DATE: July 21, 2025
TO: Mayor and Members of the City Council
VIA: Stefan Chatwin, City Manager
FROM: Marlene Subhashini, Assistant City Manager
DEPARTMENT: City Manager
SUBJECT: DISCUSSION REGARDING CALIFORNIA SENATE BILL 63 (SB 63) SAN FRANCISCO BAY AREA: LOCAL REVENUE MEASURE:
TRANSPORTATION FUNDING
RECOMMENDATION
It is recommended that the City Council, by Minute Order, discuss SB 63 San Francisco Bay Area: Local Revenue Measure: Transportation Funding and provide input.
EXECUTIVE SUMMARY
At its June 16, 2025 meeting, Mayor Jimenez requested a future agenda item to discuss SB 63, a request that was supported by a majority of the Council. SB 63 authorizes the creation of a Transportation Revenue Measure District (TRMD), governed by the Metropolitan Transportation Commission (MTC). As outlined in Government Code §67711(a), the TRMD initially includes Alameda, Contra Costa, and San Francisco counties. San Mateo and Santa Clara counties may opt into the district by August 11, 2025, per the operative language: “It is the intent of the Legislature to afford the Counties of San Mateo and Santa Clara the opportunity to opt into the district by August 11, 2025.” The county board and SamTrans must decide whether to opt in — choosing between a ¼-cent or ½-cent tax by the August deadline.
Once formed, the TRMD would be authorized to place a regional transportation sales tax (retail transactions and use tax) of up to 1% on the November 3, 2026 ballot (Gov.
Code §67730). This sales tax would fund transit operations and modernization efforts
throughout the participating counties, subject to approval by a majority of voters across the district.
BACKGROUND
Existing law establishes MTC as a local area planning agency to provide comprehensive regional transportation planning for the nine-county Bay Area region.
MTC is responsible for developing the Bay Area’s federally mandated long-range transportation plan and state-mandated sustainable communities strategy, a 25-year roadmap to achieving state-mandated goals to reduce greenhouse gas emissions (GHG), including planning for adequate housing near jobs and transit to accommodate expected population growth. The MTC manages about $850 million annually in federal transportation funds for the Bay Area’s 9 counties, 101 cities, and 27 transit operators — including $650 million for transit capital projects. It also allocates nearly $1.1 billion in state and local transit operating revenues, of which $750 million is discretionary.
While public transit ridership has declined nationally and in California for decades, the Bay Area—California’s highest transit user—resisted this trend until the COVID-19 pandemic. With the onset of the COVID-19 pandemic during the first half of 2020, transit ridership plunged from 50% to as much as 94% in California. In May 2020, MTC created the Blue Ribbon Transit Recovery Task Force to guide the future of the Bay Area’s public transportation network and recovery from COVID-19. Their June 2021 final report, the “Bay Area Transit Transformation Action Plan (Link),” outlined steps like fare integration, improved customer info, transit priority on roadways to increase bus speeds and reliability, network planning, data collection and coordination, accessibility, and funding in an effort to reform and improve the transit network.
Despite significant state and federal subsidies, MTC projects a growing operating shortfall for Bay Area transit operators: $169 million in 2024-25, rising to $800 million by 2026-27. State relief funds and $300 million from MTC close deficits through 2025-26, but operators face “fiscal cliffs” in 2026-27, risking transit service cuts without additional funding, as noted in MTC’s Transportation Revenue Measure Select Committee report (Link).
ANALYSIS
SB 63 (Link), also known as the Connect Bay Area Act, was introduced on January 9, 2025, with the final amendment introduced on May 23, 2025. The bill is a response to the financial challenges facing Bay Area transit agencies, exacerbated by the COVID- 19 pandemic and the resulting decline in transit ridership. The bill supports a $2 billion budget request to sustain and improve public transit as funding shortfalls threaten devastating service cuts at BART, MUNI, Caltrain, AC Transit, and other systems. The bill proposes a regional funding measure on the November 2026 ballot to provide sustainable funding for these systems. The bill authorizes a half-cent sales tax on the November 2026 ballot in Alameda, Contra Costa, and San Francisco counties (San Francisco has the option to raise the rate to up to a full cent, in 0.125% increments to fund Muni), with San Mateo and Santa Clara counties given the option to “opt in” by August 11, 2025.
SB 63 amends Public Utilities Code §131102 to remove the legal barrier for San Mateo County to exceed the standard 2% local sales tax limit. Specifically, the amended section states: “[A] county may impose a retail transaction and use tax applicable in the incorporated and unincorporated territory of the county... in 0.125% increments not to exceed 1%, for purposes of funding transportation improvements or programs.” This means that San Mateo County would not need additional state legislation to exceed the cap if the TRMD tax is placed on the ballot and approved by voters. The language eliminates a procedural hurdle and facilitates regional funding coordination.
The bill does include several provisions intended to support transparency and oversight. Notably:
Government Code §66513.5 requires MTC to prepare and submit a transit ridership forecast and revenue report to the Legislature by March 31, 2026. Government Code §67752 mandates annual independent financial audits of TRMD expenditures.
Government Code §67753 requires MTC to adopt and publicly post a five-year implementation strategy and progress reports.
On April 21, C/CAG, the San Mateo Transit District and the San Mateo County Transportation Authority (TA) submitted a joint comment letter documenting feedback from the Legislative Committee and the C/CAG Board on the proposed Regional Measure, especially regarding the desire for local countywide transportation authority control of revenue, revenue allocation structures and the need for appropriate accountability measures (Link).
At the June 12, 2025 C/CAG board meeting, an update on SB 63 was provided. SB 63 was amended to reflect an August 11th deadline for additional counties (San Mateo and/or Santa Clara) to opt in. The recommended process was to have the SamTrans Board of Directors make the final vote as to whether or not to opt in in August, and to have the C/CAG Board provide a recommendation as to whether or not to opt in at the July Board meeting.
At the July 2, 2025 meeting, the SamTrans Board of Directors heard the results of a public opinion poll conducted by the TA. Voters showed strong support for funding local and regional transit, including BART and Caltrain, at the Citizen’s Initiative passage threshold of 50% plus one. The only scenario that passed the 2/3 required for a measure placed on the ballot by the TA was a renewal at the existing rate of Measure A. Measure A is a ½ cent transportation sales tax administered by the TA that expires in 2033 and is a critical source of primarily infrastructure funding for local pothole repair, street resurfacing, grade separations, highway interchange and roadway safety projects, plus bike and pedestrian improvements across the county. The SamTrans Board directed staff to continue negotiations with a particular focus on ensuring accountability of service quality as a prerequisite of joining the 2026 Regional Measure.
On July 30, C/CAG will be meeting to provide direction regarding SB 63.
SamTrans board vote is scheduled for August 6, with August 11 being the firm deadline to join. The county board and SamTrans must decide whether to opt in — choosing between a ¼-cent or ½-cent tax — by early August 2025. If they decide to opt in, San Mateo joins ballot in November 2026.
Impact of SB 63 in San Mateo County
Funding for local/regional transit (SamTrans, Caltrain, BART) is bolstered — potentially preventing severe service reductions.
Service quality could improve with more frequent, reliable service, especially benefiting commuters and transit-dependent residents.
Regional integration becomes stronger, aligning San Mateo with broader Bay Area coordination and transit planning efforts.
Local reinvestment: A portion of tax revenue returns directly to San Mateo, funding county-specific transit needs.
Key Considerations for Foster City
SB 63 outlines a strategy to stabilize regional transit funding, but several factors may influence local decision-making. Foster City, like other cities in the County, is already subject to a 2.125% district/local add-on tax (9.375%1 total). The bill raises concerns about voter receptiveness to higher cumulative sales tax rates. Its amendment to Public Utilities Code §131102 enables San Mateo County to exceed the 2% local sales tax cap in 0.125% increments, up to a total of 1% for transportation purposes. Although this removes a legal barrier to implementation, it may affect local tax strategies and reduce flexibility for future revenue measures. SB 63 raises money countywide but does not guarantee proportional returns to each city. Residents and businesses may pay into a regional system without proportional services returning to the city. Foster City, which has limited transit access compared to other cities, might see less direct benefit from SB 63 funds — while its residents still pay the tax.
Legislative Timing And Process
On July 14, SB 63 (Wiener) passed the Assembly Revenue and Taxation Committee 4- 2, with the Republicans voting no. The bill is now headed to the Senate Appropriations Committee, which will decide if it advances to a full Assembly floor vote. If it advances, the bill could move to the Assembly floor for a vote later in July or August. Upon 1 Foster City’s 9.375% Sales Tax includes the State Sales Tax 6%, Bradley-Burns Local Share 1.25%, Countywide Transactions and Use Taxes (TUTs) – Measure A 1.50% (1988, 2012 & 2016 – 0.50% each) and Measure W (2018 – 0.50%) and Measure RR – 0.125%. (6%+1.25%+1.5%+0.5%+0.125%) passing the Assembly, it would proceed to the Governor’s desk, which is likely in late summer or early fall—to be signed into law.
California Environmental Quality Act
Not Applicable
FISCAL IMPACT
The bill outlines how revenue would be allocated but does not guarantee that funds raised within a specific county will return to that county or to its cities. Per Gov. Code §67750(c), initial revenues are directed to five regional transit priorities: BART, Muni, AC Transit, Caltrain, and up to 10% for MTC regional initiatives. Only afterward does the bill state in §67750(d)(1): “Any remaining revenues shall subvene all remaining funds directly to the counties contained in the district.” However, the bill is silent on how counties must allocate their share, offering no requirement that cities like Foster City receive a specific portion of those funds. This creates significant uncertainty for local jurisdictions and transit operators outside prioritized regional systems.
If San Mateo County opts in and the ballot measure passes:
A significant portion of revenue may flow to regional operators like BART and Muni, which do not directly serve Foster City.
Any residual funds go to the county, which has full discretion on how to allocate them, with no statutory obligation to reinvest locally. Foster City has no guarantee to ensure that tax dollars collected from within the City are returned to support its infrastructure, local shuttle services, or Caltrain access.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Sustainability
ATTACHMENTS:
None