Santa Monica’s once thriving but now embattled economy is being held together by tax increases and hope for a better future due to a trifecta of economic anchors.
When Council meets on Saturday for their annual Budget work session, they will have to address a combination of legal liabilities, lingering effects of the COVID-19 pandemic, wildfires, changing work habits and broader economic trends to try to right the ship.
According to the staff report released last week, the news is dire. Despite the passage of new tax measures, the city continues to operate with a structural deficit, requiring the allocation of an additional $33.2 million from General Fund reserves over the next five years to balance the budget.
Ongoing legal liabilities stemming from settlements related to a former employee and the California Voting Rights Act case further strain the city's financial resources. While the city has already spent $230 million on the Eric Uller settlement, more claims are in the works and the unresolved legal liabilities are of “unknown magnitude.” The ongoing fight over voting rights in the city continues to work its way through the courts with a possible second trial occurring this year.
The city's once robust tourism industry continues to suffer and an exodus of corporate businesses have driven the daytime population to 60% of pre-pandemic levels. The lack of people has in turn hit local businesses and key revenue streams like sales tax, parking fees, and hotel taxes. Those impacts were magnified recently due to the nearby wildfires that have disrupted the region’s workforce and spending habits.
The report also acknowledges pending problems driven by national politics. According to a UCLA Anderson forecast the region could see high inflation, wage pressures and be subject to a national decline in GDP due to factors like tariffs and mass deportations issued by the Trump administration. The city is also grappling with uncertainty surrounding federal funding for key transit and housing projects like the Pier Bridge replacement.
Staff said current spending is largely supported by recent tax increases and one time spending. However, the report is optimistic about the future.
To address the problems, staff is advocating for maintaining flat departmental operating budgets, except for negotiated labor increases, and refraining from adding new expenditures. The report says new cuts are not in the immediate future as they could jeopardize vital city services or make it more difficult to implement programs that will generate more revenue down the line.
In the long term, the plan is to stimulate economic growth. The report proposes the formation of an Economic Development Ad Hoc Subcommittee. This subcommittee would collaborate with the Community Development Department and an interdepartmental task force to devise both short- and long-term economic development strategies. Key areas of focus would include promoting Santa Monica as an attractive investment destination, engaging with public and private partners, and streamlining processes for opening and expanding businesses.
The budget workshop will also address the city’s legislative platforms at both the federal and state levels. These platforms guide the city's advocacy efforts, ensuring that its policy priorities are understood by policymakers.
The special City Council meeting will be held on Saturday, March 8 at 9 a.m. in the Main Library Multi-Purpose Room, 601 Santa Monica Blvd.
