City Council
Housing Authority
Report
City Council Meeting: March 8, 2025
Agenda Item: 11.B
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To: Housing Authority, Mayor and City Council
From: Elaine Polachek, Interim City Manager, City Manager's Office Subject: Fiscal Years 2025-2027 Council Budget Workshop Recommended Action
Staff recommends that the City Council:
1. Receive the FY 2025-26 through FY 2029-30 Five Year Financial Forecast;
2. Discuss and provide direction on items that will inform the preparation of the Fiscal Year 2025-27 budget;
3. Consider and affirm the proposed organizational priorities;
4. Adopt the Council federal and state legislative platforms;
5. Establish and appoint an Economic Development Ad Hoc Subcommittee focused on developing an economic development strategy and recommendations for the FY 2025-26 mid-year budget;
6. Provide direction to shape the public and stakeholder engagement process intended for the parking rate restructuring and which components of the parking rates and fees to target;
7. Authorize the City Manager to accept a grant award in the amount of $19,155 from the U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration, through the State of California, Governor’s Office of Emergency Services for the Hazardous Materials Emergency Preparedness Grant, and to accept all grant renewals; and
8. Adopt a finding that the actions are not a “project” subject to the California Environmental Quality Act (CEQA) and a finding of no possibility of significant effect pursuant to Section 15061(b)(3) (Common Sense Exemption) of the CEQA Guidelines.
Staff recommends that the City Council and Housing Authority:
9. Appropriate FY 2024-25 midyear revenue and expenditure budget adjustments (Attachment A), requires 5 votes.
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Summary
The Council Budget Workshop is a unique opportunity for the Council to provide staff with an overarching policy framework that guides staff in the development of the Fiscal Years 2025-2027 budget by establishing Council priorities and providing strategic direction on the Council’s legislative platform and key budget strategies. Therefore, at this year’s budget workshop staff will seek direction on:
• Council priorities,
• Direction to shape the Fiscal Years 2025-2027 budget, • Approval of the Council’s legislative platforms, and
• Formation of a Council Ad Hoc Subcommittee on Economic Development This budget workshop comes at a time when the City of Santa Monica remains in a delicate financial position as a result of unprecedented legal liabilities, the lingering economic effects of COVID, and most recently the January wildfires. Cumulatively, these events have slowed Santa Monica’s recovery efforts and hindered the City’s ability to restore much needed community services or invest in critical infrastructure improvements. The FY 2025-27 budget reflects a need to conserve resources while placing a concerted and strategic emphasis on economic development.
The long-term changes in how people work, shop, and recreate mean Santa Monica must reimagine its local economy. Where the City’s daytime population was once approximately 250,000 per day and over 8 million visited our beaches annually, these numbers have eroded to a daytime population of about 150,000 and 6 million annual beach visitors. This has had a detrimental effect on our local shops, restaurants, and other businesses. We have seen the impacts as our corporate and retail vacancy rates now exceed the regional average. This in turn has had a negative effect on many of the City’s key revenue streams, including sales tax, parking, and transient occupancy taxes.
The result is, even after the passage of new tax measures CS, F, and K, the City 3 of 43
operates in a structural deficit that must be resolved to ensure Santa Monica’s long-term financial wellbeing.
To address this structural deficit, staff are recommending an approach to the FY 2025- 27 budget that conserves expenditure growth while focusing efforts on the City’s economic development. Staff recommend that no new expenditures be added to the upcoming budget and that department operating budgets remain flat, except for negotiated labor increases. Even after accounting for these measures, the City will also need to allocate an additional $33.2 million in General Fund reserves over the forecast period to balance the City budget.
While the City’s reserves are very low, staff are recommending this approach to support the City’s economic recovery. Further reduction of city services and the diversion of staff efforts to planning for service reductions would only erode the quality of the City’s public spaces and ability to respond to customer requests. Moreover, this approach creates time to develop and implement new economic development strategies that could create long-term growth in Santa Monica. Additional cuts in services, maintenance of public facilities, security services, and other areas would hinder our ability to attract new businesses and deter existing businesses from making additional investments.
Therefore, staff are recommending that in addition to implementing select budget conservation strategies, the Council work with staff and the community to focus on economic growth for Santa Monica, including the formation of a Council Economic Development Ad Hoc Subcommittee. This temporary, limited purpose, ad hoc subcommittee would not be a “Brown Act” body and would work with the City’s Community Development Department and an interdepartmental staff task force to develop short- and long-term economic development strategies in preparation for the FY 2025-26 mid-year budget. Areas of focus will include ways to promote the City as an attractive place to invest, engagement with public as well as private partners, and enhancing efforts to streamline processes to open and expand businesses. 4 of 43
To help inform this workshop, staff undertook an engagement process to help our community better understand the City’s financial position, assess the quality of city services, and seek input. The results of this input, along with Council’s FY 2025-27 priorities, and existing Council direction all informed the recommendations in this report.
In addition to these recommendations, staff will also present the Council’s legislative platform for adoption. This platform provides the foundation for the City’s advocacy to ensure the City’s policy priorities and positions are understood by policymakers at the federal and state levels. The legislative platforms are used by staff to expeditiously take positions on pending litigation and support amicus briefs in court. This is especially critical now with so many proposed and actual changes to the functions of the federal government that are in opposition to the City’s longstanding commitment to equity and the critical role in government to create opportunity and help uplift all people.
The approach presented here by staff to guide the FY 2025-27 budget aims to help position the City to focus on the most critical work while also maintaining a balanced budget. The next two years represent an important moment for Santa Monica to build on its strengths – natural beauty, a strong tourism industry, substantial investment in hotels and housing, trusted community partnerships, and a brand identity known worldwide – to reinvigorate Santa Monica.
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Financial Forecast and Biennial Budget
National and State Economies
In January 2025, U.S. President Donald Trump returned to the White House with plans to implement several economic policies he promised during the 2024 campaign. Among these policies are new or increased tariffs, mass deportations of immigrants, reductions in the federal workforce, tax cuts and deregulation. While the U.S. economy continued to rebound strongly in 2024, the uncertainties of potential policy changes at the federal level create forecast challenges.
According to the winter 2024 UCLA Anderson Forecast, tariffs would, for the most part, be passed on to consumers in form of higher prices, raising inflation in 2025 to just above 3%, and raising consumer prices by 0.9%. In 2026, inflation is forecasted to be well above 2%. In addition to inflationary pressures, it is anticipated that mass deportations would result in a rise in wages, exacerbating the existing labor shortages, as construction and the food industry are hit particularly hard. With GDP growth expected to be above 2%, the national economy continues to outshine its global peers.
However, the incoming tariff and deportation policies will put upward pressure on costs and downward pressure on consumption, leading to lower GDP growth, dipping below 2% in the second half of 2025.
Additionally, the UCLA Anderson Forecast suggests that California’s economy is projected to grow at about the same rate as the national economy in 2025 and 2026.
The unemployment rate for the fourth quarter of 2024 averaged 5.3%, while the averages for 2025 and 2026 are expected to be 5.5% and 5.0%, respectively. Real personal income is forecast to grow by 2.3% in 2025 and 2.6% in 2026. Despite higher interest rates, the continued demand for a limited housing stock, coupled with state policies inducing new home building, should result in the beginning of a recovery this year in the housing sector, followed by slow but solid growth in new home production thereafter.
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Local Economy
Cities like Santa Monica, with strong tourism, retail and entertainment amenities, were hit the hardest by the pandemic. Santa Monica’s local economy sees the effects of postCOVID changes in retail, work habits, and tourism. The daytime population of Santa Monica remains approximately 60% of what it was in 2019 and retail and corporate vacancy rates remain higher than the regional averages.
The City continues to recover and rebuild, as evidenced by significant new investments in hotels and housing throughout our community. Considerable efforts have been made to streamline processes and regulations to encourage a wider variety of businesses to consider opening venues on the Third Street Promenade, supported a popular outdoor dining program, and implemented a program for recreational marijuana sales.
The City has also worked with local businesses and hotels to establish new tax measures to fund programs and resources to enhance public safety and address homelessness, along with other strategic investments to ensure the community continues to move forward (Attachment B - Targeted Budget Enhancements). Even with these new revenue streams, the City still operates at 92% of 2019 staffing levels, with particularly deep impacts to the City’s libraries, human and youth services, and recreation, which translates to most City programs and services continuing to operate at reduced levels.
While the long-term local economic outlook is positive, the City remains in a precarious financial situation, driven by economic factors and organizational challenges such as:
• Inflation - significant cost increases from the highest levels of inflation in forty years and other market disruptions occurring as a result of global conflicts. • Tourism - lag in international and business travel, leading to slower than projected hotel tax revenue.
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• Hybrid work - the shift of office workers to remote work continues to impact foot traffic and day-time population activity, resulting in decreased consumer spending at restaurants and retail stores, impacting sales tax revenues. • Expiring Labor Contracts – the City’s eleven bargaining units all have contracts that expire on June 30, 2025. Negotiations for new contracts is now underway. • Palisades fires – impacting hotel activity and consumer spending in the third quarter of the fiscal year.
• Deferred equipment and infrastructure maintenance, leading to higher repair and/or replacement costs, increased need for emergency repairs to address system failures and reduced efficiency to operations.
• General Fund reserve levels, significantly reduced from a severe loss of revenues as a result of the pandemic (estimated at $195 million through June 30, 2024, as compared to pre-pandemic projections – chart 1 below) and legal settlement payments ($159.6 million was covered from reserves). • Unresolved legal liabilities of unknown magnitude. The city has paid out over $230 million in settlements related to former employee Eric Uller and is now facing another 157 claims in the matter, as well as 4 claims against another former employee in another matter. The City filed its own lawsuit seeking reimbursement from its insurers for claims paid and to be paid in the Uller matters, but the amount of reimbursement is uncertain, and no reimbursement is anticipated for at least two years. Likewise, the California Voting Rights Act or CVRA case was recently heard by the California Supreme Court, which issued an opinion referring the case back to the Court of Appeal. The Court of Appeal transferred the case back to the trial court. The case may go to trial in late 2025. • Uncertainty about Federal Funding calls into question the City’s ability to execute key projects such as the Pier Bridge Replacement and deliver key transit and housing services.
These challenges have a direct impact on the City’s ability to restore services and programs, specifically in the General Fund, to meet community needs and address critical gaps in services.
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Santa Monica, a high-quality credit rated city, continues to rely on prudent fiscal planning to prepare for the future with two-year operating budgets, five-year fiscal forecasts and capital plans, informed by a continuous review and refinement of city fiscal policies and processes. This careful planning allowed the City to quickly reposition itself in response to fiscal impacts of unprecedented liabilities and emergencies, such as the COVID-19 pandemic that devastated economies at all levels around the world. This long-term planning has enabled the City to weather the fundamental changes in the City’s revenue streams that resulted in the City receiving $195 million less in revenues compared with pre-COVID projections.
Pre-COVID Forecast vs. Actual Revenues
General Fund Five-Year Financial Forecast
The February 2025 General Fund Five-Year Financial Forecast incorporates the revenues and expenditures budgeted for FY 2024-25, as revised with midyear budget adjustments informed by eight months of actual data and current economic indicators.
The Five-Year Financial Forecast shows the balance of General Fund revenues less expenditures on an annual basis for the next five fiscal years. The Forecast 9 of 43
assumptions and results were updated from those presented in the May 28, 2024 Budget Study Session (Attachment C.)
Five-year General Fund Forecast
As shown in the chart above, with the help of additional use of one-time funds from assigned fund balance ($33.2 million), plus working capital reserves ($27.6 million) as anticipated in February 2024, the General Fund is balanced.
Revenues
The revenue forecast is informed by actual revenues generated to date and updated assumptions based on economic trends and projections by hospitality industry, sales tax and property tax experts. These factors inform the midyear changes that are included in the forecast. In total, the Forecast has been updated to include a net revenue reduction totaling $6.4 million over the forecast period.
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The net $6.4 million reduction results from a decrease of $71.3 million primarily from sales tax, transient occupancy tax, parking and various fees and charges for service (timing of digital kiosk program, Fire Inspection Fees, EMS charges, Broadband Services). These losses are partially offset by increases totaling $64.9 million, primarily from business license tax (including Measure F annual revenues) and parking facility tax (including Measure K annual revenues), and other revenues from utility users tax and property tax. Council reviewed options for how to utilize these revenues at its October 8, 2024 meeting (Attachment K).
Santa Monica is heavily dependent on visitors and the hospitality industry, which took a significant plunge during the pandemic. While the visitor activity has been increasing, recovery has been slow. Both transient occupancy and sales taxes continue to lag behind pre-pandemic levels. These two revenues combined make up 33.4% of the City’s General Fund revenues as shown below.
City Local Tax Revenues as Percentage of Total Revenue
Sales tax trends reflect decreases in consumer spending specifically in luxury and EV vehicles sales from Santa Monica dealers, driving a sharper drop in overall car sales due to affordability concerns, driven by high financing costs, approximately 29% rise in car prices since the pandemic, combined with high interest rates and high insurance rates. Additionally, restaurants continue to be affected, especially fine dining 11 of 43
establishments, as consumers opt for more price-conscious alternatives. Given these trends, staff has recalibrated the sales tax and transaction and use tax revenue projections in the forecast by an average annual decrease of approximately 7.2% from May 2024 projections.
Transient occupancy tax (TOT) continues to experience a slow recovery of international travel as compared to pre-pandemic levels, as well as the lingering effects of regional wildfires and the delayed reopening of the Regent Hotel, factors which are impacting revenues for FY 2024-25. It is projected that activity in Santa Monica will not return to peak levels experienced in 2019 until late 2026/early 2027, as tourism recovers. Given these trends, staff has recalibrated the transient occupancy tax revenue projections in the forecast by an average annual decrease of approximately 5.4% from May 2024 projections.
Property taxes have remained positive as assessed value increases continued during the pandemic. These increases are expected to continue, but at a slower pace reflecting a slight softening in the real estate market as interest rates remain high.
The chart below illustrates the historical trends for Sales, TOT and Property Taxes. 12 of 43
Parking revenues, the other significant revenue source affected by visitors, are experiencing an average annual growth of 1.75%. The pandemic accelerated many trends, including online shopping and remote working, that will likely impact visitor behavior and decrease parking demand in future years. Staff anticipates that demand for parking will continue to flatten or decline as consumers adopt alternative transportation methods, including rideshares, Big Blue Bus and Metro bus and rail transit, bicycles and scooters, as well as increased use of free parking in the City’s downtown structures (currently for the first 90 minutes). Staff are currently in the process of conducting a citywide parking study, including conducting a parking supply and demand analysis, with recommendations expected back in mid-2025 to inform potential parking rate changes that would be brought to the City Council and submitted to the California Coastal Commission later in 2025.
Business License taxes have recovered above pre-pandemic levels. In November 2024, Santa Monica voters approved Tax Measure F, a tax measure that modernizes and streamlines the City’s outdated business license tax fee structure, with the goal of improving tax equity, exempting small businesses from the tax, decreasing tax rates for most retailers and restaurants, raising the corporate headquarters rate to 0.25%, removing auto dealer tax exemptions, and restoring a business license processing fee.
The business license tax increases are being phased in over a period of three years, to lessen the impact on affected businesses. Once fully implemented, Measure F is expected to generate new revenues of approximately $3 million annually for the City’s General Fund. Staff has updated the business license tax revenue projections in the forecast to reflect current trends and the additional revenue from the approved tax measure.
Santa Monica instituted a 10% Parking Facility Tax (PFT) in 1993. This tax currently applies to all public and private parking lots and structures in the City for occupying a parking space in any parking facility. In 2024, voters approved Tax Measure K, to increase the PFT by 8% on privately owned parking lots raising the total tax to 18% to raise $6.7 million annually to help fund city services. This tax measure will not impact City-owned lots where the tax will remain at 10% because of an exemption. Measure K 13 of 43
was accompanied by an advisory measure, Measure PSK, to guide spending of additional resources. Staff has updated the PFT revenue projections in the forecast to reflect additional revenue from the approved tax measure, but new expenditures are not accounted for in the forecast.
FY 2024-25 Utility Users Taxes (UUT) revenue growth from electric, gas, and cable television utilities is primarily driven by rate changes by Southern California Edison, Southern California Gas Company, Spectrum, and Frontier Communications, respectively. Taxes from water and wastewater services reflect Council-approved utility rates as well as anticipated consumption patterns. Taxes from electricity and natural gas, after spiking in FY 2022-23 due to sharp increases in energy costs, are expected to flatten starting in FY 2024-25.
Looking to the future and further recovery, City General Fund revenues are projected to increase by 3.2% in FY 2025-26 over this current fiscal year and increase to an average
3.7% annually over the next three years.
Expenditures
The Forecast has been updated to include net new costs totaling approximately $43.6 million over the forecast period, including approximately $16.0 million in expenditure reductions associated with decreased TOT and Transaction and Use Tax revenues.
The new costs are detailed below.
• $15.6 million over the next two years for increased contributions to the selfinsurance funds for General Liability and Workers Compensation Insurance expenses, based on the most recent independent actuarial analysis of the fund, to ensure sufficient resources are available to cover claim expenses and increased excess insurance premiums.
• $12.4 million over five years for CalPERS Unfunded Accrued Liability pension costs, reflecting projected increases to pension contribution rates informed by the most recent valuation report that captures current portfolio earnings trends. 14 of 43
• $7.2 million over five years for the City’s contract with the County of Los Angeles for beach lifeguard services, which will be expiring in 2025; the county is seeking increased compensation to continue providing services to Santa Monica.
• $18.4 million over the next five years is allocated for compensation adjustments in accordance with the 1982 labor agreement with the Santa Monica Police Officers Association (POA). These adjustments ensure that police officer salaries remain competitive with regional law enforcement agencies, aligning with the agreement’s requirement that net pay for officers ranks as the second highest among comparable departments. As part of this agreement, POA employees received a 4.99% salary adjustment effective January 2025. The percentage amount is due to the one-year suspension of the equity adjustment provision during the current three-year agreement. Negotiations are now underway with all 11 employee bargaining groups, the outcome of which could have further impacts on the City’s financial forecast.
• $6.0 million over two years for legal costs for the ongoing litigation over a request to transition to district elections. The case was recently heard by the California Supreme Court, which issued an opinion referring the case back to the Court of Appeal. The Court of Appeal transferred the case back to the trial court.
The case may go to trial in late 2025.
Reserves
Through the allocation of already severely diminished reserves, the General Fund is projected to maintain a balanced budget throughout the forecast. However, the forecast does not yet incorporate other critical impacts outlined below due to uncertainty in timing and magnitude but have the potential to be significant. 15 of 43
Other Financial Considerations
Liabilities • Uller / Condon Settlement Claims
• LA28 Olympics
• Impacts of wildfires on tourism & consumer spending
• Impacts of wildfires on overtime spending – unplanned and not all reimbursable by FEMA
• GL and WC Insurance costs will continue to increase
Restoring
Services
• Library & Youth Services
• Community Programming
• Deferred Infrastructure Maintenance
• Capital Improvement Program
Financial
Stewardship
• Rebuild Reserves
• Repay Enterprise Funds
• Repay Housing Trust Fund
• Labor Negotiations in Competitive Labor Market
Future
Considerations
• Unfunded CIP Projects
• Equity and Reparations
• Homelessness, Police & Fire Strategic Plans
• Behavioral Health Study
• Renters’ Right to Counsel
• Airport Conversion Project
General Fund total unrestricted (Assigned and Unassigned) reserves are significantly lower than prior to the pandemic, amounting to approximately 61% of what they were as of June 30, 2019.
Assigned reserves
include funds set aside
to respond to contingent
liabilities, other identified
cost increases, the cost
of accrued employee
vacation time, funding
for prior year funded
capital projects and
service contract
obligations encumbered from prior year budgets.
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As previously mentioned, demands on reserves have been impacted by a severe loss of revenues as a result of the pandemic and legal settlement payments. Of the total $229.8 million paid in legal settlements, $159.6 million was covered using General Fund reserves, while the remainder was covered by insurance funds and loans from unrestricted reserves in the City’s Housing Trust Fund, Water Fund and Workers’ Compensation Fund. These unprecedented low reserves levels have impacted the City’s credit ratings and in the face of ongoing contingent liabilities, continued economic volatility, and the appreciation that strong reserves allow us to continue to provide essential services even in the most difficult times (as currently being utilized in the forecast), the City must diligently balance program restoration, investing in new initiatives and addressing urgent needs with rebuilding its Rainy Day fund contingency, currently only at 13.5% or $57.1 million of ongoing expenditures, which equates to approximately two and a half months of staff compensation and benefit expenses.
General Obligations (GO) Bond
Public Works staff is assessing the feasibility of a General Obligation Bond in response to the increasing number of unfunded capital improvement projects (~$460M) and to limit the accelerated deterioration of city facilities and infrastructure. This bond would provide the necessary funding for long-term investments in transportation, public safety, parks, sustainability initiatives, and other key projects that directly impact residents' quality of life. It would also help the City secure cost-effective financing, while maintaining fiscal responsibility, promoting economic growth, and preserving Santa Monica’s commitment to a safe, clean, resilient, and well-maintained urban environment. Over the course of the next six months, staff would work with a polling consultant, engage stakeholders, and perform public outreach while conducting a preliminary poll to determine public appetite and interest and feasibility of a 2/3 vote for a General Obligation Bond. If polling shows favorably and the polling consultant sees interest exceeding the 2/3 voter requirement, staff would recommend a proposed bond measure sometime early 2026 to mid-2026, for inclusion on the 2026 ballot.
Parking Rate Restructuring
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The Department of Transportation’s Parking Division currently manages $51.7 million per year in citywide parking-related revenue with an operating budget of $19.6 million per year. This includes revenue from permit parking, on-street parking meters, and offstreet parking in the City’s 41 parking structures and lots. These 41 facilities include downtown structures and lots, Main Street lots, mid-city lots, beach lots, the Annenberg Community Beach House parking, Pier parking, and other City owned facilities. Parking revenues are an essential source of general fund revenue for the City (7.3% of total general fund revenues), but rates have not been adjusted since 2018. Part of the reason for the long period of time since the last rate change is the lengthy process needed to implement rate changes. Roughly 90% of the City’s paid parking falls within the Coastal zone, which means that rate increases require approval by the California Coastal Commission. Parking rate changes require public outreach and engagement, Council approval, Coastal Commission approval, and must be incorporated into a Parking Resolution to be approved by Council. This process can take up to two years.
Since May 2024, the Parking Division has been working with Walker Parking Consultants/Engineers to perform a parking rate study as well as other parking related tasks. Per Walker’s initial analysis, the potential revenue generated from a strategic parking rate restructuring at meters, parking permits, and other off-street facilities with the elimination of the 90-minute free parking period could be as much as $8.6 to $9.4 million per fiscal year. The impact of the 90-minute free parking period in downtown structures is significant because roughly 47 percent of downtown parkers leave within 90 minutes and do not pay any parking fees. Reducing or eliminating the 90-minute free period could allow the City to simplify the rates for these structures and actually reduce rates for many customers while potentially raising up to an additional $2.2 million in revenue. An additional source of unrealized revenue identified by staff is the prospect of passing on parking-related credit card processing fees and charges along to customers, consistent with Council action in 2020 for all other non-parking-related credit and debit card transactions across the City. The 2020 changes did not include parking related payments, thus the City currently absorbs these costs. Passing them along to customers in the form of credit/debit card convenience fees could bring in an estimated $2.4 million in additional annual revenue. Staff is seeking initial Council direction to 18 of 43
shape the public and stakeholder engagement process intended for the parking rate restructuring, including on the following topics:
• Whether to advance scenarios that include the reduction or elimination of the 90- minute free parking period in downtown structures, which could allow for significant rate reductions for many customers in these structures while raising up to $2.2 million in revenue.
• Targeting an additional $8.6 to $9.4 million annual revenue from a strategic rate restructuring of meter rates, parking permit costs, and rates and other off-street facilities.
• Whether to pursue passing along parking-related processing fees and charges to customers, consistent with Council action for all other credit/debit card payments in 2020.
Other Funds Financial Forecast Update
Among the larger funds contributing to the City’s operations, the Airport, Big Blue Bus (BBB), Resource Recovery and Recycling (RRR), Housing Authority and Cemetery Funds project sufficient revenue to cover operational and capital needs during the forecast period.
The Water and Wastewater fund are conducting their 5-year rate study to keep pace with inflation and rising costs of providing safe, reliable water and sewer services.
Declining water usage, increased imported water purchases due to delayed completion of the Arcadia Water Treatment Plant Expansion, and delayed rate study adoption have required adjustments to Capital improvement Program (CIP) funding in order to keep the fund balance healthy and maintain reserve levels. The rate study includes funds to rehabilitate aging infrastructure, enhance operational resiliency and increase operational safety and is slated to go to Council for direction on March 25, 2025, with rate adoption in early June 2025.
The Pier and Beach Recreation Funds are projected to require General Fund assistance. Continued revenue constraints, including the partial closure of the Pier Deck 19 of 43
parking, leading up to full closure in expected in early 2026 from the Pier Bridge Replacement Project, and pending plans to adjust beach parking rates are significantly contributing to the situation.
To partially mitigate the immediate impacts of the pandemic, the General Fund suspended contributions to the Information Technology and Vehicle Management Funds. Pending repayment of the suspended contributions, these internal services funds need to limit or defer the replacement of equipment and vehicles to the most critical. The Housing Trust Fund is also awaiting repayment of funds borrowed by the General Fund to further address impacts of the pandemic and legal claims.
In the past two years, revenues from the passage of Measure GS have generated $28 million in Year 1 and $18.3 million in Year 2 (as of the end of February 2025). In Year 1, $10 million was paid out to the school district and, pending any adjustments and/or corrections, another $10 million is anticipated to be paid out this year. The remaining $26.3 million is set-aside in the City’s Measure GS Fund to support homelessness prevention and affordable housing efforts.
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FY 2024-25 Midyear
Revenue and Expenditure Budget Adjustments
Midyear budget adjustments are made to reflect updated revenue projections, and to facilitate continuity in key service areas, for the reasons noted below.
Revenue Adjustments – General Fund
Staff projects General Fund revenues to reach approximately $455.9 million in FY 2024-
25. This projection is based on actual data from July 2024 to February 2025 as well as anticipated changes in economic conditions, year to date trends and consumer behaviors over the remainder of the fiscal year. These changes result in an estimated $2.8 million reduction as compared to the adopted budget. A summary of the significant budget adjustments is shown below. Attachment A lists all revenue budget adjustments by department and fund.
• Sales Taxes Including GSH transaction and use tax – reduction of $4.0 million (about 5%) primarily due to the ongoing shift from brick-and-mortar shopping to online sales, decreases in consumer spending specifically in new car sales from Santa Monica dealers due to affordability concerns, driven by high financing costs, a 29% rise in car prices since the pandemic, combined with high interest rates and high insurance rates. Additionally, restaurants continue to be affected, especially fine dining establishments, as consumers opt for more price-conscious alternatives.
• Transient Occupancy Tax – reduction of $3.6 million (5%) primarily due to the delayed reopening of the Regent Hotel, a slow recovery of international travel as compared to pre-pandemic levels, and the lingering effects of regional wildfires impacting the third quarter of the fiscal year.
• Parking Facility Tax – increase of $2.7 million (23.8%), primarily driven by the impact of the voter-approved Measure K tax that took effect in January 2025. 21 of 43
• Property Tax – increase of $1.2 million (1.4%) which is consistent with the 2% CPI adjustment applied per Proposition 13 this year, along with robust revenues from former redevelopment project areas.
• Business License Tax – increase of $3.2 million (9.2%) primarily due to greater than projected one-time gross receipts reported by businesses and one-time revenue related to the tax audit program.
• Parking and Citations – increase of $0.9 million (1.9%) primarily reflecting a one-time increase in parking citation revenue from a delayed reporting of prior year revenue and an ongoing reduction in parking revenue reflecting increased use of free 90-minute parking in the structures, prevalence of telecommuting and hybrid work schedules, and use of alternative modes of transportation by visitors to Santa Monica.
• Fees/Charges/Other – $3.4 million (6.1%) reduction, primarily due to the later than anticipated design review for the Miramar project resulting in a delayed payment as per terms of the Development Agreement, less than projected digital kiosk advertising revenues resulting from delayed implementation of the first phase of the project, and decreased revenues from Emergency Medical Services due to the current contracted ambulance company not collecting the Paramedic ALS Fee for BLS transports. The decrease is partially mitigated by revenue from increased enrollment in City-funded CREST programs due to fewer afterschool programs offered by schools, as well as a one-time increase in reimbursements from greater mutual aid deployments this fiscal year resulting from an uncharacteristically active and longer than normal wildfire season on the West Coast.
Revenue Adjustments – Other Funds
FY 2024-25 revenue changes in the Other Funds result in a decrease of approximately $12.5 million. Significant revenue adjustments in other funds are summarized below. All revenue budget changes are detailed in Attachment A.
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• Airport Fund – Decrease of approximately $2.3 million primarily reflecting a decrease in lease revenues resulting from longer than expected office space vacancies due to renovation delays as well as the application of rent credits for tenant improvements. The decrease is partially offset by increased hangar rentals.
• Big Blue Bus Fund – Decrease in revenues by $1.6 million, primarily due to a reduction in advertising revenue and lower than projected operating subsidies.
Big Blue Bus’s operating subsidies have been adjusted to reflect the final funding allocations determined by LA Metro.
• Housing Authority Fund – Decrease of $1.3 million, primarily due to the delayed lease-up of 57 project-based units at 1413 Michigan Avenue (The Laurel), and the lengthy referral and application process for both The Laurel and Continuum of Care vouchers. An additional contributing factor is the time it takes for a voucher to be utilized, which is when the Housing Authority receives revenue. Staff have been working to increase voucher utilization by issuing new vouchers. Decreases are partially offset by an increase in revenue associated with the Emergency Housing Voucher (EHV) program voucher utilization, admin fees and service fees due to an increased focus on leasing up which increased utilization.
• Wastewater and Water Funds – Decreases of approximately $3.4 million and $4.5 million, respectively, reflecting delayed implementation of rate increases from January 2025 to July 2025 as well as extreme weather conditions.
Operating Budget – General Fund – Expenditure Adjustments Staff proposes General Fund operating expenditure adjustments that result in an approximate $2.2 million increase to the General Fund budget in FY 2024-25. While Attachment A details all expenditure adjustments, significant changes are noted below. • Increase of $2.0 million for legal costs associated with ongoing litigation over a request to transition to district elections.
• Increase of $1.6 million for six months of compensation adjustments in the Police Department.
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• Reduction of $1.4 million related to GSH allocations to Santa Monica Malibu School District and the City’s Housing Trust Fund, as a result of reduced Transaction and Use Tax revenues.
Operating Budget – Other Funds – Expenditure Adjustments Staff proposes operating expenditure adjustments in the Other Funds, that result in an approximate $0.5 million decrease. Attachment A details all expenditure adjustments, significant changes are noted below.
• Reduction of $1.2 million in the Housing Authority Fund, representing lower Housing Assistance Payment (HAP) voucher utilization primarily due to the extended lease-up of 57 project-based units at The Laurel and Serial Inebriate Programs.
• Increases of $0.3 million and $0.5 million in the Miscellaneous Grants and Special Revenue Source Funds. The change in the Miscellaneous Grants Fund, reflects the expenditures associated with an additional award for the organic waste recycling program and a new grant award to update the City's Hazardous Materials Area Plan. The change in the Special Revenue Source Fund, is a reduction related to GSH-related allocations from the General Fund to the City’s Housing Trust Fund from reduced Transaction and Use Tax revenues.
Capital Budget - Other Funds
Recommended changes to the FY 2024-25 capital budget include a net budget increase of $1.0 million to Pier Bridge Improvements. This increase is funded by grant funds from Caltrans under the Highway Bridge Program for bridge design costs in August 2024.
Grant Related Changes
Acceptance of Grant Award
The Santa Monica Fire Department was awarded the Hazardous Materials Emergency Preparedness (HMEP) Grant by the California Governor's Office of Emergency Services in the amount of $19,155. Staff recommends that Council authorize the City Manager to accept the HMEP Grant and any renewals so that staff may proceed to update the City's 24 of 43
Hazardous Materials Area Plan, which has not been updated since 2019 and does not reflect current state laws and regulations governing emergency response to hazardous materials incidents. In addition, much of the infrastructure has changed around the City, such as adding underground chemical tanks for the Sustainable Water Infrastructure Project, large storage tanks of liquid natural gas for Big Blue Bus, and a retail hydrogen fueling station at City Yards - all of which need to be reflected in the Area Plan.
Additional Grant Funding
California Department of Resources Recycling and Recovery (CalRecycle) SB1383 Local Assistance Grant Program: CalRecycle awarded the Resource Recovery and Recycling (RRR) Division of the Public Works Department two cycles of funding from its SB1383 Local Assistance Grant Program which assists local jurisdictions with the implementation of regulation requirements associated with SB 1383 (mandatory organic waste recycling). Eligible expenditures include education, edible food recovery, and equipment. CalRecycle awarded the first cycle in FY 2021-22 in the amount of $132,049 and recently awarded the second cycle in the amount of $245,580. 25 of 43
Building a Stronger Future Together:
Aligning Council Priorities and Staff Workplans
Santa Monica has built a reputation as, and remains today, one of the premier cities in America. This is largely due to the community’s consistent commitment to progressive values, a world-class workforce, and the ability to fund and implement best-in-class strategies around sustainability, affordable housing, homelessness prevention and intervention services, mobility, lifelong learning, arts and culture, and diversity and inclusion. It is also the result of a collaborative city organization working across departmental lines to realize important community initiatives aligned with Council priorities and direction. A summary of some of the major accomplishments and service deliveries was outlined in the October 2024 Information Item, Status Update on the FY 2023-24 Workplan and Performance Measures, (Attachment D.) However, a combination of fiscal constraints and unprecedented events have meant that staff have undergone a number of years of budget reductions and tradeoffs. This combined with a national toxic environment for public servants, a competitive labor market, reforms to pension benefits at the State level means the organization is at a critical juncture. In this crucial moment, it is imperative for the Council and staff to ensure alignment on priorities and policies for Santa Monica and to provide staff with a consistent, coherent vision for them to successfully do their work. Ensuring alignment between the Council and staff will allow projects to successfully move forward, enable efficient delivery of services, and ensure that the City continues to attract the best talent.
Current Staffing and Service Delivery
In looking back to chart a path forward, rekindling Santa Monica’s aspirational moniker will take strategic interdepartmental work, which benefits from understanding where the organization is today and how we got here. Guided by Council adopted priorities, City teams serve our community while still grappling with a reduced workforce, reduced revenues, challenges in recruitment and retention, and loss of institutional knowledge from a near total change in organizational leadership and Council membership over a 26 of 43
short period of time. While major leadership shifts have recently occurred, going forward, stability across the leadership team among departments and the newly installed City Council can foster renewed energy.
Below is a summary of City services that continue to operate at reduced levels:
• Across the City, staffing levels remain 175.7 FTE below 2020 levels and operate with a vacancy rate of 7-8% creating additional staffing shortages, with particular impacts to the Library, Housing and Human Services, and Community Development.
• As part of the recently adopted FY 2024-26 CIP budget, $6.8 million in capital funding was held in reserve for anticipated liabilities, with an additional $459 million in unfunded capital projects identified, including $41.3 million for parking facilities and $204 million for parks.
• Staff to maintain parks, city buildings, and other spaces and a Capital Improvement Program that remains below 2020 funding levels, are creating a growing maintenance backlog and slowing response times for 311 requests from same or next day to weeks.
• Youth and teen programs across the City remain shuttered or operate at reduced levels with waitlists for every program.
• The Miles Playhouse and Camera Obscura remain closed with plans to reactivate them in 2025, and Fairview and Ocean Park library branches only operate two days per week in a self-service model.
A complete list of impacted City services is attached (Attachment E). Current citywide staffing levels by department are reflected in the following table:
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FTE %
City Council 1.0 1.0 2.0 1.0 100.0% 1.0
City Manager 66.1 48.0 58.0 -8.1 -12.3% 7.0
City Attorney 48.9 42.5 45.5 -3.4 -6.9% 1.0
Records & Elections Services 13.5 12.0 13.0 -0.5 -3.7% 2.0 Community Development 1103.0 80.0 90.0 -13.0 -12.6% 5.0 Finance 78.3 61.3 68.0 -10.3 -13.2% 6.5
Fire - sworn 120.0 120.0 121.0 1.0 0.8% -1.0
Fire - non-sworn 16.0 14.0 16.0 1.0
Fire - as-needed 0.0 0.0 0.4 0.4 N/A
Housing & Human Services 2101.0 64.3 82.2 -18.9 -18.7% 6.8 Human Resources 28.2 22.0 27.0 -1.2 -4.3% 2.0
Information Services 54.0 46.0 53.5 -0.5 -0.9% 4.0
Library 112.0 47.8 74.3 -37.7 -33.7% 3.5
Police - sworn 229.0 223.0 232.0 3.0 1.3% 14.0
Police - non sworn 181.0 166.0 167.0 -14.0 -7.7% 17.5
Police - as-needed 33.3 10.7 22.5 -10.8 -32.5% N/A
Public Works 525.9 438.0 490.4 -35.6 -6.8% 39.0
Recreation & Arts 288.7 51.0 82.2 -6.5 -7.3% 2.2
Transportation 450.0 410.8 440.2 -9.8 -2.2% 23.0
Transportation - Mobility/Parking 148.5 31.5 37.5 -11.0 -22.6% 2.0 Citywide Total 2,298.3 1,889.8 2,122.6 -175.7 -7.6% 136.5 2 In FY 2023-24, the Community Services Department was dissolved and the Housing & Human Services and Recreation & Arts Departments were created.
Big Blue Bus (BBB) became Department of Transportation (DOT) Housing & Economic Development (HED) was dissolved
In addition, certain divisions were moved between departments:
Parking and Mobility divisions moved from PCD to DOT
Economic Development and Pier Administration moved from HED to CDD Housing, Community Recreation and Cultural Services moved from HED to CSD 19-20 to 24-25
1 In FY 2020-21, as part of the citywide restructure, three departments were renamed and one was dissolved:
Planning & Community Development (PCD) became Community Development (CDD) Community & Cultural Services (CCS) became Community Services (CSD) Staffing by Department FY 2019-20 (pre-restructure) vs FY 2024-25 & current Vacancies Department
FY 19-20
FTE
FY 20-21
FTE
FY 24-25
FTE
Delta
Vacancies
Today, the organization stands at 92.4% of the staffing levels Citywide compared with 2019/2020. It is in the face of these personnel and service reductions that staff have also been asked to engage in the substantive work of responding to emergencies, unfunded state mandates, and an unprecedented uptick in Councilmember requests of staff. Staff have made successful progress in all areas of the Council priorities in recent 28 of 43
years, including completion of the City’s Housing Element, the streamlining of many City permitting processes, restoring in person services for Housing and same-day permits, launching the Art of Recovery and Reframe Arts programs, formalizing the City’s Diversity, Equity and Inclusion program and initiating work on reparations and an equity roadmap, and working with countless businesses and city leaseholders to support them as they also adapt to Santa Monica’s new economy.
To help ensure this long-term alignment and vision as both Council and staff strive to revitalize Santa Monica, staff are presenting three strategic resources (Council Priorities, Organization Roadmap and Legislative Platform). Through these, the Council can provide its overarching strategic direction, policy positions, and priorities for the most critical work to be done over the next few years while also ensuring Santa Monica’s financial solvency. From these documents and the direction provided by Council to inform the FY 2025-27 budget, staff develop their departmental and team workplans establishing their operational priorities. The ability to consistently manage these workplans and priorities helps to ensure staff are able to efficiently complete projects and respond to community and council requests to achieve our common goal of revitalizing Santa Monica.
Council Priorities for FY 2025-27
In recent budget cycles, the City Council has identified Council or community priorities to provide a framework for communicating the City’s projects and services and to focus limited resources in the operating and capital budgets. Council priorities are an important component of the City’s budgeting process, informing recommendations on new investments and focusing staff efforts and projects, particularly when financial and staff resources continue to be constrained. Priorities inform what issues are most important to Council and how staff inform and analyze projects and policy recommendations. They also serve as an important tool through which to communicate information on work most important to the community. Staff present the priorities identified at its 2023 budget workshop (Attachment F) for Council consideration:
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• Addressing Homelessness: Prevent housed Santa Monicans from becoming homeless and increase the supply of affordable housing, address the behavioral health needs of vulnerable individuals and advocate for regional capacity to address homelessness.
• Clean & Safe Santa Monica: Create an atmosphere marked by clean and safe public spaces and neighborhoods, including parks for recreation and leisure activities.
• Cultivate Economic Recovery & Expand Community & Cultural Offerings:
Cultivate economic opportunity and recovery and invest in community and cultural amenities and programs for all community members, focused on expanding opportunities for youth, teens and seniors.
• Racial Justice, Equity & Social Diversity: The City of Santa Monica acknowledges the effects of generational and institutional racism and discrimination, and its consequences that continue to impact our residents and businesses. These lessons of our history cannot be ignored. The City is committed to advancing racial equity and social diversity to improve the wellbeing of people who live, work, learn, play, and do business in our City and create a community where differences in life outcomes cannot be predicted by race, class, gender, disability or other identities.
Everyone in Santa Monica must have an opportunity to thrive. • Sustainable & Connected Community: Ensure that City policies and programs enhance our resources, prevent and remedy harm to the natural environment and human health, and benefit the social and economic wellbeing of the community for the sake of current and future generations.
These broad priority statements serve an overarching framework for staff’s work, informing the budget, the operational roadmap, department workplans, and budget performance metrics.
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In preparation for this year’s workshop, staff undertook a community engagement process around the satisfaction of city services and community priorities. This included three community meetings and a non-scientific online survey, all of which were available in English and Spanish languages. In the end, 29 community members attended the budget meetings and we received 1,293 survey responses (1,288 in English and 5 in Spanish).
The community feedback reflects an overall general satisfaction with most city services and priorities. Consistent with past surveys, addressing homelessness and public safety remain top areas of focus for survey respondents, following affordable housing, mental health services, and mobility and safe streets. A complete report of the engagement results is attached (Attachment G.) It should be noted that community engagement is intended as one point of information for Council in selecting its priorities along with the Council’s commitments, and critical projects and initiatives supporting all of the priority areas that are now underway.
Staff use these priorities to inform our Santa Monica’s identity, our brand. These priorities and values are part of what attract people to visit, to live, and to open businesses here. Our reputation as a safe, inclusive, and sustainable community that supports a thriving arts and cultural community, offers multiple transportation and mobility options, and hosts inviting public spaces and a world class beach attractive for events and visitors alike all draw residents, visitors, and businesses to Santa Monica.
Continuing the important work on our current priorities both conveys to the community and to the organization that Santa Monica remains steadfast to its progressive values while also enhancing Santa Monica’s efforts to revitalize our local economy.
Organizational Roadmap
City leadership is taking all of these issues very seriously as the workforce is essential to excellent service delivery and responsiveness to community needs and Council priorities. To that end, the Organizational Roadmap (Attachment H) has been developed 31 of 43
as a guide to some of the City’s critical projects over the next five years to focus the work of our organization, provide clarity for the community, and ensure responsiveness to Council direction.
This Roadmap is intended to provide a common understanding for departments as to the overall direction of the City in consideration of Council priorities in an era of increased fiscal constraint. It is important to note that the Roadmap contains the work necessary to accomplish high-level initiatives and does not provide a comprehensive inventory of staff work. However, there is reference to other aspects of the City’s work efforts including the citywide work plan consisting of more than 300 projects, departmental work plans that encompass department specific focused efforts, or ongoing city services that are day-to-day foundational work across the City.
Staff will report progress to the Council, community and organization on a periodic basis as updates to the Roadmap. As schedules change, this will be noted in tracking and reporting. The Roadmap is looking to the future and staff are committed to make progress on these major initiatives and key priorities delivering on Council priorities and direction.
This document identifies the largest, most complex projects requiring regular attention and resources. These include several significant projects focused on Council priorities, some items with broad organizational or community impact, and initiatives that are a City Manager priority. These efforts are a significant amount of staff’s work. As these major projects align with Council policy vision, having Council champion these efforts and allowing staff the ability to focus on this work is a significant factor in the success of the organizations ability to deliver on these projects.
A sampling of some of the more than 20 interdepartmental major projects outlined in the Roadmap include:
• Implement Fire Department Strategic Plan
• Implement a Comprehensive Homelessness Strategic Plan 32 of 43
• Implement Police Department Strategic Plan
• Complete Airport Conversion Planning and Closure Process • Implement Vision Zero Initiatives
• Implement Local Economic Growth and Tourism Strategies • Develop and Implement Citywide Equity Plan
• Big Blue Bus Fleet Electrification Conversion
• Significant Land Use / Planning Initiatives
The success of these projects will take the collaboration of many people – our City departments and employees, our elected officials, and various stakeholders.
Maintaining a focus on these efforts in this budget cycle and beyond signals to staff that the era of high disruption is ending and that the organizational leadership is focused on priorities important to the community and to the workforce.
Council Legislative Platform
The City of Santa Monica engages state and federal lobbying firms, Shaw Yoder Antwih Schmelzer & Lange (SYASL) and The Ferguson Group, to advocate for its legislative objectives, secure funding opportunities, and represent its interests in Sacramento and Washington, D.C. These firms collaborate with City staff to advance council policy goals, monitor and influence legislation, and liaise with elected officials and agencies. The Council’s State and Federal Legislative Platforms grounds this advocacy and will continue to guide the City’s legislative and policy advocacy, ensuring alignment with Council’s adopted priorities and providing a transparent framework for engagement with state and federal policymakers.
Maintaining up-to-date legislative platforms at both the federal and state level serves to clarify City policies, create additional transparency, and enable staff to rapidly weigh in on matters of legislative importance with the backing of Council’s adopted positions. The City has developed updated State and Federal Legislative Platforms for the 2025-2026 legislative sessions, aligning advocacy efforts with key priorities: addressing homelessness, maintaining clean and safe public spaces, fostering economic recovery, 33 of 43
advancing racial justice and equity, and promoting sustainability. Staff is recommending City Council adopt the updated 2025-2026 Federal and State Legislative Platforms (Attachment I.)
Adoption of the legislative platforms is a public statement by the Council of its legislative priorities at the federal and state level. This action, combined with consultation of positions adopted by statewide and national advocacy organizations such as the League of California Cities, National League of Cities, U.S. Conference of Mayors, and Independent Cities Association in addition to collaborations with regional partners though Joint Powers Authorities like Westside Cities Council of Governments and Southern California Association of Governments, allows staff to review and adopt positions on legislative items of particular concern to Santa Monica.
It is important to note that the platforms can be amended at any time should the Council wish to address additional topics not currently covered. Prompt adoption of these platforms remains the most efficient and transparent way to reaffirm the City’s legislative priorities and maintain credibility in its advocacy efforts. 34 of 43
Safer at Home:
Response to Actions Taken by the Federal Government
While the City of Santa Monica remains committed to protecting and uplifting all residents, guided by values of equity, inclusion and justice, the 2025 presidential transition and dramatic shifts in federal policy has created new challenges for the community, particularly for those most vulnerable to systemic inequities. In response to Council’s direction asking staff to prepare for the presidential transition, staff formed a multi-departmental team led by the City Manager’s Office to serve as a triage and response team to better equip the City to respond to the regular stream of policy announcements coming from the White House. Recognizing the impact of these policies on Santa Monica’s diverse population, the team has focused in four key areas:
immigrant rights, LGBTQ+ support, rapid response coordination with City departments, and fiscal impact analysis. These efforts aim to ensure that all residents, particularly the most vulnerable, continue to have access to essential resources, legal protections, and city services.
One of the primary areas of focus has been immigrant rights. Building from its efforts and the relationships built during the 2016-2020 presidential administration, the team, through a collaborative effort with the City Manager’s Office, Housing and Human Services, Police and the Library, has strengthened community engagement through new partnerships and public outreach efforts designed to inform and empower immigrant residents. Local partners including SMMUSD, Santa Monica College.
Familias Latinas Unidas and others have worked with staff to elevate the key concerns of the community and to build the trust needed for the City to successfully assist in mitigating the impacts of the mass deportation efforts currently underway. A Know Your Rights event series has been launched, providing crucial legal information to the community, including:
• a presentation for the SMMUSD Student Affinity Group on February 11, • a PTA-sponsored event on February 12,
• a Know Your Rights event Virginia Avenue Park on February 27, and 35 of 43
• a legal clinic hosted by the Los Angeles Free Legal Assistance Clinic (LAFLA) on March 10 where one on one legal consultations will be provided at no cost.
To further support these efforts, the City has updated and expanded its public-facing website, www.santamonica.gov/safeathome, which serves as a central hub for immigrant resources, legal guidance, and City-supported protections.
In addition to its work supporting immigrants, the CMO has prioritized efforts to ensure that Santa Monica’s LGBTQ+ community remains protected and supported. The City has enhanced its collaboration with county partners that provide specialized LGBTQ+ services, ensuring residents have equal access to vital programs, including physical and mental health support, financial assistance, and housing stability resources. In addition, a review of municipal policies is currently underway to ensure that existing legal and administrative structures continue to provide a safety net for transgender and queer residents, particularly in light of potential federal rollbacks of LGBTQ+ protections.
Council has affirmed its commitment to gender affirming care and those who are trans, gender diverse, or intersex at its February 25, 2025 meeting. The City health plans offer gender affirming care health benefits to all covered employees and the City and Council adopted an all gender restroom building ordinance that requires all new multi-stall restrooms be designed to be gender neutral. To support LGBTQ+ youth, the City includes protections in its anti-bullying policy that cover sexual orientation and gender identity and strives to ensure access to restrooms and recreational programs based on gender identity/expression, not perceived gender or biological sex assigned at birth.
Additionally, the City’s Out in Santa Monica affinity group supports the Trans Equity Scholarship, in partnership with the LA LGBT Center’s Trans Economic Empowerment Project, to help support those seeking to make their gender and name change official in government records. To better share resources for the LGBTQ+ community, staff hosts information on city and community efforts on the City’s dedicated LGBTQ+ inclusion webpage: www.santamonica.gov/lgbtqia-inclusion.
To better equip City departments with the tools and knowledge needed to respond to federal actions, staff from the City Manager’s Office and Housing and Human Services 36 of 43
have begun meeting in the community with staff from CREST, PAL, and others in public facing roles upon request to host Q&A sessions. These sessions have proved invaluable in surfacing policy questions for review by the City Attorney’s Office, Police Department, and City Manager’s Office, allowing them to receive timely answers to legal and procedural questions that may arise when interacting with the public. A large city staff Know Your Rights forum will also be held in March 2025 with panelists from Legal Aid, the Coalition for Humane Immigrant Rights (CHIRLA), and representatives from the Los Angeles LGBT Center.
In addition, an interdepartmental rapid response communication channel has been established, enabling staff to share concerns and receive real-time guidance. These inquiries will be compiled into weekly digests, ensuring that all employees remain informed about emerging issues. To support this initiative, a new internal resource site will be developed in collaboration with the City Attorney’s Office, the City Council Office, and the Legislative Affairs Liaison to share up to date information on the status of Executive Orders and policy changes that could Impact Santa Monica specifically. This site will include guidelines for supporting vulnerable communities, managing City sites with appropriate safeguards, and protocols for interactions with federal agents.
Finally, the city’s Finance Department is conducting a fiscal review of federal funded projects to assess how federal policy changes may affect Santa Monica’s financial landscape. The uncertainty of federal funding calls into question the City’s ability to complete major projects such as the Pier Bridge Replacement, creates uncertainty about federal funding streams that subsidize our Big Blue Bus and affordable housing programs, and provide public safety grants to our Police and Fire Departments. A current inventory of City projects utilizing federal funds is attached (Attachment J). In addition to these very specific concerns, concerns also exist within our non-profit partners who rely on federal funds to provide their services. The City is simply not in the place to backfill losses in federal funding in any of these areas.
Adding to the uncertainty, tariffs and even the threats of tariffs risk the cost of goods needed for major capital projects to rise, further inhibiting the City’s ability to complete 37 of 43
already funded projects. Through our City Manager, City Attorney, and Finance teams, departments are working closely with the City’s lobbyists to address each situation and provide guidance on whether projects should move forward at this time. To date, staff have not stopped work on any projects involving public funds, but pursuit of new federal funding appears less likely. Human Services staff have also opened a dialog with our non-profit partners to understand how they may be impacted and coordinate any efforts where possible. This continuous monitoring will help staff triage threats to federal funding as they come in to best mitigate their impacts to City operations wherever possible.
Through these efforts, the City Manager’s Office and its many City partners remain steadfast in their commitment to protecting the rights and well-being of Santa Monica residents, businesses and staff. By fostering strong community partnerships, ensuring access to critical services, enhancing internal coordination, and staying vigilant in fiscal planning, the City is actively working to mitigate the challenges presented by shifting federal policies. These initiatives reflect Santa Monica’s dedication to being a safe, inclusive, and resilient community, regardless of the political climate at the national level.
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Reimagine, Reinvent & Reinvest:
Supporting our Economic and Community Recovery
Economic Development has pivoted in the past five years from assisting businesses navigating the pandemic and post-pandemic economic realities to a greater emphasis on flexibility in regulations. Creation of the successful outdoor dining program on private property in places such as former parking spaces or expanding opportunities in the public right-of-way next to the curb in the form of parklets and/or extended sidewalk dining in front of adjacent vacant spaces, are early and ongoing success stories.
The next wave of work continues with increasingly flexible requirements in business districts, allowing larger businesses and a greater diversity of uses, especially those with food and/or alcohol service, to open more, removing procedural impediments and associated fees. Activating the districts is also critical, building upon recent policies adopted by Council including “Open Street” community events, the piloting of Entertainment District(s) starting on Third St Promenade and leveraging City-owned assets to host larger events including Cirque de Soleil (1550 Beach Lot), Tech Week LA – SM Innovation Hub (Ocean Ave/DTSM) and the introduction of Pickleball and Padel to the former PS3 site on 4th St (future affordable housing development) – all of which help activate the districts but also attract revenue to the City in form of license fees and revenues (e.g. sales tax, TOT and parking revenues). In addition, the Economic Development Division Team has rolled out a small business grants program utilizing CDBG funds to help support local businesses and attract investment to our neighborhood commercial districts.
Council should continue to anticipate zoning ordinance changes to increase flexibility for businesses and business districts through the end of the year. These changes are in response to Council requests, changes in state law, and requests from the business community. Work continues to ease the building permit and construction process, helping move projects along.
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Undoubtedly, 2025 is another inflection point in the economic wellbeing of the Santa Monica community, punctuated by impacts from the Palisades Fire. It is time for renewed efforts focused on business attraction, retention, and expansion, while capitalizing on branding and marketing. Santa Monica will continue to partner with our valued partners, including Santa Monica Travel and Tourism, the SM Chamber of Commerce and the business improvement districts while asking the Council to engage more directly in economic development. This is work that Santa Monica has not strategically emphasized recently and the need is imminent.
This will involve prioritizing staffing and shifting resources to critical economic recovery efforts in a strategic manner that will help build upon Santa Monica’s strengths – a leader in innovation, sustainability, wellness and tourism. In addition to business retention and attraction efforts, it is critical for the City to focus on attracting investment to our infrastructure, our commercial buildings and to new infill development projects that will help to support tourism, contribute to the City’s overall quality of life and drive more revenue to our community.
Why we need to act now, and urgently? Citywide, our office vacancy rate is 21.3%, putting us on par with Downtown LA at 21.5%. Our retail vacancy rate is 11.2%. For comparison, Downtown LA and West Hollywood are both 9%. This is unfortunately an increase from our historical average retail vacancy rates of 5.5%, according to CoStar.
One of the main contributing factors to these high rates is the loss in daytime workers and visitors from pre-Covid. This demonstrates the urgency to retain and attract workers back to Santa Monica, particularly in our downtown. On the positive side, this means we have a lot of opportunities in Santa Monica, particularly for our businesses.
While we still have a lot of work ahead of us, we have come a very long way since the pandemic, when we saw our annual visitor numbers plummet from 8 million visitors per year to nearly zero, and all but our essential businesses closed.
There are several critical next steps to help reimagine, reinvent, and reinvest in the City's economic development and recovery efforts. It is recommended that Council form 40 of 43
an Economic Development Ad Hoc Subcommittee and support staff efforts to launch an economic development plan that will help to kick-start a strategic economic recovery program focused on business attraction, retention and expansion. One of the immediate roles of this committee will be to work with staff in drafting a new economic development strategy that is practical, focused on today’s economy, and implementable.
In addition, staff will launch an inter-departmental economic development task force comprised of pertinent staff members from every department to continue looking at all things “economic development” from a citywide perspective. Other immediate actions will include the adoption of a multi-point plan for economic recovery, all focused on providing services and mechanisms for small business assistance, development project implementations, removing barriers to development, and looking for ways to create opportunities for new revenues and business resurgence.
Also supporting our economic development efforts, the Community Partnerships team continues to pursue revenue-generating opportunities and plans to bring proposals to Council to expand requirements for commercial film and photography permits to include private property, pursue sponsorships and brand activations/collaborations, adopt guidelines for selling naming rights to certain City-owned facilities, and update the municipal code to enhance the City's ability to effectively capitalize on emerging and unsolicited opportunities.
Lastly, staff is working on rebuilding a branding and marketing campaign strategically focused on the messaging that the City is safe, open for business, and continues to welcome visitors. These initiatives will all maximize existing resources and capacity within Community Development, with assistance from all departments in an “all hands on deck” approach to revitalize Santa Monica’s economy. 41 of 43
Next Steps
The Council workshop is the next step in the City’s biennial budget process, which will culminate in the FY 2025-27 budget being presented for adoption on June 24, 2025.
Between the workshop and budget adoption, there will be a series of opportunities to further inform the City’s work on its priorities and refine the proposed budget, including:
Date Topic
March 11 Homelessness Strategic Plan
March 25 Water and Wastewater Rates Study
April 22 Presentation of Equity Roadmap
May 15 Publication of Proposed FY 2025-27 Biennial Operating Budget and FY 2025-26 Proposed Capital Improvement Program Budget May 27 Budget Study Session
June 24 FY 2025-27 Budget Adoption
Environmental Review
The FY 2024-25 Midyear Budget and Council workshop is not a “project” subject to CEQA. The workshop is administrative in nature and would establish the budgeting process. Pursuant to CEQA Section 21065, the workshop does not meet the definition of a “project” subject to CEQA as it will not “cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.” Additionally, per Section 15378(b) of the CEQA Guidelines, a “project” does not include organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment. Additionally, the workshop is exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines. The Midyear Budget is covered by the common sense exemption which states that CEQA does not apply, “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” Therefore, it can be seen with certainty that actions would not result in adverse physical impacts on the environment, and as such, is exempt from CEQA.
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Financial Impacts and Budget Actions
Combined with the Council-approved budget adjustments through February 2025, the recommended midyear budget adjustments would result in the following FY 2024-25 Revised Budget:
Revenues (in millions)
Adopted
Budget
Year to Date
Adjustments A
Midyear
Adjustments
Revised
Budget
General Fund $458.8 ($2.8) $456.0
Other Funds $421.4 $7.8 ($12.5) $416.7
Reimburse. & Transfers B ($95.7) ($1.3) ($97.0)
Total $784.5 $6.5 ($15.3) $775.7
Operating Expenditures (in millions)
Adopted
Budget
Year to Date
Adjustments A
Midyear
Adjustments
Revised
Budget
General Fund $449.9 $2.2 $452.1
Other Funds $304.6 $5.3 ($0.5) $309.4
Reimburse. & Transfers B ($81.4) ($81.4)
Total $673.1 $5.3 $1.7 $680.1
Capital Expenditures (in millions)
Adopted
Budget
Year to Date
Adjustments A
Midyear
Adjustments
Revised
Budget
General Fund $13.4 $1.2 $14.6
Other Funds $93.1 $4.9 $1.0 $99.0
Reimburse. & Transfers B ($14.3) ($1.3) ($15.6)
Total $92.2 $4.8 $1.0 $98.0
A Reflects year-to-date budget adjustments approved by Council on 6/25/2024 (Item 5B), 7/9/24 (Item 5I), 7/23/24 (Items 5C and 5G), 8/27/24 (Item 5B), 9/10/24 (Item 5B), 10/22/24 (Items 5D and 5I), 11/11/24 (Items 5D and 5H), 12/17/24 (Items 5E, 5M, 5Q and 10B), 1/28/25 (Item 5J), and 2/25/25 (Item 4B).
B These are technical adjustments to eliminate double counting of certain revenues and expenditures appearing in two funds.
Details of FY 2024-25 mid-year budget adjustments are in Attachment A. 43 of 43
Prepared By: Christopher Smith, Deputy City Manager
Approved Forwarded to Council
Attachments:
A. Detail of Proposed Revisions to FY 2024-25 Budget
B. Targeted Budget Enhancements Included in FY 2023-25 Adopted Biennial Budget
C. May 28, 2024 Staff Report
D. Status Update on the FY 2023-24 Citywide Workplan and Performance Measures
E. Impacted City Services
F. March 11, 2023 Staff Report
G. Community Engagement Survey Results
H. Organizational Roadmap
I. Updated 2025-26 Federal and State Legislative Platforms J. FY 2024-25 Midyear Federal Funding Review
K. Budget Study Session on Enhancing Public Safety and Addressing Homelessness
L. Written Comments
M. PowerPoint Presentation