Faced with years of potential budget deficits, the City Council voted Tuesday to address the crisis by raising fees and reducing staffing throughout the city.
Staff presented Council with a draft of the $789.9 million biennial budget this week that will require draining $60.5 million from reserves over the next five years to maintain basic services, as the city grapples with ongoing economic fallout from the pandemic and mounting legal settlements.
The proposed fiscal 2025-27 budget, which goes to final vote June 24, limits new hires and defers maintenance on streets, parks and facilities as the city struggles with what officials called a "fragile financial position" amid extreme economic uncertainty.
"The city's financial picture is serious,"
During the lengthy budget study session that dominated Tuesday's meeting, staff told the council that the city’s financial situation is serious but not hopeless. The operational deficit stems from sluggish recovery in tourism and retail sectors that form the backbone of Santa Monica's tax base.
Sales tax revenue remains 1.2% below pre-pandemic levels, while parking revenues have dropped 16.1% compared to fiscal 2018-19, according to city data. Hotel tax collections are running $2.7 million lower than the same period last year, reflecting the slow return of visitors to the popular beach destination
The budget squeeze comes as the city faces additional pressures from ongoing labor negotiations with all 11 employee bargaining units and mounting legal costs. While the lion’s share of the city’s legal bills stem from the ongoing Uller litigation (more than $230 million so far), pending litigation over district based voting remains as do smaller settlements for a variety of issues. Officials announced a $1.42 million settlement in one such case as part of the regular business that night.
While staff said the city has worked to implement cost-cutting measures while maintaining core services, they acknowledged that "further reductions would erode service quality, limit response capacity, and undermine economic development."
The budget maintains current service levels but includes no significant new programs outside those funded by voter-approved Measure K for public safety improvements. Proposed new revenue sources include beach encroachment application fees and code enforcement investigation fees.
Council members ultimately approved significant budget adjustments by a 6-1 vote, including freezing most vacant positions with exceptions only for critical needs. The action followed extensive discussion about staffing levels that remain below 2019 levels, limiting the city's operational capacity.
Representatives from multiple employee unions addressed the council, expressing frustration with stalled contract negotiations and the need for competitive compensation to retain workers amid rising living costs.
The budget reflects the city's attempt to balance fiscal constraints with Council priorities of affordable housing, clean streets and safe neighborhoods, and economic development. Officials stressed the need to make Santa Monica "an attractive and desirable place to live, visit, and do business" despite the financial challenges.
Voters passed Measure K in 2024 raising fees paid at parking lots and the advisory PSK that earmarked half the funds for public safety. As an advisory measure, PSK has no authority to mandate actions and there was significant discussion amongst the Council about adhering to the intent of that measure as opposed to siphoning the money off to support other uses.
Mayor Lana Negrete said that while she understood why proposals were being made to divert Measure K money away from public safety, it would be dishonest to deviate from the voter approved uses.
“I totally appreciate what you're trying to do but the unions that I went to, that signed on to it, that supported it, which helped get it passed so that we have the money, police and fire supported it because they thought it was going to go to those things and people voted for it because they thought it was going to go to those things,” she said. “The fear was that it wouldn't go to those things and it would fill potholes in the budget and that's exactly what's happening now and I'm just saying that I made that promise that I would make sure that it would go to those things.”
After refining the budget, Councilman Jesse Zwick, who first proposed Measure K, said he thought intent had been met.
“We are meeting the needs of public safety by not reducing the capacity of our police department as to what it is currently and I believe we are honoring measure PSK through spending over half of the allocation on direct and traditional public safety needs,” he said.
As a result, the budget will support expanded homeless liaison services, drone technology for emergency response, traffic enforcement and street light maintenance. The budget also includes funding for a therapeutic transport team and traffic safety education programs. While money is being put towards public safety, the budget removes five as yet unfilled positions from the police department.
However, the capital improvement program remains significantly underfunded, with insufficient resources to address the growing backlog of maintenance needs. Budget estimates for funded projects face additional risk from potential tariff increases and uncertainty around federal funding.
Officials warned that additional budget measures would be required if the region's economic downturn persists, if the city must issue bonds to cover legal liabilities, or if federal funding for public safety, transportation and affordable housing is eliminated.
The final budget vote is scheduled for June 24.