Redwood City – San Mateo County accuses the State of California of withholding nearly $38 million owed to the County and its cities, money local leaders say is critical to health care, public safety and affordable housing.
In a lawsuit filed this week, the County says the State violated its own law and a 2004 budget compromise, shortchanging the County and cities from Daly City to East Palo Alto and threatening core local services.
“These funds are owed to San Mateo County and our 20 cities,” said County Executive Mike Callagy. “And instead of living up to its obligations, the State wants us to absorb the cost.”
At issue is what’s known as the Vehicle License Fee Adjustment Amount (VLFAA), a funding source the lawsuit says provides “critical services” to local residents.
“This year, the Legislature broke its promise,” the County alleges in the filing, saying local governments received only $76.5 million of $114.3 million owed – a nearly $38 million gap. The State’s initial budget proposal excluded San Mateo County’s funding entirely, but successful lobbying by the County and its legislative partners secured two-thirds of the total owed to support local services. Meanwhile, the State paid the full VLFAA to local jurisdictions in 55 other counties through the funding mechanism in the statute, without question.
“The State’s failure to provide full payment of the VLFAA to San Mateo County and its cities will cause serious and lasting harm to the County and the cities whose budgets require these funds to deliver public services to residents,” the suit states. “The loss of this required revenue will strain the County and cities’ budgets and will reduce funding for critical public services.”
The County continues to assert that the full amount remains owed and is pressing the State to meet its complete obligation. The lawsuit names the State of California, Joe Stephenshaw, the governor’s finance director, and Controller Malia Cohen as defendants.
The State’s obligation to provide VLFAA payments stems from the 2004 “VLF Swap,” a budget deal in which counties and cities gave up vehicle license fee revenues and a share of local property taxes to help the State close a deficit and meet its school funding obligations.
In exchange, the Legislature guaranteed ongoing replacement funding through the VLFAA, adjusted annually for property tax growth for every county and city. But because of the way many of San Mateo County’s school districts are funded, the County was left without the same protections, making it uniquely vulnerable to this year’s shortfall.
“The funding formula was supposed to treat every county the same, but because of how our schools are structured, San Mateo gets left out — and our residents pay the price,” Callagy said. “The system the State set up ties these replacement dollars to school funding formulas. That works everywhere else, but not here; because we have more basic-aid districts than most counties, we get shortchanged.”
According to the County’s lawsuit, the nearly $38 million shortfall would be shared among the County government and all 20 cities within San Mateo County.
If the County prevails, the case could reaffirm financial protections for local governments across California. If not, San Mateo leaders warn, Sacramento may be emboldened to repeat such cutbacks in future budget years — effectively shifting the State’s fiscal pressures onto city and county governments.
“These dollars pay for the things in our local budgets that residents rely on every day — from emergency response and health care to housing and public safety,” San Mateo County Supervisor Jackie Speier said. “The State made a promise, and breaking it doesn’t just hurt local government budgets, it hurts our residents.”
The suit is filed in the Superior Court of California, County of San Francisco
Case Number: CPF25519270
Effie Milionis Verducci
Interim Director of Strategic Communications
650-407-4915
everducci@smcgov.org