Special Notice / Hearing: None__
Vote Required: Majority
To: Honorable Board of Supervisors
From: Michael P. Callagy, County Executive
Roberto Manchia, County Chief Financial Officer
Subject: Final Budget Changes to the Fiscal Year 2026-27 Approved Recommended Budget
RECOMMENDATION:
title
Approve the following actions related to final budget revisions to the Fiscal Year 2026-27 Approved Recommended Budget:
Adopt Resolutions:
A) Adopting the revised budget of the County of San Mateo as to expenditures for Fiscal Year 2026-27 and making appropriations therefore; and
B) Adopting the revised budget of the County of San Mateo as to the means of financing for Fiscal Year 2026-27; and
C) Establishing the appropriation limit for the County of San Mateo for Fiscal Year 2026-27; and
D) Authorizing an amendment to Master Salary Resolution No. 081981 as per Fiscal Year 2026-27 Adopted budget.
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BACKGROUND:
The County Budget Act (Government Code §§ 29000-29144, 30200, and 53065) requires that the Board of Supervisors adopt the County budget by October 2, 2026.
On June 9, 2026, as part of the two-year budget process, the Board of Supervisors approved the FY 2026-27 Recommended Budget. The purpose of this subsequent budget transmittal is to adopt the FY 2026-27 Budget, which has been amended to include FY 2025-26 year-end Fund Balance adjustments; changes to local, state, and federal funding sources; increases in benefits; and other adjustments deemed necessary to ensure the effective delivery of services that contribute to achieving County goals.
DISCUSSION:
The FY 2026-27 Recommended Budget approved by the Board in June emphasized preparation for significant federal policy shifts and resulting economic uncertainty, financially positioning the County to meet challenges while seeking opportunities ahead. Since that time, year-end financial activities have been completed, estimates have been updated, and the County continues to pursue actions and work with the State to address the Vehicle License Fee Adjustment Amount (VLFAA) funding issue.
The County continues to face significant and growing VLFAA shortfalls because the State’s current funding mechanism does not provide sufficient funding to deliver the full amounts owed to the County and its cities, without further State action. In recent years, the County has relied on one-time State appropriations and, when necessary, local General Fund resources and Reserves to address these gaps and maintain essential services, while seeking a permanent solution with the State to support full payments in the future.
Without a permanent solution, the County has continued to seek one-time appropriations from the State Legislature. In 2025, the State provided approximately two-thirds of the VLFAA shortfall for FY 2023-24, leaving an estimated $22.3 million outstanding in unpaid VLFAA revenues for the County. For FY 2024-25, approximately $168 million in VLFAA was due to the County, while only $97 million was available from existing funding sources, resulting in a $70.8 million shortfall. The State provided only partial funding to address this gap.
The payment shortfalls continue to grow. For FY 2025-26, the County and its cities face an estimated combined VLFAA shortfall of approximately $226 million, of which the County’s share is approximately $134 million. The County has submitted a claim to the State for this amount to be reimbursed as part of the FY 2027-28 State budget, per historical practice.
The September Revisions assume the County will receive the full VLFAA amount owed by the State consistent with the County’s ongoing advocacy for the full amount. One-time Reserves have been used to temporarily bridge the funding gaps from the past two years, but Reserves are not a sustainable solution for an ongoing funding problem. If the State does not provide the full VLFAA amount due, the County will have to implement reductions across County programs and services which could begin as early as October 2026.
The County has worked closely with its State legislative delegation, the California State Association of Counties, cities, labor partners, Community Based Organizations, and other stakeholders to advance a permanent solution to this VLFAA issue. As a result, the State Department of Finance and the Governor’s Office have committed to work with the County and its partners to identify a long-term solution.
The County will continue to closely monitor these efforts, the timing, and amount of State funding, and will make future budget adjustments as necessary.
The County appreciates the leadership and partnership of its legislative delegation, and the many local and statewide partners including the Community Based Organizations and labor unions for advocating for a resolution to this critical revenue source. A permanent and sustainable VLFAA funding solution is vital to maintaining the County’s long-term fiscal stability and its ability to provide essential services to San Mateo County residents and communities.
These September Revisions reflect the best information currently available and position the County to respond to the VLFAA uncertainty and other fiscal challenges through FY 2026-27.
The Board-approved FY 2026-27 Recommended Budget as of June 9, 2026, contained $5.2 billion with 5,945 authorized positions across all County funds. After year-end final Fund Balance adjustments, rollover of unspent appropriations (e.g., Measure K), and other budget changes, the proposed FY 2026-27 Adopted Budget increases expenditures by $983 million and adds 3 positions. As a result, the revised FY 2026-27 Budget now totals $6.2 billion with 5,948 positions. The General Fund portion is $4.6 billion with 4,769 positions. See Attachment D for the September revisions.
The following table summarizes Requirements for the September Revisions by County Agency and Non-Departmental Services:
FY 2026-27 Proposed Adopted Budget, All Funds (Requirements)
*Non-Departmental Services is structurally part of Administration/Fiscal but presented separately to better illustrate budget changes within the Agency.
FY 2026-27 September Revisions
In June, the FY 2026-27 Recommended Budget was presented to the Board of
Supervisors for approval, emphasizing the need for fiscal responsibility in the context of ever-changing economic conditions. The September revisions make the necessary modifications to stay the course set in the Recommended Budget with this focus in mind. The revisions include approximately $983.2 million in both General Fund and Non-General Fund adjustments, driven by several key factors:
• Final Fund Balance Adjustments: Following FY 2025-26 year-end closing, $710.8 million in Fund Balance adjustments were made, including allocations for one-time projects and increases to Contingencies and Reserves. The total consists of $647.1 million in General Fund adjustments and $63.7 million in Non-General Fund Balance adjustments, for a total of $710.8 million.
The largest adjustment is $625 million in Non-Departmental Services, supporting one-time needs such as the purchase and rehabilitation of the Burlingame/Bayshore and Hillsdale properties ($80 million), workforce housing ($50 million), additional capital projects ($46 million), the Tri-Share childcare initiative ($10 million), the Sheriff’s Real Time Information Center ($1.8 million), the Promenade ($10 million), Bridgepoint ($10 million), projects on the Coastside including Mirada Road and El Granada ($35 million) and a pledge to the American Cancer Society ($7 million). Other significant adjustments include $26.4 million for Public Works Utilities, primarily set aside in Reserves; $11.3 million for County Health’s Electronic Health Record implementation; $10.4 million across Technology Services for technology infrastructure, telephone and radio systems, Web Content Accessibility Guidelines (WCAG) accessibility improvements, operational projects, and working capital; $7.9 million for County Library, including outreach vehicles and a new Foster City Library makerspace; $5.5 million for the Sheriff’s Office to Reserves (explained below); $5.0 million for Parks Capital Projects, including Tunitas Creek Beach, Flood Park, Pescadero Community Space, and Ohlone State Historic Trail projects; and $4.2 million for Major Capital Construction, including the South San Francisco Wellness Center, Navigation Center, Stone Pine Cove, Cordilleras, and electric vehicle charging infrastructure.
The remaining $15.1 million reflects net adjustments across other County departments and funds for equipment and technology needs, environmental projects, debt and loan repayments, project closeout costs, Reserves, and other one-time expenses. These amounts also reflect year-end reductions and reconciliations within County Health in an amount of $5.8 million due to a discrepancy between Health IT and EHR Fund Balance that was covered by the General Fund to reconcile a variance between revenues and expenditures, the Human Services Agency reduction of $4.3 million due to a Year-End shortfall, and Other Capital Construction Fund projects. See Attachment B for the full final Fund Balance adjustments.
• Capital Projects: The FY 2026-27 September Revisions include a net increase of $265.2 million for capital projects, to address project needs and align budgets with available funding. These adjustments bring the total fully funded FY 2026-27 Capital Projects budget to $793 million. The capital budget supports projects throughout the County, including roads, information technology infrastructure, and improvements to County-owned facilities. Additional capital projects have been added for September Revisions. These projects include property purchases in Burlingame and Hillsdale, capital improvements in El Granada, Workforce Housing for County Employees, and an easement purchase for Big Wave. The County continues to shift its capital strategy from large-scale new construction toward purchasing, renovating, and improving existing properties to better meet the needs of the community. See Attachment E -Capital Projects.
• Measure K Adjustments: The FY 2026-27 September Revisions include a net increase of $109.8 million in Measure K funding to continue previously approved projects and programs. The adjustment includes $76.6 million for Housing and Homelessness, $16.4 million for capital and other projects, $8.2 million for Children, Families, and Seniors, $4.0 million for District-Specific programs, $2.6 million for Emergency Preparedness, and $2.0 million for FAA-related projects.
• Sheriff’s Office Reserves: The Sheriff’s Office exceeded its prior-year budget by $16 million, which was incurred before the current administration which was covered by the General Fund. This reduced the department’s Reserves below the County’s reserve policy requirement. As part of the September Revisions, the County is providing $5.5 million in one-time Fund Balance to restore the Sheriff’s Office Reserves to 2 percent and provide greater financial stability as the department manages its budget. The Sheriff’s Office will be responsible for building the remaining 2 percent over the next three years to meet the County’s 4 percent Reserves Policy requirement. Consistent with the Reserves Policy, the County Executive’s Office will provide ongoing budget oversight, including review of the department’s revenues, expenditures, and financial projections.
Position Changes
These September Revisions include a net increase of 3 positions from the FY 2026-27 Recommended Budget to the FY 2026-27 Proposed Adopted Budget. Positions were added/deleted in the following departments:
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County Health |
One add in Public Health, Policy and Planning due to a discrepancy in Workday is restored to the budget for reconciliation. One full-time Nurse Practitioner is deleted and split into two part-time Nurse Practitioners in San Mateo Medical Center to support patient visits across clinics. |
2 |
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Department of Public Works |
One Deputy Director of Public Works is added to support the Engineering Services Division as part of the Department’s executive team reorganization. This change was approved by the Board of Supervisors through the August 11, 2026 Salary Resolution Amendment. |
1 |
For further information, a detailed list of position changes is set forth in Attachment A.
Reserves
The County Reserves Policy (updated in 2024) changed the General Fund reserve requirement to 15 percent of County Net Appropriations which are inclusive of minimum requirements for Departmental Reserves (4 percent), Non-Departmental Reserves (6 percent), and General Fund appropriation for Contingencies (5 percent).
The September Revisions include adjustments to Contingencies and Reserves for County All Funds has Contingencies and Reserve of $738.6 million which is an increase of $163.1 million from the FY 2026-27 Recommended Budget. In the General Fund, Contingencies and Reserves total $624.8 million, or 15.6 percent of Net Appropriations, exceeding the County’s reserve requirement. This represents an increase of $125.6 million from the Recommended Budget approved in June.
The chart below shows the change in General Fund Contingencies and Reserves from the FY 2026-27 Recommended Budget, including the values as a percentage of Net Appropriations.
Federal and State Funding Changes and Impacts
Federal H.R. 1 and recent State budget actions include significant changes to the health and social safety net that are expected to impact both the Human Services Agency (HSA) and County Health. HSA expects increased workload as approximately 52,000 Medi-Cal beneficiaries navigate new eligibility, renewal, work, and documentation requirements, which may increase the risk of coverage loss. To support this workload, HSA is adding 32 limited-term positions at a cost of approximately $3.9 million, funded by one-time State and federal Medi-Cal administrative funding. These positions will support Medi-Cal redeterminations and help meet State-mandated processing timeframes. County Health expects these changes to increase the number of uninsured residents who may rely on County services, while reducing funding available to support the health care safety net. While the FY 2026-27 State Budget delayed or reduced some impacts and provided one-time funding to support HSA’s implementation efforts, uncertainty remains around the longer-term fiscal and operational impacts.
Conclusion
The FY 2026-27 Proposed Adopted Budget reflects the County’s continued commitment to responsible fiscal management and maintaining high-quality services. The budget maintains a stable workforce with a net increase of three positions, fully funds one-time expenses, supports continued investment in capital and infrastructure, and maintains adequate Contingencies and Reserves. Departments also continue to carefully manage their budgets within available resources. This approach positions the County to manage changing fiscal conditions, including uncertainty surrounding VLFAA funding. The FY 2026-27 September Revisions budget assumes receipt of the full VLFAA amount owed by the State, while the County continues working toward a permanent solution, recognizing that continued unpaid VLFAA shortfalls will require program, staffing and service reductions. Through careful planning and responsible use of resources, the County prioritizes long-term fiscal stability while maintaining essential services for residents.
The charts below illustrate the significant impact VLFAA has on the County’s General Fund outlook. With VLFAA funding, discretionary revenues are projected to generally keep pace with expenditures and exceed expenditures beginning in FY 2027-28. In FY 2026-27, projected revenue is approximately $1.006 billion compared to $1.027 billion in expenditures, a gap of approximately $21 million. By FY 2032-33, projected revenue reaches approximately $1.372 billion compared to $1.342 billion in expenditures, resulting in revenue exceeding expenditures by approximately $30 million.
Without VLFAA funding, the County faces a different financial outlook. Beginning with the FY 2026-27 Adopted Budget, projected expenditures exceed discretionary revenues, and the gap grows significantly over time. In FY 2026-27, expenditures are approximately $962 million compared to $866 million in revenue, a difference of approximately $96 million. By FY 2032-33, the difference grows to approximately $305 million, with projected expenditures of $1.4 billion compared to $1.1 billion in revenue. The projections are based on current revenue and expenditure assumptions.
The growing difference between revenues and expenditure demonstrates the importance of receiving the VLFAA funding owed by the State and securing a permanent funding solution. While the County has used one-time Reserves to help manage prior funding gaps, Reserves cannot sustainably support an ongoing imbalance between revenues and expenditures.
The County remains committed to protecting taxpayer dollars through careful financial planning, maintaining adequate Reserves, managing ongoing costs, and preserving its long-term fiscal health and continuing to be prepared for whatever may come its way. The County continues to work through situations to ensure residents feel as little impact as possible. With capital projects fully funded and debt service continuing to decline, the County has some flexibility to respond to future fiscal challenges. However, that flexibility does not replace the need for a permanent VLFAA solution.
As the County continues working with the State, it will closely monitor fiscal conditions and make thoughtful budget decisions to maintain financial stability and preserve essential services for San Mateo County residents.
COMMUNITY IMPACT:
The FY 2026-27 Proposed Adopted Budget allocates resources to essential services such as healthcare, education, and social welfare, ensuring access for all residents regardless of socioeconomic status. Investments in infrastructure and capital projects focus on serving vulnerable populations and public input has been sought in key decisions.
FISCAL IMPACT:
The impact on the revised budget of all September changes on Total Requirements for all County funds is an increase of $983.2 million in FY 2026-27 (compared to the FY 2026-27 Recommended Budget that was approved in June). Fund Balance has increased by $711 million for all County funds ($647 million in the General Fund and $64 million in other County funds). General Fund Reserves now total $624.8 million, which represents 15.6 percent of Net Appropriations.
ATTACHMENTS
Attachment A - Position Changes Summary
Attachment B - Final Fund Balance Adjustments
Attachment C - Measure K Allocations Summary
Attachment D - September Revisions
Attachment E - Capital Projects