Santa Monica approves declaration of fiscal distress

Santa Monica declares fiscal distress

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.

SANTA MONICA, Calif. - The city of Santa Monica is facing a serious financial situation and may be on the verge of declaring a fiscal emergency. 

What we know:

On Tuesday, the Santa Monica City Council approved a resolution declaring fiscal distress.

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.

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.

Dig deeper:

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.

A staff report cited declining revenues from tourism and taxes as contributing factors. 

Visitors and revenues have apparently never returned to pre-pandemic levels. 

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The city's financial state has been worsened by a massive $229 million payout to victims of sexual abuse by a former city employee. All these factors could lead to potential bankruptcy. 

What they're saying:

"I do realize that we're in a time where there's a lot of opaqueness and not a lot transparency, a lot double talk, politicians do word salads that doesn't make sense. This is like likening it to putting up a red flare and saying, hey, we're in distress, right? We're in financial distress. We're not quite at the level where we're underwater and can't breathe. But if we don't address these issues now, we could be in that predicament," said Santa Monica Mayor Lana Negrete. 

She said this is essentially again a procedural step to try to speed up the availability of alternative revenue sources.

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