As Santa Monica City Council Debates Racial Reparations, City Finances Approach Bankruptcy

Santa Monica’s financial troubles mirror LA County’s in that legal settlements are a significant drain, but the city’s smaller scale and tourism-dependent economy make its challenges distinct.

The $230 million in settlements is a heavy burden for a city of Santa Monica’s size, and the lack of progress on the voting rights case suggests ongoing legal exposure.

Blaming settlements alone oversimplifies the issue—declining tourism revenue and high operational costs are equally critical.

The city’s decision to forgo Olympic hosting and consider measures like a beach curfew reflect a cautious approach to fiscal and safety challenges, but public sentiment, as seen on X, indicates distrust in leadership’s priorities, particularly around homelessness and public safety spending.

Legal Settlement Costs: Santa Monica has incurred significant expenses from legal settlements, totaling over $230 million in recent years. These include:

Settlements related to past city employee misconduct.

Costs from a voting district lawsuit, stemming from a 2019 court ruling that the city’s at-large election system discriminated against Latino voters, diluting their voting power. This ongoing legal battle has added to financial pressures, with no resolution implemented six years later.

Impact on Budget: These settlements contribute to a growing structural deficit. The city’s 2025-2027 Operating Budget discussions highlight a need to address this shortfall, with legal liabilities cited as a key factor alongside declining revenues.

Other Financial Pressures:

Declining Revenues: Major revenue sources like sales tax, hotel tax, and parking revenue have underperformed due to changes in travel patterns and consumer behavior post-COVID.

Rising Costs: Operational expenses, including labor and infrastructure maintenance, are increasing.

Economic Recovery Challenges: Despite tourism and business investment providing some relief, the city has not fully recovered from the economic impacts of the pandemic.

Missed Opportunities: The city’s decision not to host beach volleyball for the 2028 Olympics was partly due to financial concerns, as a 2024 analysis projected a $1.45 million shortfall (costs of $15.54 million vs. revenue of $14.09 million). Some residents attribute this to the city’s strained budget and inability to fund necessary security and services.

Proposed Measures: The Santa Monica City Council is focusing on economic development to boost revenue, prioritizing budget cuts, and exploring new revenue streams like a potential vacancy tax to discourage outside investment in vacant properties. However, specific plans like layoffs or bond issuance, as seen in LA County, are not mentioned.

Conclusion:

The City of Santa Monica is in financial trouble, with legal settlements costing over $230 million contributing significantly to a structural deficit, similar to LA County’s issues with its $3.1 billion deficit and massive settlement payouts. However, Santa Monica’s challenges are smaller in scale, driven by tourism revenue declines and specific legal battles like the voting rights case, rather than the county’s broader issues like wildfires and sheriff misconduct. The city is addressing this through budget prioritization and potential new taxes, but public frustration suggests deeper concerns about governance.