By Jorge Casuso

June 24, 2025 -- Santa Monica will stop restoring City programs, dip into its "historically low reserves" and explore alternatives to federal funding to balance a biennial budget the City Council is expected to adopt Tuesday.

The fiscal belt-tightening comes amid a "lingering economic Downturn," as the City faces "unprecedented legal liabilities" and labor negotiations with its 11 bargaining units, according to Interim City Manager Elaine Polachek.

As a result, balancing the overall proposed budget of $789.9 million in FY 2025-26 and $825.5 million in FY 2026-27 will require using approximately $49 million in reserves "to prevent further service and staffing impacts."

"At the outset of the FY 2025-2027 biennial budget period, the city of Santa Monica faces many financial pressures" that include "extreme uncertainty from shifts in federal government policies impacting funding," Polachek wrote in her budget message.

"These pressures along with the lingering economic downturn stemming from the COVID-19 pandemic are impacting major revenue streams such as sales tax, transient occupancy tax, and parking revenues, which are all down or holding flat."

In addition, "the vacancy rates of commercial buildings are much higher than historical rates, particularly in the downtown core," due to "shifting patterns in work, shopping, and tourism," Polachek noted.

"While visitor activity is recovering, it remains slow, and remote work trends have reduced daytime population to 60 percent of 2019 levels," according to Polachek.

"These shifts impact consumer spending, sales tax revenues, and contribute to higher retail and corporate vacancy rates compared to regional averages. These factors are impacting revenues in the General Fund."

(The shift to remote work is reflected at City Hall, where many employees work from home and the City offers "telework options for eligible positions to promote work-life balance.") ("City Boosts Efforts to Recruit, Retain Workers," May 27, 2025).

Helping to balance the proposed fiscal year budget, which takes effect on July 1, are two tax measures approved by voters last November that are expected to generate a total of $9.7 million per year.

But the new tax revenues, along with $2 million in savings, fall far short of balancing a budget that has seen a loss of some $195 million in revenues due to the coronavirus shutdown.

In addition, the City has paid $229.8 million to settle with 229 sex abuse plaintiffs who claim they were sexually abused as minors by a former City employee over more than two decades.

The City is still facing another 170 sex claims, as well as four claims against another former employee. It remains unclear how much the City will be reimbursed after suing its insurers, but none of the money would come in for at least another two years, Polachek said.

In addition, the ongoing voting rights lawsuit against the City has been winding through the courts for nine years, racking up a legal bill that totaled nearly $13 million as of last November.

Tapping the City's rapidly depleting reserves may not be enough to balance the budget, Polachek cautioned.

"Due to the city’s historically low reserves, additional measures would be required to balance the budget if any one or combination of the following happen:

"The region’s economic downturn persists or worsens, the city must assume debt service payments to cover legal liabilities, or additional federal funding for public safety, transportation and affordable housing is no longer available."

"The next two years will undoubtedly test the city’s financial resiliency," Polachek's budget message concluded. "The economic pressures mentioned above require us to curtail growth in city services and take measures to reduce operating costs.

"But it also builds on the strengths of Santa Monica, continuing to provide a wide range of programs and services for our community and realigning resources to support our economic development."