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San Mateo County leaders and workers are demanding a permanent fix to the state’s Vehicle Licensing Fee (VLF) funding mechanism as a countywide shortfall has grown to $226 million.
Officials from the county and all 20 cities gathered at an Aug. 13 press conference and warned that without a fix, nearly 1,000 employees would be laid off next fiscal year, leading to longer response times from police and fire departments, slower response to infrastructure repairs like potholes and a slew of worsened public services.
“Our community partners and healthcare workforce cannot absorb a funding gap of this magnitude and continue to meet the healthcare needs of San Mateo County,” said San Mateo County Chief Nursing Officer Rob Larcina. “If this gap is not addressed, the consequences will be significant, and ultimately the community and the people we serve will bear the cost.”
After California voters reduced the VLF tax in 2004, the state replaced the lost local revenue with another funding stream and for most counties, that replacement mechanism continues to provide the full amount. But in San Mateo County — one of three California counties affected by the shortfall, along with Mono and Alpine counties — the formula hasn’t generated enough money to cover what local governments say they are owed. The missing VLF tax revenue accounts for a substantial portion of the county’s expected revenues.
In 2025, San Mateo County sued the state, seeking nearly $38 million it said the state still owed for the fiscal year ending in 2024.
Local aftershocks
According to Redwood City Mayor Elmer Martínez Saballos, 40 frontline positions would be eliminated, including firefighters, police officers and librarians. The city decided to pull reserve funds to close a separate $12.9 million deficit in June.
Redwood City Police Chief Kristina Bell said proactive community policing, youth programs and mental health services would be the first scrapped after budget cuts. The city is facing a $10.1 million deficit, which she said is nearly 10% of its general fund.
“(This) cuts straight to the bones of basic public safety,” Bell said.
Menlo Park City Manager Justin Murphy said he expects to lose 27 positions starting next July. The city is trying to close a $5.4 million gap — around 6% of the city’s already tight general fund budget — resulting from withheld VLF funds. Menlo Park currently has 292 full-time staff members, and the cuts would be a 9% reduction in tenured staff enforced across all departments, according to Murphy.
In Portola Valley, while town officials didn’t have an exact number of potential staff cuts, representatives said the town would run out of reserve funds by 2030. The town recently put a measure to become a charter town on the Nov. 3 ballot.
State funding fight continues
For the past few years, local representatives have had to travel to Sacramento and negotiate with the state’s Department of Finance for a cut of the revenue.
“We cannot afford to play in this game of devastation every year,” said San Mateo County Board Supervisor Ray Mueller.
This June, California Gov. Gavin Newsom signed a budget that included $80 million in one-time VLF backfill for San Mateo, Mono and Alpine counties, including nearly $77 million specifically to San Mateo County, enough to cover about two-thirds of the VLF amount local governments said they were owed. Mueller called it a “bittersweet” partial victory, as it does not guarantee future payments. Local officials are pushing for a lasting solution and are working to get it passed before the Sept. 1 legislative deadline.
It is a theft by the state of California, and we should call it that.
Supervisor Jackie Speier
Supervisor Jackie Speier addressed the crowd of around 100 outside County Center in Redwood City wearing a bright red blazer, which she said represented her “red hot” rage at Newsom. Speier told this news organization that the county has a state legislator ready to champion the bill, but negotiations are still ongoing, and “if the governor is going to veto it, then it’s all for naught.”
“It is a theft by the state of California, and we should call it that,” Speier said to thunderous applause.
If the VLF funding mechanism is not amended by next month’s legislative deadline, the responsibility falls to the next governor as Newsom terms out. While Speier told this news organization she wants to see Newsom offer a fix, Mueller encouraged the audience to begin engaging the governor candidates, especially Democratic frontrunner Xavier Becerra.
“For those of you who are voting in this election, if you’re interacting at all with the Becerra campaign, please start talking to them about this issue now,” Mueller said.
Julie Lind, executive secretary-treasurer of the San Mateo County Central Labor Council, said the funding loss would affect both public employees and the communities they serve.
“When we lose a public employee, we lose twice,” she said, the county labor council’s Executive Secretary-Treasurer. “The (worker’s) family loses income, healthcare and stability. And the community loses the person who is there to serve us.”
