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: Study Session: Measure K discussion regarding future funding
RECOMMENDATION:
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Measure K Study Session:
A) Presentation and discussion regarding future Measure K funding; and
B) Approve Measure K budget allocations in preparation for the Fiscal Year 2026-27 Recommended Budget, as set forth in Attachment A.
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BACKGROUND:
In 2012, the County voted in favor of a ballot measure, Measure A, a countywide half-cent sales tax to support essential County services and to ensure the maintenance of aging government infrastructure. This measure was in response to the Great Recession and associated decline in revenue sources due to the downturn of the economy. Although the economy recovered, County residents saw the value in continuing the countywide sales tax to provide for essential services and in November 2016, Measure K was passed by San Mateo County voters to extend the sales tax for 20 years, until March 31, 2043.
For the first decade following the adoption of Measure K, funding was allocated across seven priority areas with little change among services and providers. In response to changing community needs that were brought to light during the COVID-19 pandemic as well as other natural disasters and events, this Board expressed a desire to reexamine Measure K funding priorities and processes for allocating funds. Throughout 2023, steps were taken to design and implement a new allocation process. Feedback from residents, community-based organizations and County departments was gathered through surveys and listening sessions throughout the County.
After considering the County’s needs and community input, this Board approved the following priority areas for FY 2024-25 Measure K funding: Children, Families, and Seniors; Housing and Homelessness; and Emergency Preparedness. Mental Health is a component integrated into each priority area rather than a stand-alone item.
In addition to approving these priority areas, this Board authorized the County Executive to develop and proceed with a Notice of Funding Opportunity (NOFO) process to obtain applications from providers for funding within the approved priority areas and subcategories identified by the Board. The Board also directed staff to identify a portion of Measure K revenues that could be re-allocated to reflect the community input gathered through the engagement process. Ultimately $34.5 million was allocated to the NOFO while $75 million was allocated to ongoing services and programs deemed essential at that time.
As part of the FY 2024-25 budget, new contracts resulting from the NOFO process were executed, each with an initial three-year term. At the time these commitments were made, the County’s fiscal outlook supported continuation of funding at planned levels.
Since then, the County’s financial landscape has shifted significantly. Potential loss of the State Vehicle License Fee Adjustment Amount (VLFAA) funds, along with other federal and state policy changes, has led to considerable budget uncertainty. The FY 2025-26 State budget marked the first time since the VLFAA was instituted that the State did not fully fund the VLFAA shortfall, resulting in a $38 million loss for the County and cities. Compounding this issue, no VLFAA backfill funding has been included in the State budget for FY 2026-27. As a result, County departments and community-based organizations have been informed that Measure K funding for many initiatives could not be guaranteed for FY 2026-27, the final year of the initial three-year contracts.
The Board is now faced with determining how to proceed in light of these changed circumstances. Specifically, the decision before the Board is whether and how to continue funding the current funded initiatives for FY 2026-27, while balancing competing priorities and fiscal sustainability. The following information is provided to support the Board’s deliberation on these options.
DISCUSSION:
Measure K revenues for FY 2026-27 are projected to be $116 million.
The proposed Measure K budget for FY 2026-27 totals approximately $119 million, an increase of nearly $9 million over the FY 2024-25 Recommended Budget in which the NOFO contracts were established. The expenditure growth reflects the current level of services and is driven by cost increases required to sustain current services and contractual commitments.
Concurrently, the County faces significant revenue challenges. Reductions in VLFAA are anticipated to significantly impact the General Fund. The County and cities are owed $119 million in currently unfunded VLFAA from FY 2024-25 and estimated to have a $125 million VLFAA shortfall in FY 2025-26 (of which the County’s share is approximately 59%). Addressing a structural gap of this magnitude will require substantial fiscal adjustments and long-term planning.
Accordingly, staff recommends that the Board continue funding Measure K-supported programs for FY 2026-27, consistent with existing three-year contract commitments and County programs funded by Measure K, while undertaking during the upcoming year a comprehensive evaluation of long-term strategies to address the VLFAA-related structural deficit. Should the VLFAA shortfalls remain unfunded, a portion of Measure K funds will likely be needed to fill the gap to ensure essential core services to residents can be maintained.
Staff is bringing this item forward now due to the time-sensitive nature of the FY 2026-27 budget development process. Most Measure K funding was removed from the second year of the FY 2025-27 Recommended Budget, and departments require timely policy direction to incorporate any changes. The FY 2026-27 budget book must be finalized by May 22, 2026, to be ready for the budget hearing scheduled for June 9, 2026. The Board must adopt the Recommended Budget by June 30, 2026, to provide spending authority beginning July 1, 2026.
COMMUNITY IMPACT:
Maintaining Measure K funding at current service levels for FY 2026-27 will provide stability for residents who rely on critical and core County services. This continued investment will help prevent service disruptions, sustain essential operations, and ensure continuity for both residents and community-based partners while the County advances long-term fiscal planning efforts.
FISCAL IMPACT:
There is no fiscal impact associated with the Board’s receipt of this information. The FY 2026-27 Recommended Budget is expected to include a total of $116 million in Measure K revenue. There are sufficient funds in the Measure K reserves to cover the additional $3 million needed to fund the $119 million in proposed allocations. The Measure K funding allocations approved by the Board by this action and set forth in Attachment A are made for planning purposes in preparation for the FY 2026-27 Recommended Budget and authorize the departments to budget Measure K funds and execute necessary contracts. The Recommended Budget will be submitted in accordance with the Government Code in June 2026.