This Bay Area County Sues State Claiming $38 Million Shortfall

SAN MATEO COUNTY, CA — The County of San Mateo is accusing the State of California of withholding nearly $38 million from them and local officials are claiming this will impact health care, public safety and affordable housing.

This week, the County filed a lawsuit alleging that the State violated its own laws and a 2004 budget agreement. The lawsuit claims that the State shortchanged the County and its cities, from Daly City to East Palo Alto, thereby endangering essential local services.

“These funds are owed to San Mateo County and our 20 cities,” said San Mateo County Executive Mike Callagy. “And instead of living up to its obligations, the State wants us to absorb the cost.”

The County is claiming the Vehicle License Fee Adjustment Amount, a funding source the lawsuit said provides critical services to local residents, is being withheld from them.

San Mateo County claims the legislature broke its promise, shorting local governments nearly $38 million of the $114.3 million owed. Despite an initial budget proposal that excluded the county entirely, lobbying secured two-thirds of the promised funds. Meanwhile, 55 other counties received their full VLFAA payments without issue, according to the lawsuit.

“The State’s failure to provide full payment of the VLFAA to San Mateo County and its cities will cause serious and lasting harm to the County and the cities whose budgets require these funds to deliver public services to residents,” the suit states. “The loss of this required revenue will strain the County and cities’ budgets and will reduce funding for critical public services.”

The State's VLFAA payment obligation began with the 2004 "VLF Swap," a budget deal where counties and cities surrendered vehicle license fee revenues and property taxes to aid the State's deficit and school funding. In return, the legislature guaranteed ongoing VLFAA replacement funding, adjusted annually for property tax growth, according to the lawsuit.

“The funding formula was supposed to treat every county the same, but because of how our schools are structured, San Mateo gets left out — and our residents pay the price,” Callagy said. “The system the State set up ties these replacement dollars to school funding formulas. That works everywhere else, but not here; because we have more basic-aid districts than most counties, we get shortchanged.”

The nearly $38 million shortfall, as per the County's lawsuit, would be distributed among the County government and its 20 cities within San Mateo County.

“These dollars pay for the things in our local budgets that residents rely on every day — from emergency response and health care to housing and public safety,” said Jackie Speier, a San Mateo County supervisor . “The State made a promise, and breaking it doesn’t just hurt local government budgets, it hurts our residents.”