The Santa Monica City Council unanimously approved a resolution declaring fiscal distress Tuesday night, citing the financial strain from $229 million in sexual abuse settlements and declining revenues that have pushed the city's cash reserves to what officials called a "fairly dire situation."
The 7-0 vote came after the council pulled the item from the consent calendar for public discussion, with City Manager Oliver Chi emphasizing the resolution serves as a strategic communication tool rather than an emergency declaration that would trigger service cuts or staff layoffs.
"This resolution does not reduce city services, does not cut staffing, it does not declare a fiscal emergency," Chi told the council during the meeting.
The resolution highlights the city's ongoing financial challenges stemming primarily from settlements related to sexual abuse claims against former city employee Eric Uller, who worked in youth programs decades ago. The city faces additional claims from more than 180 claimants seeking "several million dollars" in damages, according to city documents.
Santa Monica's cash position has deteriorated dramatically from its typical $300-400 million to $150 million, with $60 million of that amount specifically earmarked for financial stabilization over the next few years. Chi described the situation as "fairly dire" during his presentation to the council.
The resolution cites multiple factors contributing to the city's financial distress, including the COVID-19 pandemic's impact, which led to over 400 staff layoffs in 2020 and created lasting "trauma within our organization," according to Chi. The pandemic resulted in a 26.8% decline in General Fund revenue in fiscal year 2020-21, forcing a 23.9% budget reduction.
City officials emphasized the resolution's purpose as a tool for interfacing with regulatory agencies, securing grants, and communicating with state and federal entities about Santa Monica's financial circumstances.
"This is a tool that we're using as part of the larger budgetary strategy that we're looking to institute," Chi said, noting that a comprehensive financial recovery plan would be presented to the council in October.
The resolution drew public criticism, with resident Nikki Kolhoff calling the fiscal distress "council's own creation" resulting from "discretionary expenditures" related to the Uller case. She argued the city has been paying settlements "without question" instead of challenging claims.
"We are left to conclude that the city continues to pay in order to avoid a public investigation of the underlying crimes," Kolhoff said during public comment.
Council members defended the action as proactive fiscal management. Council Member Natalya Zernitskaya noted that Los Angeles declared a fiscal emergency in June.
"We are not there. We're trying to take decisive action before it gets there," Zernitskaya said.
Mayor Pro Tem Caroline Torosis emphasized the city's responsibility to address the ongoing liability while protecting financial stability.
"We are carrying the weight of more than $229 million in sexual abuse settlements tied to the misconduct of one former employee decades ago," Torosis said. "We cannot allow the mistakes of the past to bankrupt our future."
The settlements have been funded largely through general fund reserves and by borrowing over $52 million from various city funds. The city's general fund reserves now stand at only 61% of their pre-pandemic levels.
Beyond the Uller settlements, the city faces additional financial pressures including declining sales tax and tourist occupancy tax revenues, increased costs, and federal economic policies that may impact the local economy.
The resolution also aims to help Santa Monica navigate regulatory challenges, particularly with the California Coastal Commission, and potentially expedite processes like parking rate modifications that could generate additional revenue.
City Attorney Heidi Von Tongeln prepared the resolution, which does not grant the city manager any powers beyond those already established in the city charter and municipal code.
Chi acknowledged that placing the resolution on the consent calendar was an oversight, apologizing for not better communicating the item's significance to the community beforehand.
"I should have done a little bit better job messaging on all of the different considerations," Chi said.
Despite the financial challenges, Chi expressed optimism about finding solutions, stating the city has strategies that are "achievable" and that he is "absolutely optimistic we're going to figure out a solution."
The resolution is expected to aid the city in pending state legislation that could provide relief for municipalities facing similar liability situations.