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San Mateo and two rural counties seek $118 million VLF backfill; administration says no statutory obligation
Summary
San Mateo County, Alpine and Mono requested $118 million to cover an in-lieu vehicle license fee shortfall caused by an outdated 2004 VLF backfill structure; Department of Finance says there is no statutory requirement and the May Revision does not include the funds.
San Mateo County and two small rural counties asked Assembly Budget Subcommittee 5 to include an in‑lieu vehicle license fee (VLF) backfill payment in the 2025–26 budget to cover a structural shortfall in the post‑2004 VLF swap arrangement.
Assemblymember Diane Papan described how the 2004 VLF restructure replaced local VLF receipts with an in‑lieu property tax mechanism intended to hold local governments harmless. Because San Mateo has high property values and low student enrollment, Papan said the statutory buckets (ERAF and non‑basic‑aid school district property taxes) available to fund the in‑lieu payment are insufficient for San Mateo, Alpine and Mono counties. Papan said the shortfall equates to about 18 percent of San Mateo’s operating general fund and would require immediate cuts to core local services if not provided by the state.
The Department of Finance said the administration received a combined request of about $118 million for the three counties to be paid in 2025–26 for the 2023–24 shortfall but noted there is no statutory obligation for the state to provide this payment. DOF said the May Revision does not include those funds and that prior practice occasionally addressed the issue, but the administration is not proposing a statewide statutory backfill in this May Revision.
Multiple cities and county officials testified about their specific budget exposures, listing personnel equivalents and program impacts the shortfall would cause in their jurisdictions. Speakers asked the Legislature to include the county backfill in the budget this year and to seek a long‑term fix so that counties are not repeatedly dependent on ad hoc state actions.
Ending note: The subcommittee received testimony and written requests for restoration of the in‑lieu VLF backfill for the affected counties. The Department of Finance told the panel the administration is not including a backfill in the May Revision and described the statutory constraints; final action by the Legislature remains possible during budget negotiations.
