Once celebrated as a sun-drenched jewel of Southern California, the city of Santa Monica is now grappling with a profound fiscal crisis, prompting officials to declare a state of fiscal distress. This once-booming coastal enclave faces a stark reality of budget deficits, depleted reserves, and strained city services, a situation compounded by a confluence of factors, most notably extensive legal settlements and the lingering economic fallout from the COVID-19 pandemic.
The Deepening Deficit
In a unanimous vote, the Santa Monica City Council approved a resolution declaring fiscal distress, a move city officials emphasize is a procedural step to better position the city for grant funding and enhance interactions with governmental and regulatory entities. However, the underlying financial condition is undeniably serious. For the 2025-26 fiscal year, the city’s budget projects expenditures of $484.3 million against an anticipated revenue of $473.5 million, signaling a significant shortfall that financial forecasts suggest will persist for years. This precarious situation has led to general fund reserves being depleted to just 61% of their pre-pandemic levels. The declaration of fiscal distress opens the door for potential state intervention and oversight as Santa Monica navigates its financial turmoil.
A Cascade of Crises
The severity of Santa Monica’s financial predicament is largely attributed to two major forces: massive legal payouts and the enduring impact of the COVID-19 pandemic. The city has paid out over $229 million in settlements related to sexual abuse allegations stemming from a former city employee, Eric Uller, a police dispatcher. Adding to this burden, nearly 200 additional claims are still pending. These substantial liabilities have drained general fund reserves and led the city to borrow $52 million from internal funds. Simultaneously, the pandemic delivered a sharp blow to the city’s revenue streams. The general fund revenue saw a dramatic 26.8% decline in the 2020-21 fiscal year, prompting the city to slash spending by 23.9% and eliminate over 400 positions, impacting city services that have yet to fully recover to pre-pandemic levels.
Shifting Sands of Revenue
Santa Monica’s financial foundation has long been reliant on tourism and sales tax revenue, which historically formed the backbone of its general fund. However, these vital sources have proven volatile. The pandemic significantly disrupted tourism and travel, and revenue from these sectors has not returned to pre-pandemic levels. Contributing factors include shifts in retail spending patterns and reduced foot traffic in downtown areas, potentially exacerbated by the rise of remote work. This decline in key revenue streams has left the city vulnerable, highlighting the risks of relying on economically sensitive income sources.
The Weight of Liabilities
The legal settlements, totaling hundreds of millions of dollars, represent a significant and arguably surprising drain on the city’s finances. Uller, the former employee at the center of the allegations, had been hired and continued to work with children despite a 1991 background check revealing his arrest as a teen for molesting a toddler. This troubling history, coupled with a 2019 California law that effectively eliminated the statute of limitations for sexual abuse claims against public entities, has created ongoing and substantial liabilities. The city has engaged in multiple rounds of settlement talks and faces a significant number of additional claimants, putting continued pressure on its budget. News reports from the Los Angeles Times have put a spotlight on these issues, drawing attention to the broader crisis of such payouts affecting municipalities across Los Angeles County.
Impact on Services and Future
The fiscal strain has palpable consequences for Santa Monica residents and its iconic landscape. City services have not been restored to their pre-pandemic capacity, and numerous capital projects remain unfunded. The declaration of fiscal distress, while not an emergency, serves as a critical signal of the city’s financial challenges. It aims to bolster Santa Monica’s standing with regulators and funding agencies as it seeks new revenue streams, including potential increases in parking fees. City Manager Oliver Chi emphasized that this is part of a broader plan to realign city operations. Looking ahead, Santa Monica’s fiscal restructuring efforts will likely serve as a case study for other local governments grappling with similar economic evolutions and the fallout from significant legal liabilities.
A City at a Crossroads
Santa Monica’s journey from a booming metropolis to a city facing fiscal distress is a complex narrative. It underscores how deep-seated issues – from the devastating impact of sexual abuse allegations and the subsequent legal repercussions to the seismic economic shifts brought on by a global pandemic – can overwhelm even well-established cities. The coming months will be crucial as Santa Monica develops its budgetary stabilization plan and seeks to navigate its financial future, a challenge that resonates beyond its city limits and is a significant development in local Los Angeles news.
