Santa Monica, California officials are voting on whether to adopt a resolution declaring fiscal distress, as mounting sexual abuse settlements have destabilized the city’s finances, echoing strains that have already pushed other local governments deeper into debt.
A report prepared by Santa Monica’s acting city attorney said that the affluent coastal enclave projects a structural deficit that could persist for years as decreased revenue and increased liabilities continue to weigh on its budget.
The budget imbalance has been exacerbated by four rounds of settlements, totaling over $229 million, that have been paid to victims of alleged sexual abuse purportedly committed 20 to 30 years ago by a former Santa Monica police dispatcher, Eric Uller.
Santa Monica borrowed $52 million from internal funds to cover the sexual abuse liabilities and it still has another 180 claims pending in court. The payouts have reduced general fund reserves to just 61% of pre-pandemic levels, city documents show. The city has roughly $269 million of outstanding debt, including $147 million of lease revenue bonds.
The resolution wouldn’t mandate cuts or expand the city manager’s powers, but it would signal fiscal urgency to bolster Santa Monica’s stance with regulators and funding agencies.
“The city’s financial resources have been severely depleted as we now engage in a fifth round of settlement talks related to the Uller matter,” said Santa Monica public information manager Lauren Howland.
Consequently, city officials are working to develop a budgetary stabilization plan and an overall city realignment plan, which they plan to present for review in late October, according to Howland. They are also considering a $460 million bond measure to pay for capital projects that are typically funded with tax revenues. Santa Monica has a top AAA credit grade from S&P Global Ratings and Fitch Ratings.
Santa Monica’s predicament mirrors those of other local California governments grappling with the financial fallout of Assembly Bill 218, a 2019 law that extended the statute of limitations for sexual abuse claims against public entities. Los Angeles Unified School District sold $308 million of taxable bonds in July to cover settlements and has authorization to issue hundreds of millions more of debt. Los Angeles County in April approved a $4 billion settlement with thousands of former juvenile detainees and is expected to borrow heavily to fund the deal.
Santa Monica’s challenges are multifaceted. Tourism and sales tax revenue — long the backbone of the beachfront city’s finances — remain volatile in the aftermath of the pandemic, which triggered a nearly 27% plunge in general fund revenue in fiscal year 2020-2021.
Additionally, the Trump administration’s tariffs, mass deportation effort, tax cuts, and deregulatory policies could have adverse effects on the local economy, the acting city attorney said in the report.
The wealthy Los Angeles County city has frozen or scaled back services, cultural programming and capital projects in response to its revenue volatility. Staffing levels remain below pre-pandemic highs after nearly 300 positions were eliminated in 2020.
Santa Monica’s median home price reached $2.1 million in July, nearly 20 times its 2023 median household income of $109,503, Census and Redfin data show. The city, home to tech and entertainment employers including Activision Blizzard Inc., has also grappled with retail headwinds, exemplified by local mall operator Macerich Co. surrendering its Santa Monica Place shopping center to lenders last year.
“There is no doubt that the financial circumstances facing the city are serious, and the resolution developed for City Council consideration is a tool identified by staff intended to help institute a broader strategy to achieve ongoing fiscal stability moving ahead,” Howland said.
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