San Mateo County sues California over $38 million shortfall in vehicle fee funds

San Mateo County, California – The State of California is being sued by San Mateo County because local leaders allege Sacramento has holding back about $38 million that is needed to keep services running. A complaint filed in San Francisco Superior Court says the State broke a 20-year-old agreement, which puts public health, safety, and housing initiatives at risk.

The Vehicle License Fee Adjustment Amount (VLFAA) is at the heart of the disagreement. It is a source of financing that was formed in 2004 when counties and cities gave up some of their vehicle license fee earnings and local property taxes to help the State overcome a budget gap. In exchange, the State promised to keep providing replacement financing that would be linked to property tax growth. San Mateo officials say that promise has already been broken.

County Executive Mike Callagy said that the gap impacts all 20 cities in the county, from Daly City to East Palo Alto.

“And instead of living up to its obligations, the State wants us to absorb the cost,” Callagy said.

This year, state lawmakers only approved $76.5 million of the $114.3 million owed to San Mateo County under the VLFAA. This means that about $38 million is still unpaid. Officials said that every other county in California got its full share without any problems, on the other hand. The State of California, Finance Director Joe Stephenshaw, and Controller Malia Cohen are all named as defendants in the complaint.

“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.”

One reason San Mateo is affected in a special way is because of how its schools are funded. The county has more “basic-aid” districts than most counties, therefore the VLFAA replacement amounts are figured out in a different way.

“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.

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The case isn’t only about getting back the lost $38 million. Officials in the county say that if Sacramento is able to keep the money, it might set a bad example for future state budget decisions, making it possible for other local governments in California to have to make similar cuts.

“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,” San Mateo County Supervisor Jackie Speier said. “The State made a promise, and breaking it doesn’t just hurt local government budgets, it hurts our residents.”

The case, filed under number CPF25519270, now awaits review in San Francisco Superior Court. The outcome could decide not only San Mateo’s financial stability but also test the durability of a funding framework that has supported local governments statewide for more than 20 years.