Assembly Budget Subcommittee No. 5 on State Administration

K, guys. Good afternoon, and welcome to the assembly budget subcommittee five on state administration hearing today. Today, our hearing will focus on general state admin issues. We will have two items for vote only, hear from assembly member Pappan and representatives of San Mateo County on their vehicle license fee, funding, and hear several gov ops proposals and an update on GenAI. And finally, have an update on Middle Mile as well as proposals on Middle Mile from the Department of Technology.

Not on the agenda is a request from Assembly member Ward to get an update from DGS on the Hillcrest DMV, which will do which we will do after issue number one. Housekeeping. This is an in person hearing with all panel panelists testifying in person. We will take questions from members of the subcommittee after each panel, and public comment will be taken at the end of the hearing and will be limited to thirty seconds.

If you are unable to attend this hearing in person, you may submit your comments via email to [email protected].

And with that, we are going to welcome, our first panelist who are already here with us. This will be on item number one, and this would be the fiscal letter technical adjustment. Oh, sorry. Three. Sorry. Item number one, San Mateo's in the house.

Here we go. Madam chair, thank you very much.

You can wave. Wave. Everybody from San Mateo wave. There we go.

Thank you, madam chair. I appreciate that acknowledgment. Okay. We've got folks who come a long way. So, first of all, thank you for the opportunity to be heard.

We so appreciate it. You know, in 2004, then Arnold Schwarzenegger cut the BLF from 2% to point 65% of a vehicle's value. The state understood the magnitude of that decision and committed to hold local governments harmless to keep revenues whole as if the 2% rate still apply. But no policy is flawless, and the VLF backfill mechanism is no exception. The architects of that 2004 compromise didn't anticipate a county like San Mateo, where demographic and economic realities break the formula.

For the past decade, the state has recognized this flaw and stepped in with General Fund Dollars, to cover the BLF shortfall. Let me be clear. That backfill wasn't a favor. It was the state honoring its own commitment. And yet in the current budget proposal, which came out in January, that commitment disappears along with 18% of my county's budget.

For the last three years, I've come before this committee and told a more detailed version of this story. Today, I instead come with a very simple message. California, help us, help you. San Mateo County isn't asking for special treatment. We're asking you not to undercut one of your strongest partners.

We were the first county in the state recognized as a welcoming place, setting the standard for inclusive, effective immigrant integration. Our county has made significant investments in homelessness in homelessness prevention most recently through our navigation center. A homelessness housing, a homeless housing, project with support services, including even dentistry. That will serve as and it serves as a model for the rest of the state. We have one of the top gun buy back programs in the state, getting dangerous firearms off our street.

And we are just one of 10 counties in the state designated as a care champion, a recognition that we didn't just implement care court. We built the systems and partnerships needed to make it function effectively and connect people with serious mental illness to care earlier and more consistently. These are just a few examples that underscore San Mateo County's leadership within this state. And let's not ignore the obvious. San Mateo County is a net donor to the state of California.

We generate far more in state revenues than we get back in services. That doesn't happen by chance. It happens because we effectively run a strong, stable, and forward looking county. So when the state pulls 18% out of our budget, it's not trimming excess. It's weakening a county that consistently delivers to this state.

With me to testify and highlight exactly how much our county will be impacted, our supervisors Noelia Corzo and Jackie Spear. They will then be followed by folks in support from a cross section of our county as this cut hurts literally every section and every service in the county and every city within the county. Hence, our big group behind me today as Me Too's. With that, I'll turn it over. Go, please.

Thank you. We'll hear from the witnesses, then we'll hear from our LAO and our Department of Finance, and then we'll bring up individuals that want to comment and they'll just be me too. Thank you, madam chair. Thank you.

Oh, alright. Thank you. LAO won't be here.

LAO won't be here? Okay. Okay. I think Okay.

Chair Quirk Silva and members of the subcommittee, thank you for the opportunity to address you today. I'm supervisor Noelia Corzo, president of the San Mateo County Board of Supervisors. And I'm here to highlight the impacts of the loss of in lieu via left funding. The impacts the loss of in lieu via left funding will have on our county's homelessness and human service programs. As you know, every county is currently dealing with the impacts of HR 1 cuts.

And for us in our county, being faced with these cuts as well is honestly devastating. And I'm deeply worried for our county's most vulnerable residents. So I'll talk a little bit more about that here. Personally, I grew up receiving many of the social safety net programs our county provides. And so I have that direct experience also being a former social worker working with folks with developmental disabilities.

I know what these, services and what these cuts will do in our communities, and they include the closure of eight shelters displacing nearly 3,000 formerly on house residents. Elimination of rental assistance to 5,500 low income families and seniors. Cuts to production of 437 units of affordable housing, elimination of psychiatric services for 600 homeless individuals and 500 youth, elimination of benefit assistance for 3,000 better veterans. Elimination of the big lift are early literacy and educational equity program for 7,400 students. Elimination of food security services, including meal and grocery services.

Many of our cities will be forced to make painful cuts in addition to this, including cutting services from libraries, parks, mental health crisis, response, affordable housing, etcetera. This payment mechanism no longer works in three counties, but I want to make sure you hear from me that declining student population and increased property values can be can come to your counties or your districts soon sooner than you think.

And we want to make sure that we can solve this immediately and so that no other community has to face these impacts all at once. Thank you.

Thank you. We do hear some hammering. You're not imagining that. Let's see. Can I ask the sergeant to see if we can make a call?

I don't know that we can fix that, but it might be worth a try.

Oh, thank you, madam chair.

They heard you.

They heard you.

We'll see. Maybe they heard us. Do we wanna do roll right now?

We have one.

We're also gonna do a roll call vote here to establish quorum.

[Roll Call]

Okay. Sorry. And, welcome to our esteemed guest here.

Thank you, madam chair.

Both all of you are. Okay. Especially yes.

Madam chair, members of the committee, thank you very much for the opportunity to speak here today. And a special thank you to our assemblywoman, miss Pappan, for, carrying this legislation. I'm supervisor Jackie Speer. I've had other titles in the past, so I'm right here in this room. But it's a pleasure to be back here in the capital.

I'm here today to advocate for the full payment of the $157,000,000 in lieu vehicle license fees owed to San Mateo County and its 20 cities, and for a more workable permanent fix. Now back in twenty two thousand and three, there was a recall. Many of you may not have been alive, but, there was a recall of Ben, Gray Davis.

At the time, he was being objected to because you we were in a structural deficit, not like not unusual here, but he wanted to increase the vehicle license fee by some three times the cost. So then candidate Arnold Schwarzenegger made it his, calling card and said, if I'm elected governor, I'm gonna get rid of the vehicle license fee.

And so it went from 2% to down to six tenths of percent. It created a $6,000,000,000 structural deficit, which was bad then, bad now, but really bad then considering what our budget was. So the decision was made to create the swap. And the agreement was that even though we were gonna give our vehicle license fees to the state, and then they would use prop 98 to fund, that we were promised that we would have that BLF restored to us.

And for a long period of time, that has worked.

That formula no longer works in San Mateo County. And as my colleague has said, there are only two other counties in the same predicament right now, but it could grow. Alpine County has 1,200 population. Mono County has 12,000. San Mateo County is like 700,000.

So the impact on us is dramatic. It will cripple our county. It is 18% today. It could be even larger than that. That's 18% of our general fund would be wiped out instantly.

And for the cities, the picture is just as dire. In the area of public safety, for example, the county would be forced to eliminate $30,000,000 in funding for domestic violence prevention and gun violence prevention. Climate change has made San Mateo County at increased risk of fire. The loss of these funds will directly impact our ability to support wildlife, wildfire mitigation efforts, including the elimination of maintenance and repair of fire roads, a fuel reduction and management, and wildland urban interface projects.

For our cities, reductions in public safety budgets would be equally disastrous as almost all would have to cut essential safety and emergency response services.

These are public service employees. So for instance, 23 police officers or 26 firefighters in the city of San Mateo, 19 firefighters in Redwood City, eight police officers in Foster City, closure of a fire station in South San Francisco, one fire engine and nine fire department staff in Daly City, 38% reduction in police in the city of Burlingame, 20% reduction in law enforcement patrol in Petrolo Valley. I could go on, but you can see the magnitude of the cuts that would take place.

Without a fix, our county could lose an estimated $1,000,000,000 over the course of ten years. We have a flyer at your, place.

If you flip it over, it shows all the impacts on, the various cities in the county. We're not asking for anything more than what is due to us. We represent 3% of the population of the state, and we generate 15% of the revenues to the state coffers. Now some would argue, well, the county sued the state.

Well, what would you do in your city or county if they just wiped out your the money that was due to you, but you would sue them so we could start negotiations, and that is the reason why we have done that.

So I urge you to recognize that we are asking for nothing more than what we are owed and urge your support.

Thank you. Next.

Good afternoon. Chris Hill, Department of Finance. This matter is a subject of ongoing litigation, so I'm not gonna speak in too greater detail. I just do wanna note for the record that, the administration's interpretation of statute is a provision of these funds is not statutorily mandated, but is discretionary. And within the context of the current fiscal situation, the administration doesn't believe that this, is an expenditure that is sustainable given the current fiscal situation.

It's an ask of about a $120,120,000,000 for all three of the impacted counties. And I also just wanna note for the record that since 2012, the state has provided over $300,000,000 with these payments on a discretionary basis.

Thank you. Appreciate that. Questions from our panel? Go with mister Haney first.

Well, first of all, let me, thank the representatives from the county who are here and, the assembly member for for being here and for your advocacy and everybody, from San Mateo who is here, and from the other impacted counties.

And I think that we have, especially in over the last year or so, have been, furious at the ways in which California has been, punished and targeted by the Federal Government, particularly in light of all of the resources that we send, here from California, disproportionate share of resources that we send to the Federal Government, and then see the Federal Government deny our residents, the very people who are sending those resources, the the critical services that they deserve and that they paid for.

And California shouldn't act like the Trump administration. If the residents have have San Mateo, their cities, their county have paid, have an understanding of of what the the deal has been now for decades, they should receive the full amount, that they are paying and that they deserve. And I I think that, again, in light of our own experience of this as a city as a state, we should not be behaving in the same manner.

And it's important that we treat all of our counties and our cities fairly. And and it's pretty clear that these counties in San Mateo County or my neighboring county, in particular, is being treated unfairly. And the the consequences as you laid out when we cut at this level for a city or a county are very real because the margins are so much smaller. They don't have the the the ability to float millions of dollars.

It means immediate cuts to real people, real jobs, real services, real people who rely on those services.

So I I hope that we can both restore fully the the funding in in this year's budget and also have a more ongoing a permanent solution so that we're not seeing this happen or the threat of it happening year over year. I I know that there's, maybe less that can be said around this because there's litigation. Although, the fact that there's litigation, I think, makes it, that much more concerning that that we are seeing this cut in in in in the in that context.

It what what what is the rationale, for finding just two thirds of the shortfall? And, you noted that, this is for, Department of Finance, mister Hill, that it sounded like that the state does not view this as a binding obligation.

What what is the rationale for finding just two thirds of the shortfall? And was there any, analysis of the downstream, fiscal impact on on counties, particularly if homelessness health and public safety programs are cut and what the impact that would be on on other priorities and and and and funding needs for the state?

Chris Hill, Department of Finance. Again, I'd wanna note that the administration's interpretation of statute is provision of these funds as discretionary, not mandatory. And the provision of the funds in the current budget act was, was a legislative ad. It wasn't, proposed by the administration, so I'm I'd have to defer to, legislatures to why that amount was provided.

And and in terms of the the the particular area in which the the the the proposal in terms of the two thirds of the shortfall, and then any analysis of what the impact of of that kind of cut will be in in terms of prior, funding?

I don't know if the legislature did an analysis of that nature when it provided that funding level. But, Alan, the administration, again, is just looking at this from the perspective that this is not a statutorily required payment. And within the context of the current fiscal situation, we don't believe it's sustainable.

Got it. Well, I I Aye, again, miss Pappan and, to the folks from San Mateo County, whatever we can do to support you all in in in helping to, both address this in the short term. I know there's a long history, behind this.

But, again, I think it's important that all of our counties be treated fairly, that they get the services and and the funds that they deserve the full amount, and that the consequences of doing this kind of cut to to critical services and jobs, for individual cities and counties as we saw in this and just devastating in terms of what it would mean.

And so, for my neighboring county who's here, representative, San Mateo County, you definitely have my my full support in whatever we can do to support you as this moves forward.

Thank you. We'll just go to Assemblymember Ward and then Ortega.

Thank you. Thank you, miss Adam, for raising this issue as well. Obviously, you're a a strong champion for your county, and, so I appreciate that we have this on the agenda. And Aye, you know, am am deeply, concerned, sympathetic, for what a lot of our counties are going, but especially the compounded issue that you're facing here with San Mateo County. It is not lost on me how this translates into public services and core, deliverables that are expected of you right now.

We have to have all of our counties off to out to to to different degrees. I know the shortfalls that many of them are facing, and this is only, I think, exacerbating that issue. And so to the extent that we could be helpful with this year's budget, but also you raised the bigger question, what does this mean for the formula and thinking about how to address this on a going forward basis, begs me to have to go back to what are the inputs into this formula.

Because the fact that today, San Mateo, Mono, and Alpine, three very different counties, are now experiencing a exacerbation of the shortfall. What is it is there something unique that links the characteristics of your three counties?

What are the inputs here that are driving this shortfall so much for you beyond the county of San Francisco, say?

So much for us. Yeah. Well, it's tied to how much non basic aid or basic aid school districts you have, and that's probably the link that each county has, although they have them for very different reasons. So in San Mateo County, they have a lot of non basic aid excuse me, basic aid school districts because of their property taxes. Whereas the likes of a mono or an alpine are much smaller.

There's less districts to deal with in their instance, so they are able to meet their basic aid with their property taxes as well. But theirs is more a function of lower enrollment than it is for San Mateo County, which is a pretty, I would say, a a perfect storm, if you will, of property taxes being high enough that they can support the schools and the basic aid level that schools require.

Because the way that it works is every other county has a fair amount of non basic aid school districts. And the way that this formula works is that ERAF Right. And property taxes are used to backfill the VLF.

Right.

And then the state comes in with PropNet 98 money and satisfies the schools and their basic aid obligations.

So does he

We don't do that because that pot of money, if you will Yeah. Property taxes and ERAF does not exist for San Mateo County.

Okay. So how how is this presenting here today so acutely that what it wasn't there five or seven years ago?

Well, it's been backfilled by the it's been backfilled by the government, so we for quite a few our

reactions have been able to meet that, but given the current

We had fewer basic aid school districts back then. So the non basic aid school districts, were funded. And through that, the county and cities you know, it's it's a screwy Formula. Formula because you shouldn't link BLF money that was supposed to go to cities and counties with the schools. Yeah.

It was done back then, I think, because we were in a budget shortfall and there was prop 98 money. So if the money could be taken from prop 98 and to feed the schools, then it would have it it created an opportunity for the state to become more whole. Yeah. But it's still a complicated

But the but the link is what gets you. Supervisor Spears absolutely absolutely right. The link to non basic aid and basic aid school districts is what gets you. Super. And because we have so many basic aid school districts, we don't get the backfill.

K. If they were not linked, that might be a better situation.

Superbriety. Superbriety wants

And I just I don't think any I I don't think anybody excuse me one second. I don't think anybody anticipated that it would ever get to this situation

Where you had county that had a lot of property taxes that was able to make most of his schools basic aid. Got it. Please.

Right.

Thank you. So I just wanted to add that our understanding of what is law right now essentially is that it doesn't it it doesn't say that it's explicitly discretionary. It just doesn't ever predict the situation, period. And so the intention was always to backfill and to make counties whole. And so we're in the situation that, you know, that's it's not currently happening, but I would disagree with the fact that it's discretionary.

And just to answer your question more directly, I think, you know, I mentioned that for me, the way I see this issue is that it's tied to declining enrollment and increased property values and that and I haven't actually heard from the state or from anyone that, you know, how do we know how quickly other communities can be impacted by this? Right now, it's just us. But I don't think that in ten years, that would be the case.

And so I think the reason for a permanent solution is so that we don't continue to experience this, but also so that other communities never get impacted by this. Because it makes it very, very difficult to budget and to think about how we're going.

We we can be as prepared as possible, but we could we could have never foreseen the situation. We've been backfilled in whole all previous years.

So Right. Right. Clearly. And then that this is quite a shock to the system.

I I wanna beg a question if we're starting to see now that this is a harbinger of other issues until a formula is revisited and fixed, and I wanna get to that in a second, that are there other things locally that I know also wouldn't, like, you know, play out immediately, but do we need to look at the conditions and what in which why, under which we are having a declining student enrollment and what we can do to make, housing opportunities more available for families that otherwise might happen to be located across the bay or elsewhere where they can afford to live a little bit cheaper.

All these things could necessarily be tied. Sort of a meta question out there. No pun intended, Kevin. I think one of your key tenets that's there. But, you know, the the these problems are intertwined.

Right? And and this is, I think, another, like, sort of input into the consequence of what you're feeling right now. You know, I both agree, but I am sympathetic that, yeah, I don't blame you needing to be able to sue. It's an it's an avenue that, you know, any local government would take to try to open up an opportunity to to your fight tooth and nail to be able to keep things as whole as you can this year right now.

And you're raising this issue this issue here before the legislature to see what we can do, in advance of the May revise, which is commendable and, you know, definitely needs to be laid there on the table.

Aye, you know, might recommend to our chair and our our committee that, you know, I I I am surprised that we have not revisited this question from a 2004 agreement that clearly was creative would be a generous word, but, you know, a little bit on was definitely was so creative that it placed everybody on shaky ground.

And I mentioned if you're a harbinger as long as as well as Mono and Alpine counties of things to come, any one of our counties could be suffering future crises because of the same challenges under this formula right now that it deserves us to go back and relook at it.

May not be a solution that we have for an ongoing solution this year, but maybe this is the wake up moment that we have that we need to, you know, have a special attention and go back and look at that kind of a formula because it's just not working twenty six years later. So I wanna thank you for bringing this as well.

We'll keep it under careful consideration as we're thinking about all of our recommendations out of the subcommittee, and I appreciate you taking the time to come to the capital, come back to the capital today.

Thank you. Assembly member Ortega.

Just wanna thank Assembly member Pepin and, the presenters today for coming, and bringing this issue forward. It sounds like there's definitely two issues here. One is the more permanent legislative fix to address kind of what's happening here and to prevent it from happening in the future. But then the most immediate is the budget request and making sure that you are made whole. I understand from the the Department of Finance position that it's not a statutory mandate that we reimburse these funds to the county.

But as a legislature, we have made statutor statutory commitments to our communities, and that includes partnering with our counties to meet our overall goals, including housing, including youth, you know, serving our seniors, our veterans, our public safety. All of those things are the things that we've made commitments to throughout the state, and that includes San Mateo County. So I would really reconsider the the approach we're taking here to make sure that you are made whole, and then we continue talking about that permanent fix.

So thank you for being here today.

If I may, thank you, Assemblymember Ortega. You know, if this was truly discretionary, why is it that we would be giving this money to 55 other counties? It begs the question. So I I just take a little bit of issue with this idea that, well, it's not statutorily provided. The obligation was made by the state when they grabbed the VLF feedback in twenty two thousand four.

In any event, I I just wanted to reiterate that, and I thank you for your comments.

Thank you, Assemblymember and Assemblymember. Thank you. We're going to go ahead and go to the public, and then I will make comments at the end. If you are going to speak on this item, please come to the mic. The mic does go up and down so you can raise it or lower it, and we're doing under thirty seconds.

So if you see me doing this, it means you're going longer than thirty seconds.

Great. Thank you very much. Mike Callagy . I'm the county executive. This is the greatest taking probably in the history of California from one particular county with devastating irreparable impacts.

I will be faced with laying off hundreds of our employees and impacting nonprofits that provide critical, critical services to our to our our community. Thank you very much.

Thank you.

Greg Wright, vice mayor of Pacifica. We're looking at cutting police and fire, increasing our response times, coastal infrastructure, road maintenance, food assistance programs. We have a program that's actually working to help the homeless, and we are not a basic aid city. So we have the worst of all worlds. We really need your help. Thank you.

Good afternoon. My name is Jocelyn Manalo, Daly City Council member, and really not having these dollars affect our public safety, housing, and health programs. You know, this gap deepens existing budget deficits and limits our ability to sustain critical services over time. We're simply asking you all to honor the commitment, fully fund the BLF backfill, and ensure that our community has what it needs. Thank you.

Thank you.

Good afternoon. I'm Stacy Jimenez, former mayor, current council member in Foster City. For us, this, translates into millions and millions of dollars of lost funds, supports core safety services, critical, projects for our youth, our residents. So I urge you to please support the backfill. Thank you.

Thank you. Good afternoon. My name is Kyla Valente. I'm a resident of Redwood City. I'm a benefits analyst with the county of San Mateo, and I'm the treasurer of our union, AFSCME Local eight twenty nine, representing over 4,000 employees and their families across the county whose jobs are at risk.

I'm standing with my fellow residents and community leaders today to request the nearly a $157,000,000 vehicle license fee shortfall for San Mateo County and its cities to be included in this year's state budget. Thank you so much.

Thank you. Hello. Good afternoon. My name is Pernina Venkatesh, mayor of San Carlos. And this impact would be a shortfall of $2,300,000 for our city, which would allude to losses of police officers and maintenance workers and internships for our youth. So thank you. Thank you.

Good afternoon. My name is Scott Perham representing IFF local twenty four hundred San Mateo County firefighters, and I'm a firefighter in the city Pacifica. Department of Finance may categorize this backfill as discretionary. I can tell you from the front lines, there's nothing discretionary about a nine one one call. Our residents expect and deserve an uncompromised level of service.

The state fails to uphold the 2004 VLS swap agreement. There's more than a brief breach of public trust. It is a direct compromise to safety. While the legal merits of this case may be heard in a San Francisco courtroom, it doesn't take a judge to see that the state's current path does not honor the commitment made in 2004. Put simply, it is not right.

I urge you to restore the VLF backfill in full so we can keep our officers and firefighters on the streets serving the public. Thank you.

Thank you.

Good afternoon. My name is Eddie Flores. I'm past mayor of South San Francisco and current council member and executive board member of the League of California Cities. South San Francisco is owed over 5,100,000 this year in VLF funding that the state has failed to deliver. We are talking about a fire station, preschool fees, and community policing programs.

This is not not nice to have money. This is our general fund at threat. We are asking for nothing more than what every other county receives. Please act now. Thank you.

Thank you.

Good afternoon. My name is Charity Petes. I'm the communications and marketing officer at CORA, Community Overcoming Relationship Abuse in San Mateo. We are in support on behalf of survivors of domestic violence who are also low income. CORA serves thousands of victims of abuse every year. This funding is essential to providing the social and legal services offered by domestic violence prevention organizations like CORA. Thank you.

Good afternoon, chair and committee members. I'm Elmer Martinez Saballos. I'm the mayor of Redwood City. In my day job, I work for Life Moves, an interim emergency shelter provider, and I'm here in support of assembly member Pappan's proposed solution. The VLF funds that support the critical services our residents depend on every day.

Without these funds, we risk losing important services like our city's homelessness support and outreach, as well as the equivalent to 19 of our firefighters. So please restore funding and find a legislative fix. Thank you.