San Mateo budget turns optimistic

The positive news is due to both the state Assembly and Senate passing budgets that are now including reimbursements to counties like San Mateo over a unique yet complicated income stream related to vehicle license fees paid by residents. The fee revenue collected by the county is directed to the state and is subsequently paid back to cities based on a complicated funding formula. 

And with a state facing a steep shortfall of its own, the payment hasn’t been included in its original budgets the last couple cycles. Recently, however, cities, including San Mateo and Belmont, have been able to include the reimbursement — known as property-tax-in-lieu-of-VLF — in their financial projections due to more recent updates from the state legislature. 

“Both houses have approved the state budget. Now it’s waiting for the governor to sign into effect, so we are likely to get a 100% VLF backfill,” Finance Director Karen Huang said. “The previous projection was based on 50% VLF backfill, so now we are changing our budget assumption to 100%, so that brings our revenue up.”

The city’s general fund for fiscal year 2025-26 stands at about $175 million, comprising more than 50% of the entire budget. About $62 million is allocated for capital projects, while $66 million is set aside for enterprise funds, which support sewer and stormwater needs. 

Property transfer tax revenue has also led to more optimistic projections. Earlier in the year, the city projected about $14 million from the transfer tax, which includes funds from Measure CC, a 2022 measure that increases the tax by 1% for properties that sell or transfer for $10 million or more. While Measure CC, which only affects roughly 1% of all the city’s buildings, has the same projection level, Huang said the rest of the commercial market is doing better. 

“We are going to get about $17 million total, which is $3 million more than we expected. Measure CC is the same — projected at $6 million — but it’s the other transfer tax that is doing better, so we do see a lot more commercial buildings sold,” Huang said. “They’re under the $10 million threshold so they didn’t hit Measure CC, but it does have a positive impact on our transfer tax.”

That means the current 2024-25 fiscal year will likely close with a $3 million deficit, rather than the projected $6 million. 

Councilmembers unanimously passed the 2025-26 budget during the City Council meeting June 16.