County to Present Mid-Year Budget Update, Continues to Manage Fiscal Pressures

Redwood City- Rising costs, funding uncertainties and growing demand for services continue to put pressure on San Mateo County's budget. So far, careful planning has helped the County avoid a deficit.

Staff will walk through the fiscal challenges facing the County when they present a mid-year budget update to the Board of Supervisors on Tuesday, Feb. 10. The report offers a snapshot of revenues and expenditures at the midpoint of the 2025-26 fiscal year and highlights issues likely to affect budget decisions in the months ahead.

"A mid-year update gives us the chance to confirm where we are now and where we're going," County Executive Mike Callagy said. "It helps the Board and the public see what challenges are ahead and how we're making thoughtful choices with limited resources to focus on what matters most."

The report describes what budget planners call "a complex and evolving fiscal environment," as mandates continue to expand, often without corresponding funding. Against that backdrop, the update points to growing uncertainty in funding from the state and federal governments, with the most immediate potential effects on health and human services.

Changes to Medi-Cal eligibility and benefits at the state level are expected to reduce coverage for some residents. County staff note that these shifts can increase costs for local governments as additional residents continue to seek care through County health clinics and other safety-net providers.

As the report notes, "these federal and state actions increase fiscal uncertainty and underscore the need for conservative budgeting, ongoing monitoring, and contingency planning." Staff will continue tracking developments and updating the Board as conditions change.

The County's budget supports a wide range of services that reach nearly all of San Mateo County's approximately 750,000 residents, including public health clinics, environmental health inspections, social services, emergency response and support for children, seniors and families.

The County has avoided operating in a structural deficit although staff caution that staying out of the red will require careful management and long-term planning.

The mid-year budget update highlights continued uncertainty around the Vehicle License Fee Adjustment Amount, or VLFAA, as a significant fiscal risk for San Mateo County and its cities.

There is a countywide VLFAA shortfall of $119 million for fiscal year 2024-25, with the gap projected to grow to $163 million in the current fiscal year, 2025-26. In addition, the state still owes $38 million from fiscal year 2023-24.

The governor's recently proposed state budget does not include funding to address the current $119 million VLFAA shortfall. The County has filed a lawsuit against the state to recover funds already owed and to clarify the state's obligation to fully reimburse local governments going forward. The continued lack of funding in the proposed budget increases uncertainty for local governments and complicates long-term fiscal planning.

Beyond the financial update, the Board will consider staffing additions in the District Attorney's Office and Sheriff's Office focused on human trafficking, and domestic violence and child abuse prevention and response. The positions would support a coordinated, multi-agency Human Trafficking Initiative, the establishment of a Family Justice Center to provide survivor-centered services, and additional staffing to address increased demand in the County's crime laboratory.

"These positions reflect a continued focus on protecting some of our most vulnerable residents," Callagy said. "Strengthening the County's response to human trafficking, domestic violence and child abuse helps ensure survivors can access coordinated support when they need it most."

Despite strong economic indicators, the high cost of living in San Mateo County continues to drive demand for safety-net services, as even relatively high household incomes are quickly consumed by everyday expenses.

Childcare costs remain among the highest in the state, with the median annual cost of infant care exceeding $31,000. At the County's median household income of about $160,700, more than half of households would spend roughly one-fifth of their income on infant care alone if they used childcare services.

Housing costs present a similar challenge. While incomes are high by statewide standards, both homeownership and rental housing remain out of reach for many residents.

As a result, demand for County safety-net services remains elevated. About 23,100 households - nearly 9 percent of all households in San Mateo County - rely on food assistance through the Supplemental Nutrition Assistance Program.

The findings are outlined in a mid-year update that will help guide Board discussions as the County balances service demands, fiscal risk, and long-term sustainability. The next major step in the budget process comes in June, when the Board of Supervisors is scheduled to hold hearings on the FY 2026-27 Recommended Budget.

How to Participate

The Board meeting takes place at 9 a.m. on Tuesday, Feb. 10, on the first floor of 500 County Center, Redwood City.

The mid-year budget staff report is available here.

Details, including how to watch or participate and access live Spanish interpretation, are available on the agenda.

Effie Milionis Verducci
Interim Director Strategic Communications
[email protected]
650-407-4915