the Department of Finance and the three counties suing are ongoing.
“We’re still awaiting some compromise,” Speier said. “But meanwhile, it’s desperate.”
