San Mateo County and its 20 cities are owed an estimated $226 million in state funding. A new California budget bill acknowledges the gap but sends no money.

AB 184, the state's 2026 budget trailer bill, states that the legislature intends to work with San Mateo, Mono and Alpine counties, their cities and other affected jurisdictions to craft a fix for the Vehicle License Fee (VLF) shortfall beginning in fiscal year 2027-28. The bill also extends the commitment statewide to any jurisdiction facing similar losses, Patch reported.

The shortfall has nearly doubled in one year, growing from roughly $119 million in FY 2024-25 to approximately $226 million in FY 2025-26, according to a county statement. Of that total, about $134 million is owed to the county government alone, according to a county budget press release.

"While we appreciate that the State has formally acknowledged the problem and expressed a commitment to finding a solution, intent language does not restore a single dollar of funding to the communities that are owed it," Supervisor Jackie Speier said, according to a county statement.

The dispute traces to a 2004 budget deal in which counties and cities gave up certain vehicle license fee revenues and property taxes in exchange for replacement funding from the state. San Mateo County officials have argued the formula shortchanges the county because of its unusually high number of basic-aid school districts.

The county sued the state in August 2025, claiming it had been shorted nearly $38 million of the $114.3 million it was supposed to receive that fiscal year.

A county mid-year financial report presented to the Board of Supervisors on Feb. 10 called the potential for an unreimbursed VLF shortfall "the single largest threat to the financial stability of the County."

At a joint press conference and study session on Aug. 13, elected officials, labor representatives and public safety leaders described what could be lost. One unnamed city warned its potential cuts could include closing a fire station, eliminating 13 firefighter positions and six police positions, ending city-subsidized childcare affecting as many as 815 children, closing an adult day care program, reducing library and pool hours, eliminating literacy and STEM programs, and delaying affordable housing projects, cuts city officials said could eliminate up to 100 positions in that city alone.

More than 1,000 positions could be at risk across local governments if the shortfall is not resolved, county officials estimated.

County Executive Officer Mike Callagy said the county is budgeting for the full VLF funding it is owed but warned that using reserves year after year is not sustainable. The county's proposed FY 2026-27 budget totals $6.2 billion and includes no program or service cuts. The Board of Supervisors is scheduled to consider adopting the budget on Sept. 29.

Supervisor Ray Mueller credited Assemblymembers Diane Papan and Marc Berman, and Senator Josh Becker for helping advance the AB 184 language.

Local officials are pushing for a resolution before Gov. Gavin Newsom leaves office and have called for a fix in the governor's January 2027 budget proposal. The county estimates cumulative losses could exceed $1 billion by 2030 without a permanent solution.