All 20 cities in San Mateo County have joined the county in suing the state, accusing officials of withholding more than $38 million in promised funding and demanding the money be restored.
The lawsuit, originally filed in August in San Francisco, focuses on a state funding system that county officials say shortchanges only three counties: San Mateo, Alpine and Mono.
Under the system, San Mateo County is supposed to receive about 60% of the region’s compensation from vehicle license fees, with the remaining 40% distributed among its 20 cities. Local leaders say the withheld funds strain budgets that pay for health care, public safety and affordable housing.
San Mateo County and its cities received $76.5 million of the roughly $114.3 million they were owed last year, leaving a shortfall of about $38 million, according to county officials. The lawsuit says the shortfall violates California law and a 2004 deal, under which cities and counties agreed to reduce vehicle license fee revenue in exchange for state replacement payments calculated through a complex formula.
The lawsuit notes that in 2004, cities and counties agreed to give the state a portion of property tax revenue and accept lower vehicle license fees to help the state close a budget gap. In return, the state promised replacement payments that would grow each year with local property values.
The deal was later protected by a constitutional amendment to ensure local governments would reliably receive the funding.
Because of “technical issues with how the payments are calculated,” the county says the state consistently underfunds San Mateo County and its cities, while 55 other counties receive their full amounts. Alpine and Mono counties, which say they face similar losses, have also joined the suit.
“At a time when the county and our cities are working hard to sustain critical services while confronting ongoing fiscal challenges, it’s essential that the state maintain the local funding that nearly every other jurisdiction in California continues to receive,” Supervisor Lisa Gauthier said in a press statement.
“For communities like East Palo Alto, every dollar of state-promised funding matters,” East Palo Alto Mayor Martha Barragan said. “Standing united with all 20 cities sends a clear message: San Mateo County deserves fair and consistent funding.”
San Mateo County Executive Mike Callagy previously said the funding system was “supposed to treat every county the same, but because of how our schools are structured, San Mateo gets left out — and our residents pay the price.”
San Mateo County is operating under a balanced $5.5 billion budget adopted in September. Although no programs have been cut, officials are cautiously spending and evaluating revenue projections amid uncertainties in federal funding.
The case is pending in San Francisco Superior Court and the state is expected to file its response in January 2026.