San Mateo County in a lawsuit filed this week claims the State of California “shorted” it and its 20 cities $38 million in funds distributed annually under a decades-old deal involving vehicle-license fees that is now enshrined in law.
California’s unprecedented “raid” on the funding stream deprived San Mateo County and cities from East Palo Alto to Daly City of “critical” funds for serving residents, while giving a “windfall” to the state, the lawsuit filed Monday in San Francisco County Superior Court claimed.
The lawsuit accuses California of breaking a legal requirement to provide the funding, and seeks a court order mandating payment of the $38 million, plus unspecified damages.
Named as defendants are the State of California along with state Finance Department Director Joe Stephenshaw and State Controller Malia Cohen. A spokesperson for the Finance Department said the department had not seen the lawsuit yet and couldn’t comment on it.
“Once we receive it and review it we will obviously have a filing with the court in response,” said department spokesman H.D. Palmer.
State Controller’s office spokesman Bismarck Obando said none of the lawsuit’s allegations “pertain to the State Controller in her official capacity.”
The California Attorney General’s office referred questions about the lawsuit to the Finance Department and Controller’s Office. Gov. Gavin Newsom’s office did not immediately respond to questions about the lawsuit.
The lawsuit revolves around a complicated compensation scheme for counties and cities, based in part on how far property taxes in a county’s school districts go toward meeting education-funding requirements. The process dates back to 2004, when local governments agreed to receive a reduced share of vehicle-licensing fees, in exchange for annual payments from the state to compensate them for the loss.
“The funding formula 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,” said San Mateo County Executive Mike Callagy.
Under the arrangement, San Mateo County gets about 60% of the compensatory funds for the county region, with the rest shared among its 20 cities.
When state legislators — facing a shortfall of $12 billion according to state officials and $30 billion according to a CalMatters analysis — passed the 2025 budget, only San Mateo County, tiny Alpine County south of Lake Tahoe, and Mono County east of Yosemite National Park were shortchanged, the lawsuit said.
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