San Mateo County and all 20 of its cities say California is withholding $226 million owed to them this fiscal year — and with Gov. Gavin Newsom terming out, local officials are now lobbying the candidates running to replace him, led by Democratic frontrunner Xavier Becerra.

The dispute traces to a 2004 deal, the Vehicle License Fee Swap, in which local governments surrendered vehicle-license-fee revenue and the state promised to replace it with property-tax allocations. For most counties, that promise still pays out in full. San Mateo is one of three — with Mono and Alpine — where the replacement formula has quietly stopped working, because it was wired to school-district property taxes in a way that breaks down precisely in wealthy, high-property-value counties. That structural quirk, not a one-time accounting fight, is why officials say a permanent legislative fix matters more than the partial backfill the state has offered.

Representatives from more than a dozen San Mateo County cities joined the Board of Supervisors on Aug. 13 to warn about the fallout from state money the county says it is being denied — roughly $230 million this year, according to Bay City News. County Executive Mike Callagy predicted the loss would reshape how local government serves residents, calling the coming cuts "widespread impacts of a historic nature."

The county's own Fair Funding campaign↗ (external source, opens in a new tab) puts the FY 2025-26 shortfall at $226 million — $134.2 million to the county, $91.6 million spread across the cities — and projects the cumulative loss tops $1 billion by 2030 absent a permanent fix.

Why San Mateo, and not everyone else. The 2004 swap pinned each locality's backfill to a property-tax formula. As California City News has reported, that formula stopped delivering here because so many local school districts are classified as "basic aid" — funded mostly by local property taxes and drawing minimal state money — leaving too little in the shared pool to cover the county's share. A 2011 restructuring of the state's funding widened the gap further. The county sued in 2023; its 20 cities, plus Mono and Alpine counties, later joined. Board President Noelia Corzo has cast the ask as narrow: full payment now, and a permanent fix so it never recurs — "not about asking for more."

The stakes are concrete. Without relief, nearly 1,000 county employees could be laid off next fiscal year, The Almanac reported from the Aug. 13 press conference. Redwood City Police Chief Kristina Bell said the first things to go would be preventive work — outreach policing, services for young people and crisis mental-health care — reductions she warned would reach "the bones of basic public safety." Menlo Park expects to shed 27 positions; Redwood City, 40 frontline jobs including firefighters and librarians.

The political timing is the real story. In June, Newsom signed a budget carrying $80 million in one-time backfill for the three counties, nearly $77 million of it earmarked for San Mateo — roughly two-thirds of the claimed total, and with nothing promised for future years. Supervisor Ray Mueller called that a "bittersweet" outcome and said the county cannot keep returning to Sacramento to refight the same battle annually, a "game of devastation" he wants ended for good.

The clock is short. Officials want a statutory fix before the Legislature's Sept. 1 deadline. Miss it, and the problem passes to whoever succeeds Newsom — which is why Mueller told the crowd to lean on the governor's race now. "If you're interacting at all with the Becerra campaign, please start talking to them about this issue now," he said.

Supervisor Jackie Speier, the former congresswoman who testified in Sacramento in May↗ (external source, opens in a new tab) alongside state Sen. Josh Becker, was blunter. Addressing about 100 people outside the County Center in a red blazer she said matched her "red hot" rage at Newsom, she gave the county its sharpest line yet: "It is a theft by the state of California, and we should call it that."