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San Mateo County has filed suit against the state of California, accusing state officials of shortchanging the county and its 20 cities nearly $38 million in funding that local leaders say is essential for health care, housing and public safety.
The lawsuit, filed this week in the San Francisco Superior Court, alleges the state violated its own laws and a 2004 budget compromise known as the “VLF Swap,” which was designed to ensure counties would not lose out on vehicle license fee revenue.
“These funds are owed to San Mateo County and our 20 cities,” County Executive Mike Callagy said in a statement. “And instead of living up to its obligations, the state wants us to absorb the cost.”
The arrangement traces back to the state’s 2003–04 fiscal crisis, when local governments gave up vehicle license fee revenue to help Sacramento balance its budget. In exchange, lawmakers promised ongoing replacement funds from the county’s Educational Revenue Augmentation Fund. The state would then provide the funds that school districts were missing from ERAF.
However, San Mateo County is one of two counties where this system does not work. When a school district has enough funds from property tax, the district only gets “basic aid” from the state and the county takes additional funds from ERAF as “excess ERAF.” However, since so many school districts in the county are “basic aid” – meaning they do not receive funds from the state beyond the minimum required – there are not enough ERAF funds to cover the shortfall.
In previous years, the state would provide additional funds to San Mateo County but due to the state’s $21 billion deficit, those additional funds were cut from the budget. Last year, the state almost did the same but added the additional funds in a last minute adjustment to the budget.
The California Legislative Analyst’s Office warned legislators about this issue in 2012, when the shortfall was less than $1 million, but no permanent solution was implemented.
The stakes are significant: vehicle license fee revenue accounts for about 18% of San Mateo County’s operating funds. County officials say losing tens of millions will strain budgets across all 20 cities, reducing funding for emergency response, health care, housing and other basic services.
Supervisor Jackie Speier, said the issue is about more than money. “The state made a promise, and breaking it doesn’t just hurt local government budgets, it hurts our residents,” she said in a statement.
San Mateo County has long warned of this funding quirk but it may not be blameless. San Mateo County was one of five counties that was accused of abusing “excess ERAF” by the Legislative Analyst’s Office in 2020. The office claimed the counties were incorrectly shifting funds out of ERAF, leading to the counties incorrectly taking a combined $350 million from schools.
The county’s lawsuit names the state of California, Department of Finance Director Joe Stephenshaw and State Controller Malia Cohen as defendants.
Thank you for this report.
Other news around this topic keeps missing the very important connection between VLF and ERAF or ExcessERAF and school district funding.
“Basic Aid” might sound “poor”, but these are in fact our “super-rich” districts like Woodside, Portola Valley, Menlo Park, Las Lomitas, La Honda, and Redwood City and even Sequoia. In other words, every school district superintendent is glamouring to become a “basic aid” district, because they don’t have to give back excessERAF anymore, they reached “excess-tax” status.
No school district in San Mateo County is poor anymore – not for at least the last 20 years. But more and more of our districts move from “rich” to “super-rich”.
And the more San Mateo County districts become “super-rich” and get to keep all their funding the less excessERAF funding is going back to the county.
So the real solution would be to top off funding based on amount of students and force the discussion back to education instead of spending less and less on classroom education itself.