San Mateo County cities face budget cuts from missing state funds

San Mateo County and its 20 cities warn local services will be cut if the state does not give back millions of dollars it owes in vehicle license fees.

At a recent Board of Supervisor’s meeting in Redwood City, the county projected a $226 million budget shortfall without revenue from the fees, which mayors say will lead to longer response times for emergency responders and reduced library hours and resources for recreational programs, among other services.

Typically, the shortfall would have been covered by the state through a 2004 agreement in which San Mateo County agreed to receive a reduced share of vehicle licensing fees in exchange for annual payments from the state as compensation.

Their pleas come as San Mateo County dropped a lawsuit last month against the state, which accused California of violating their deal by withholding $38 million from the roughly $114.3 million they were owed in fees in 2025.

The county is dealing with a $134 million shortfall, while the remaining $91.6 million is spread across the cities. The three cities facings the highest shortages are Daly City ($12.2 million) Redwood City ($10.2 million) and San Mateo ($12.9 million), according to the county.

Daly City Mayor Glenn Sylvester said the lack of funds is a “threat to essential public services, communities and partnerships between state and local governments.” Daly City could potentially slash 50 city positions and reduce hours at recreation and senior facilities.

“These are not numbers on a spreadsheet,” Sylvester said. “They represent people, programs and services that our residents depend on every day.

Redwood City Mayor Elmer Martínez Saballos said 40 frontline positions are on the chopping block including firefighters, police officers, community service officers and city planners.

“Many of those services are especially important to our most vulnerable residents, our seniors, children, families and individuals experiencing homelessness,” Saballos said.

County and city officials and the Department of Finance to restore the license fee funding to close the gap. Last month Newsom approved the Legislative’s budget, which includes $80 million in one-time license fee backfill for the left-out counties, including $77 million for San Mateo County.

The Finance Department and Newsom’s Office did not respond to comments about the county’s funding concerns.

The lawsuit, which was filed last August in San Francisco, lists California, along with state Finance Department Director Joe Stephenshaw and State Controller Malia Cohen as defendants.

Under the 2004 arrangement, San Mateo County receives about 60% of the compensatory funds for the county region, with the rest shared among its 20 cities. When legislatures passed the 2025 budget, only San Mateo, Alpine County south of Lake Tahoe, and Mono County east of Yosemite National Park were left out of the license fee compensation, according to the lawsuit.

The county decided to drop the lawsuit to pursue legislative action, rather than legal action, to address this problem, according to Chief Deputy County Attorney Daniel McCloskey.

The county says the $77 million would only cover two-thirds of what they are owned. District 4 Supervisor Lisa Gauthier, who represents Redwood City, East Palo Alto and Menlo Park, said San Mateo needs more response from the state capital.

“Does Sacramento care about San Mateo County?,” she said. “If the (state) Finance Committee and the Governor were sitting in our shoes right now, what would they suggest we do?”

Supervisors say the county and cities need to continue reaching out to the governor’s office about their funding struggles, and convince the state to give back the funding through a trailer bill — legislation used to change state laws so that the annual state budget can operate.

“We need a hurricane of people calling the governor’s office to say this is unsustainable,” said Supervisor Jackie Speier. “We’ve got to turn the heat on and up.”