Santa Monica city leaders approve declaration of fiscal distress

Santa Monica City Council members on Tuesday approved a declaration of fiscal distress, stating that the move is necessary to help address the financial struggles the city is facing. 

The resolution, which was unanimously approved, will serve as an official document to better position Santa Monica for future grant funding and interactions with governmental and regulatory entities, council members said. City Manager Oliver Chi said that their current financial situation was "certainly serious."

Late last week, a staff report showed that Santa Monica had not only paid over $229 million in settlements in sexual abuse cases, but that the city also faced nearly 200 additional claims from a former employee. On top of this, city officials also attributed the distress to a reduction in tourism tax revenue and issues lingering from the coronavirus pandemic.

"This council wrestled with really important decisions during our most recent budgetary discussion just a few months ago, and the resolution that's before the council tonight really is intended to articulate and capture in one place all of the different challenges the city is facing," Chi said during Tuesday night's meeting. 

He stressed that the resolution was not a fiscal emergency. 

"It's one of the tools that we're developing as part of a larger citywide game plan to address the overall fiscal situation and a realignment of city operations to really be able to do several things," Chi said. 

City Council members approved the 2025-26 fiscal year budget with adjusted expenditures estimated at $484.3 million and $473.5 million in expected revenue, and financial forecasts also showed that the city would continue operating at a deficit for several years. 

They credit that trend to financial strains still stemming from the coronavirus pandemic, when the city saw a 26.8% decline in general fund revenue for 2020-21. In response, city leaders reduced spending by nearly 24%, resulting in more than 400 jobs being eliminated. City services still have not been restored to the levels before the pandemic. 

City leaders also noted tariffs, tax cuts, deregulation and deportations as additional challenges.

Santa Monica Mayor Lana Negrete commented on the resolution as well, stating that it would help the city expedite new parking rates and push legislators to understand how important policies can help support Santa Monica and other counties or school districts facing similar financial insolvency from litigation. 

"These liabilities are ongoing and significant, and they can't be ignored," Mayor Pro Tem Caroline Torosis said. "We also owe it to survivors to properly address this, but we owe it to Santa Monica to protect our city's financial stability because we cannot allow the mistakes of the past bankrupt our future.