San Mateo deficit remains but lower than projected

Property tax is the city’s largest source of revenue, though a critical piece of that is the property-tax-in-lieu-of-vehicle-license-fee funds, which has decreased due to the state delaying or reducing its reimbursement to the county each year. San Mateo only received about two-thirds of the reimbursement it was supposed to receive from the state.

The complicated revenue stream is related to vehicle license fees paid by residents, which are directed to the state and then subsequently reimbursed to cities, typically by the following fiscal year. But the payback process is based on a complicated formula, and given the state’s widening shortfall, uncertainty over whether it will actually pay back cities has become an annual battle.

All jurisdictions have joined a countywide lawsuit against the state to ensure the funds are adequately reimbursed every year, and some cities, like Foster City, have decided not to even include the funds in their budget projections just in case it doesn’t come through.

San Mateo’s second largest source of revenue, sales tax, has also been fairly flat.

“It's looking good, but it's also just not increasing to what we expected it to increase to,” Finance Director Abby Veeser said during a council meeting Feb. 23. “We did lower expectations just a little bit because we weren’t yet seeing the growth we were hoping to see.”

The city also imposes a real property transfer tax, which is helping it weather the turbulent financial climate, though that’s also subject to housing market ebbs and flows. Veeser said the city has still seen “significant movement” in the market, which has helped keep transfer revenue afloat.

In 2022, voters also passed Measure CC, which imposes a 1% tax on property sales over $10 million, which generated a little over $6 million last year and is expected to bring in almost $2 million this fiscal year.

“We were fortunate that last year that the $6.2 million really helped close that gap with our deficits, but we can’t continually budget at those amounts,” City Manager Alex Khojikian said.

To narrow the deficit, the city has been exploring a sales tax ballot measure to go before voters in 2026, and Veeser said the city has been trying to diversify revenue sources — like relying more on grants for infrastructure projects — and cut down on expenses, which has included freezing eight positions.

“All the different departments are looking at belt tightening and where we can be efficient in our spending and save money,” Veeser said.

alyse@smdailyjournal.com

(60) 344-5200 ext. 102