By Jorge Casuso

March 3, 2025 -- The City's budget is in a "structural deficit" and must continue tapping its "already depleted" reserves to stay in the black over the next three years, Santa Monica's Finance Director warned Friday.

The dire fiscal prognosis comes one week before the City Council is scheduled to meet on Saturday "to lay out priorities and a framework" for the 2025-2027 Operating Budget.

The five-year forecast shows that General Fund expenditures will "significantly exceed revenues" until Fiscal Year 2028-29, even with the use of new business license and parking facility taxes, said Finance Director Oscar Santiago.

"This means the city will need to continue to draw on already depleted reserves -- the city’s version of a savings account -- for the next three years to balance the budget," Santiago wrote in a blog post on the City's website.

"That is not sustainable over the long term."

The finance director is recommending that the City curb "all discretionary expenditure growth" using $60 million in city reserves while it develops and implements "a more aggressive and sustainable revenue-generating economic revitalization strategy."

"We recognize that this structural deficit cannot be fixed overnight, but we’re committed to making strategic changes and improvements and looking for opportunities to increase the city’s revenues."

The proposed efforts include:

• Bringing forward additional zoning updates to allow for greater flexibility and welcome business development;
  
  
• Further streamlining the permitting and construction processes;
  
  
• Launching a renewed, targeted branding and marketing campaign for Santa Monica;
  
  
• Pursuing revenue-generating opportunities such as film permits, digital advertising and sponsorships, and
  
  
• Implementing a strategic plan focused on added small business assistance, reduced barriers to development, and opportunities for new revenues and business resurgence.

City staff is also asking the Council "to select three members to form an economic development ad-hoc subcommittee that would partner with the staff task force in these efforts," Santiago said.

The City's revenues were dealt a major blow by the coronavirus shutdown, the demise of brick and mortar stores and high inflation that "have resulted in formidable budget challenges for the city," Santiago said.

"Revenues from sales, hotel taxes and parking charges -- key revenue streams for the city’s General Fund -- have all been lower than anticipated in recent years due to changes in travel, remote work and consumer habits," Santiago wrote.

In addition, the Palisades Fire "has taken an economic toll on local businesses, impacting shopping, dining and travel," resulting in even less revenues that expected.

The City is also spending more due to rising costs, deferred maintenance of its infrastructure and "ongoing legal liabilities" that include $230 million paid to settle child abuse allegations.

Santiago notes that despite the recent economic blows, Santa Monica can count on "a beautiful coastal environment, strong tourism industry, tech and wellness hub, substantial investment in hotels and housing, trusted community partnerships, and a brand identity known worldwide."

"The next two years represent an important moment for the city to build on its strengths," Santiago wrote, "to reinvigorate Santa Monica."