SAN MATEO COUNTY, CA — California lawmakers have formally acknowledged San Mateo County's long-running Vehicle License Fee funding shortfall, but local officials said the new language does not restore the hundreds of millions of dollars they say their communities are losing.
The state's 2026 budget trailer bill, AB 184, states that the legislature intends to work with San Mateo, Mono and Alpine counties, their cities and other affected jurisdictions on a legislative and fiscal solution beginning in fiscal year 2027-28.
San Mateo County officials said the shortfall has nearly doubled in one year, from about $119 million in fiscal year 2024-25 to approximately $226 million in 2025-26.
"While we appreciate that the State has formally acknowledged the problem and expressed a commitment to finding a solution, intent language does not restore a single dollar of funding to the communities that are owed it," said Supervisor Jackie Speier.
The county and its 20 cities have been fighting over the Vehicle License Fee Adjustment Amount, or VLFAA, for years.
The dispute stems from a 2004 budget deal in which counties and cities gave up certain vehicle license fee revenues and property taxes in exchange for replacement funding from the state, officials said. San Mateo County officials have argued that the funding formula shortchanges the county because of its unusually high number of basic-aid school districts.
In August 2025, San Mateo County sued the state, claiming it had been shorted nearly $38 million of the $114.3 million it was supposed to receive that fiscal year. The county stated the funding loss threatened services including health care, public safety and affordable housing.
By April 2026, county officials said the state owed $157 million in unpaid Vehicle License Fee revenue and warned that the losses could eventually exceed $1 billion. Officials pointed to potential cuts including shelter beds, rental assistance, psychiatric services and early literacy programs.
Now, county officials say the annual gap has grown to roughly $226 million.
"This new language gives us an important opportunity to work toward a permanent solution," said Supervisor Ray Mueller. "Now it's time to turn intent into action and fix this."
County officials and local partners say the funding dispute could have consequences far beyond government budgets.
At an August press conference and study session, officials described potential cuts to public safety, health and other services if the shortfall remains unresolved.
One city has warned that its potential cuts could include closing a fire station, eliminating 13 firefighter positions and six Police Department positions, and ending city-subsidized childcare affecting as many as 815 children.
Other potential cuts could include closing an adult day care program, reducing library and pool hours, eliminating literacy and STEM programs, delaying affordable housing projects and delaying Housing Element compliance.
The county and its partners estimate that more than 1,000 essential positions could ultimately be at risk across local governments.
"A VLF shortfall isn't an abstract line item," said Julie Lind, executive secretary of the San Mateo County Labor Council. "When public agencies are forced to cut positions, and here we're talking about upwards of 1000 essential positions that are in jeopardy, the effects ripple outward: slower emergency response, longer waits for care, and less money circulating through local businesses."
San Mateo County officials have also warned that the cumulative loss could exceed $1 billion by 2030 if the issue remains unresolved.
AB 184 calls for the state to work with affected counties and cities toward a solution beginning in fiscal year 2027-28, with the legislation stating that the approach should also apply statewide to jurisdictions facing similar funding losses in the future.
Local officials are pushing for the issue to be addressed before Gov. Gavin Newsom leaves office and have called for a solution to be included in the governor's January 2027 budget proposal.
"We appreciate the progress that has been made and the willingness of our legislative partners to engage on a structural solution," said County Executive Officer Mike Callagy. "But until this is resolved, we are managing an impossible equation."
The county says it will continue working with state lawmakers, its cities, labor organizations and community groups on a permanent solution to the funding dispute.
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