San Mateo County preps for a shortfall in its funding

There is a possibility that the state will not include an appropriation item on its upcoming proposed budget for replenishing the county’s Vehicle License Fee shortfall for the prior 2022-23 fiscal year. Though there have been shortfalls the county has experienced before, Deputy County Executive Justin Mates said that they have “never seen as significant of an opposition to that” from the state as they have this year.

“This is the most significant challenge that we will overcome this year and will have years and years of implications. This will only get worse over time if we’re not successful,” County Executive Officer Mike Callagy said.

Acknowledging that California is in a deficit year, Mates said the county is “not asking for special treatment, but simply asking to be treated the same as every other county.”

Currently, the in-lieu VLF statute is a payment obligation owed to the county and cities taken from the property taxes and Educational Revenue Augmentation Fund entitlements of nonbasic aid school districts in the county. Nonbasic aid school districts are those that do not reach their Local Control Funding Formula — which designates how much money a school district should be allocated based on a per student calculation — without extra state support. If a school district shifts from nonbasic aid, to basic aid or community funded, it is no longer required of California to financially support the school.   

“We have had, over the years, more and more school districts turn to basic aid, and that has reduced the amount of those funding sources available to pay the county’s VLF obligation to the county and the cities,” Mates said. 

According to the In-Lieu VLF statute, if a school district becomes basic aid, the ERAF amount that used to be needed becomes excess funds that are returned to the county. The state has suggested that this excess amount can help curb the effects of the shortfall, Mates said. 

“Suggesting that excess ERAF should pay the VLF shortfall is not fair because they’re both independent, legally obligated amounts of revenue that the county is supposed to receive from the state,” Mates said. 

Chief Legislative Officer Connie Juarez-Diroll said that staff requested the refund amount to be within the governor’s budget, but was ultimately met with opposition. Now, staff is working closely with state Sen. Scott Wiener, D-San Francisco, who is the chair of the budget committee, and his staff as well as Assemblymember Diane Papan, D-San Mateo, on getting it included in the legislative budget. 

“We are hopeful that that strategy will work but, as you can see, as these numbers go up and up, it is just becoming much more difficult to employ that strategy successfully,” Juarez-Diroll said.

VLF is a key component of the county’s general fund revenue. It comprises approximately 18% of the general fund operating budget. Without a reimbursement from the state, Callagy said what the county is able to provide as services will “fundamentally change.” 

Currently, the state is requesting $70 million in reimbursement from Fiscal Year 2022-23’s countywide shortfall. In about three years, it is currently projected that the shortfall will be comparable to the amount allotted to the county through Measure K, which is about $110 million. This would ultimately outstrip that funding that could go to services such as addressing homelessness and seniors. 

“If we see cuts of this level, these are not holes that we can fill with change in the cushion. This will have significant impacts to the way we spend money,” Mates said. 

In the meantime, the Board of Supervisors is also considering how to allocate funds from Measure K that are already secured and currently available. There is $34.5 million that is not budgeted that must be approved alongside the items previously committed. 

Staff recommended spending $15 million for housing and homelessness initiatives, $16 million for child, family and senior services, and $3.5 million for emergency preparedness efforts. These three vital areas were identified by the community as priorities.

The Board of Supervisors will approve how much money will go to each area of concern identified at the upcoming meeting 9 a.m. Tuesday, March 26. Which agencies the funds will be awarded to will be decided at a later date by staff, but the board will have final approval over the contracts that are slated to begin in July. 

“I was on the subcommittee alongside [Supervisor David] Canepa and I think the final product here is reflective of our discussions and does a really good job trying to find the best of the best in just so many tremendous applications,” Supervisor Dave Pine said of the budget allocation proposal.  

Callagy said that staff is working extensively at preparing the county for any financial possibility it may face in the coming years, but ultimately hopes that the state will provide the appropriate funds that he said are owed. 

“There is so much at stake here and that’s why we’re working with our unions and legislators, our partner agencies in the city, to do everything humanly possible to make that state do the right thing and fund this,” Callagy said. “This is county money.”