For months, the leaders of the San Mateo County have expressed concern about the potential loss of a key source of revenue, saying the situation could threaten vital safety net services, so with no resolution in sight midway through the 2023-24 fiscal year, County Executive Mike Callagy recommended the Board of Supervisors hold a special study session on a looming issue that could also impact future spending plans.
“We are short $69 million,” Callagy said during the Board of Supervisors’ regular meeting scheduled for next Tuesday. “This is something we are working on with our (state) legislators. That would be a huge blow to this county, and it only grows every year.”
The potential shortfall is fueled by possible cuts in what are known as vehicle licensing fees in lieu, or VLF, a form of property tax on motor vehicle ownership.
Under a long-standing agreement, cities and counties receive additional property taxes from the state to replace revenue that was cut under a two-decade-old budget deal.
The latest state budget proposal released by the governor's office in January does not include full funding for VLF. This could also pose a threat to the budgets of local cities that also receive that type of revenue.
“This will impact public safety and the direct services that cities and the county provide to our most needy population if it’s not funded by the state,” Callagy said. “And we certainly believe that the state owes us that.”
San Mateo County local governments could face a loss of more than $114 million before the fiscal year ends on June 30, 2024.
Supervisors expressed concern for the area's most vulnerable residents.
“Our continued focus must be on expanding opportunities for all, and that starts with ensuring we have a robust array of programs and services to meet the needs of individuals and families,” said Warren Slocum, Chairman of the Board of Supervisors.
“Our residents want to make ends meet, put food on the table, pay for college, save for retirement. It’s our job as elected officials,” Slocum added, “to work with our partners across the state to ensure we can continue to fund vital services that help all of our residents achieve their goals.”
A special study session is expected to be scheduled shortly.
News of the projected VLF deficit comes amid a number of growing financial concerns.
At the February 14 Board meeting, Callagy and Chief Financial Officer Robert Manchia presented the Fiscal Year 2023-24 Mid-Year Budget Update, a snapshot of the economic and demographic trends driving both the need for services and the revenue available to pay for them.
With the end of the COVID-19 public health emergency, the county has shifted “its focus from pandemic response and recovery to long-term strategic planning,” the report said.
The document also describes “contrasting trajectories” for key economic indicators. It says unemployment overall remains low, while the cost of goods and services is rising for everyone, and median household income is moving in different directions for certain demographic groups.
However, median household income has declined for Black or African American households (10.2 percent from 2021 to 2022). There are significant disparities between the median household incomes of Native Hawaiians and Pacific Islanders and certain other demographic groups (41.8 percent of Asian household incomes, for example).
Of note, the rising cost of living (3.4 percent increase in consumer prices from December 2022 to December 2023) and obstacles to finding affordable housing pose challenges for many.
A search for a one-bedroom apartment shows current rents of more than $2,800 in both Redwood City and San Mateo. So an income of about $100,000 a year is needed to afford such an apartment, according to a commonly used “30 percent rule,” which says people should spend no more than 30 percent of their gross income on rent.
The report states that “demographic trends indicate an aging population on relatively fixed incomes struggling to keep pace with rising costs. If this trend continues, there may be increased demand for County services to address these evolving needs.”
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