Santa Monica Council Declares City Under Fiscal Distress

SANTA MONICA, CA — The Santa Monica City Council Tuesday approved a resolution declaring fiscal distress — with officials saying the move is necessary to address financial strains from a reduction in tourism tax revenue and an increase in liability costs.

In a unanimous vote, council members approved the resolution, which city officials said will serve as an official document to better position the city for future grant funding and interactions with regulatory and governmental entities. City Manager Oliver Chi emphasized that the city's financial situation is "certainly serious."

"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 difference challenges the city is facing," Chi said.

Chi stressed that the resolution was a declaration of fiscal distress, and not a fiscal emergency, with the latter representing a more precarious situation and grants the city manager certain emergency powers.

"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 added.

The resolution will help Santa Monica better organize its operations, which is needed if city officials want to increase services and fill more positions, according to Chi.

Chi said he expects to present a larger overarching plan to the council in October.

According to a city report, the resolution was necessitated for several reasons.

In June, the City Council approved the budget for the 2025-26 fiscal year with adjusted expenditures estimated at $484.3 million and $473.5 million in expected revenue. Financial forecasts anticipate the city will continue to operate at a deficit for several years.

Part of the financial strain stems from impacts of the coronavirus pandemic, which resulted in a sudden 26.8% decline in general fund revenue for the 2020-21 fiscal year, city officials said. The city reduced spending by 23.9%, and that decision also resulted in 299 permanent and 122 temporary positions being eliminated.

City services have not been restored to the level before COVID-19.

An increase in liabilities is also exacerbating the city's financial issues.

In recent years, the Legislature effectively eliminated the statue of limitations for sexual abuse claims.

Santa Monica has paid more than $229 million in settlements related to sexual abuse claims against Eric Uller, a former city police dispatcher. The city is expected to face an additional 180 claimants.

Uller worked with boys and girls at a police nonprofit's after-school program.

"The settlements have been funded largely by reserves in the general fund and by borrowing more than $52 million from various city funds," a report from the city reads.

"Currently, the city faces additional abuse claims related to the former employee from over 180 claimants that are seeking several million dollars for their alleged damages, the payment of which will be due in full upon order of the court/and or approval of the settlement."

City officials also cited tariffs, deportations, tax cuts and deregulation as additional fiscal challenges.

"I do think we're approaching the issues in the most expedient manner possible," Chi said.

Chi reiterated that the city is in it's fifth round of settlement discussion with more than 180 claimants. Chi said he was "absolutely optimistic" that the city will figure out a solution moving forward to address financial concerns.

Santa Monica Mayor Lana Negrete added the resolution will help the city expedite new parking rates to potentially realize the revenues generated sooner as they navigate that process with the California Coastal Commission.

She also said it could help push legislators to understand how important policies could support Santa Monica, and other counties or school districts, facing financial insolvency due to similar 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 the bankrupt our future."

City News Service