The Santa Monica City Council unanimously approved a resolution to declare a state of fiscal distress Tuesday, a move to address financial challenges the city has been facing amid declining tourism revenue and increasing liability costs.
A state of fiscal distress allows the city to seek funds and grants from the state and federal government.
Unlike what was previously reported, the city did not move to declare a fiscal emergency, which would impact city services.
The coastal city is expected to have the budget of $793.3 million in the 2025-2026 fiscal year, which begins on Oct. 1 after the city council approved the plan with adjusted expenditures estimated at $484.3 million and $473.5 million in expected revenue.
The city’s finances will likely stay in the red for years to come.
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, state legislators approved new legislation that 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 as 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 cite tariffs, deportations, tax cuts and deregulation as additional fiscal challenges.
City News Service contributed to this report.