All 20 San Mateo County cities, as well as Mono and Alpine counties, have joined San Mateo County’s lawsuit against the state over Vehicle License Fee (VLF) revenue.
Filed in August 2025, the lawsuit alleges that the state withheld nearly $38 million in VLF funds that were legally owed to local governments in San Mateo County. These funds support health care, public safety, and affordable housing services.
According to the county, local governments received only $76.5 million of the $114.3 million they say was owed under a state funding formula — a gap of nearly $38 million.
“The State’s initial 2025 budget proposal excluded San Mateo County’s funding entirely, but successful lobbying by the County and its State Assembly and Senate members restored two-thirds of the total owed to support critical local services for this year only, according to a press release. “It is highly likely that the State budget will exclude the County and its cities once again next year.”
The dispute stems from a 2004 “VLF Swap,” in which cities and counties gave up vehicle license fee revenue in exchange for property tax allocations. Over time, the reliance on a complicated property tax-based formula created discrepancies. San Mateo County contends that because many of its school districts are classified as “basic aid” (meaning they receive very little state funding), it ends up with a shortfall.
“If we don’t get these funds, our ability to sustain critical local services is at risk,” said County Supervisor Lisa Gauthier.
San Mateo Mayor Rob Newsom emphasized the real-world impact: “In the City of San Mateo alone, our share of the $38 million is $2.2 million. Absorbing that shortfall has impacted essential city services and core neighborhood programs. We need these funds restored — and a permanent solution to guarantee full funding in future years.”
East Palo Alto Mayor Martha Barragan added that the unity of all 20 cities sends a strong message: “Standing united with all 20 cities sends a clear message: San Mateo County deserves fair and consistent funding.”
The state's response to the lawsuit is expected to come in January.