San Mateo County studies uncertain state funding source

After only securing a portion of what was owed in the 2025-26 state budget following a lawsuit, Gov. Gavin Newsom’s recommended 2026-27 budget didn’t include any funding for the VLF shortfall. The growing contention points to a growing understanding the county cannot rely on these funds when budgeting.

“The governor is showing that he doesn’t care about San Mateo County, that he doesn’t care about the people of San Mateo County,” Supervisor Lisa Gauthier said. 

While Gauthier said as Newsom prepares to “move on to higher officer” that it would be wise to “stop and recognize” that San Mateo County residents and leaders have supported him, she added that it will be critical to get before whoever will be the state’s next governor and have a conversation about a more sustainable solution. 

Should San Mateo County continue not to receive funds it argues it is owed from the state, major and long-term budget adjustments will have to be made, which may include the reduction of support programs, County Executive Mike Callagy said. 

Noting that the county has worked in tandem with the state’s efforts to address homelessness, Callagy said much of this progress could effectively be reverted due to funding cuts that may need to be made. 

The current amount owed to the county is approximately $119 million. This amount is greater than the county’s funding of its homelessness support programs, affordable housing, the Big Lift literacy program and its foster youth support system combined, Mates said. 

The county’s budget is approximately $5.5 billion, with approximately $900 million in the general fund.

The ongoing loss of the revenue source will be “catastrophic,” Callagy said. In response, county staff is looking toward possible taxes it could levy to compensate for what is lost. The effects, whether it is a dilution of programs or increased local taxes, will be drastically felt by residents, he said. 

“If we are in a position where we have to make cuts, we have to do everything in our power to make sure we can still provide dignified housing and dignified services to our residents, and we have to hold our cities to that as well,” board President Noelia Corzo said. 

The VLF shortfall is a complicated but critical source of revenue for the county and its cities. What once was a tax collected on vehicle registrations within the county transformed in 2004. It is now tied to the local property tax distribution system and school funding, which is the cause for a particularly unique issue of deployed funds in San Mateo County. 

The intricate payment mechanism for the updated VLF shortfall is dependent on the availability of revenue collected from nonbasic aid districts, or state-funded districts, within the county. A decade ago, San Mateo County had approximately 12 districts in this category, but this has dropped drastically to only four. 

“That phenomenon of a large number of school districts turning basic aid is what creates the VLF shortfall in our county,” Mates said. 

The state has historically filled any major shortfall, up until the two recent budget cycles, and San Mateo County legislative leaders and staff are trying to develop long-term solutions to what Mates described as “failures in the technicality of this payment mechanism.”

 The matter was agendized as a study session and no action was taken.