City Council
Report
City Council Meeting: July 8, 2025
Agenda Item: 4.K
1 of 8
To: Mayor and City Council
From: Arminé Chaparyan, Director, Administration
Subject: Approval of the DTSM Fiscal Year 2025-26 Budget and Work Plan and License Agreement with DTSM
Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of categorical exemption pursuant to Section 15061(b)(3) of the California Environmental Quality Act (CEQA) Guidelines;
2. Approve the Downtown Santa Monica, Inc. (DTSM) Fiscal Year 2025-26 Budget and Work Plan; and
3. Approve a Third Street Promenade Public-Serving Programs and Amenities License Agreement to allow DTSM to operate events with alcohol service within the new Third Street Promenade Entertainment Zone and to include a shared revenue opportunity for DTSM and the City.
Summary
Santa Monica's Downtown area is a significant driver of the City's commercial, cultural and tourism economy. Downtown Santa Monica, Inc., (“DTSM”) is a non-profit corporation organized under state law that currently administers the downtown Santa Monica Property-Based Assessment District (“PBAD") that is comprised of commercial properties and businesses located in the downtown Santa Monica area, including the Third Street Promenade. The mission of DTSM, Inc. is to work with the City of Santa Monica to promote economic stability, growth, and community life within Downtown Santa Monica. The roles and responsibilities of DTSM are defined in the Master Services Agreement (#9063 CCS) and annual DTSM Work Plan. Under this agreement, the City authorizes DTSM to manage and provide a variety of programs and services related to the operation of the PBAD.
2 of 8
The Downtown Santa Monica PBAD continues to be the business district that has been most heavily affected by the lasting impacts of the COVID-19 pandemic and the recent Los Angeles Wildfires, resulting in reduced tourism, population displacement and evolving hybrid working trends, all which have had the combined effect of reducing the number of visitors, shoppers and workers to our downtown. While tourism is slowly rebounding and new businesses are opening, the prolonged economic recovery is especially noticeable on the Third Street Promenade. The City and DTSM have a longstanding collaborative relationship and are prioritizing resources to help expedite the downtown district’s overall economic recovery, including addressing concerns of security, safety, maintenance and homelessness, while pursuing proactive, collaborative economic development efforts to retain and attract businesses and investment to the Downtown, as outlined in the FY 2025-26 Work Plan and Budget.
The adoption of the proposed Work Plan and Budget for Fiscal Year 2025-26 authorizes DTSM’s continued operations and the City’s quarterly revenue disbursement for services, in accordance with the Master Services Agreement. The license agreement will support DTSM’s ability to operate more events in the newly-adopted Third Street Promenade Entertainment Zone.
Discussion
DTSM is a 501(c)(3) non-profit organization that is under contract with the City to administer business and property-based assessment districts, including the management of a variety of programs, services, and operations to support economic stability, growth, and community life in downtown Santa Monica. DTSM provides hospitality and maintenance services, programs a year-round calendar of community events, including the SaMoPride Festival, the ICE skating rink activations on the Cityowned Lot 27 parking lot (5th Street at Arizona Avenue) and pickleball activations on the City-owned 1318 4th Street site (future housing development), the launch of the newly-approved Third Street Promenade Entertainment Zone and continued efforts to promote Downtown as a vibrant shopping, dining, and entertainment destination.
DTSM’s annual work plan is focused on maintaining a clean, safe and economically vibrant downtown district. Emphasis is on enhancing public safety through continued advocacy and deployment of private security, improving cleanliness across the public 3 of 8
right-of-way and parking structures, and boosting foot traffic through community event activations. Efforts this last fiscal year and into the current Fiscal Year 2025-26 prioritize efforts to support Downtown’s continued resilience and revitalization, and its role as a welcoming destination for both locals and visitors.
On May 20, 2025, the DTSM Board adopted their annual budget and work plan, both of which are consistent with existing organizational priorities and investments, with significant funding priority for community safety.
Changes in this year’s budget include increased funds for the Downtown Outreach Program ($867,316 – a 328% increase from 2024 allocation), which pays for enhanced security-related outreach provided by Legion as well as ambassador-focused outreach provided by Block by Block. Legion and Block by Block are contractors hired by DTSM.
To support enhanced cleaning throughout the downtown, DTSM has also boosted funds for the Lincoln Boulevard and Colorado Avenue Maintenance line items (41% and 31% respectively, compared to the FY 2024-25 budget). To help fund these services, DTSM has reallocated some funding from the Parking Structure Maintenance line item, reduced funding allocated for decorative lighting and winter décor, and will utilize some unspent funds from FY 2024-25.
DTSM and the City continue to work closely together to identify the best strategies to support the health and vitality of the Promenade and overall downtown district, including adjusting services to prioritize clean and safe efforts throughout the area. In FY 2025- 26, the City’s Promenade Maintenance Team will assume a greater role in cleaning the Parking Structures and DTSM’s Block by Block team will assume responsibility for cleaning Zone 3 (the area bounded by 5th and 7th Streets, Wilshire Boulevard to Colorado Avenue). This “swap” in enhanced cleaning services is revenue neutral.
DTSM and City staff meet quarterly to evaluate the overall service delivery and results (Annual Work Plan attached).
DTSM is also prioritizing funding to support the new Entertainment Zone, with the goal of more robust event programming to reinvigorate public space, increase foot traffic and help attract new businesses to the downtown.
Funding for the programs, services, and operations comes from revenue generated from two business-based assessment districts:
4 of 8
• The Central Business District (CBD), established in 1966, is funded by retail businesses in the CBD, and
• The Operation and Maintenance Assessment (Bayside Assessment), established in 1986, is funded by all businesses within the Bayside District.
And three property-based assessment districts:
• The Downtown Santa Monica Property-Based Assessment District (Downtown PBAD), established in 2008.
• The Lincoln Boulevard Property-Based Assessment District (Lincoln PBAD) established in 2015.
• The Colorado Avenue Overlay Zone (Colorado Overlay) established in 2015.
The Master Services Agreement between the City and DTSM requires the annual preparation and approval of a budget and work plan. In accordance with this requirement, DTSM has submitted its FY 2025-26 budget and work plan for Council review and approval.
FY 2025-26 Budget
DTSM has prepared a budget for FY 2025-26 of $9.6 million – with $9.39 million in anticipated revenue from property-based assessments, business assessments and income from enterprise programs -- and a forecasted $9.65 million in expenditures (attached). The deficit would be funded by DTSM cash reserves. However, DTSM is optimistic that they may be able to secure more event sponsorship revenue than forecasted to cover this funding gap. DTSM Board has opined that they currently have enough cash reserves to help fund any shortfalls over the next five years, in the event that DTSM Inc is not able to increase revenues through event and vending cart sponsorships. The DTSM Board of Directors adopted the annual budget and work plan on May 20, 2025. At their meeting on June 17, 2025, DTSM Board of Directors voted not to increase the annual assessments to help cover increased operating costs due to the availability of cash reserves. DTSM has not increased their annual assessments by 5 of 8
Consumer Price Index (CPI) since 2020. Also attached is the most recent DTSM Annual Audit.
In response to the current economic climate, DTSM did not increase the assessment rates. Overall projected revenues reflect a one percent increase from DTSM’s FY 2024- 25 budget, but an overall reduction of six percent in the total budget amount.
Operational Work Plan for FY 2025-26
The proposed Work Plan details DTSM’s operational and programming initiatives for FY 2025-26 (attached). The work plan’s three strategic areas are:
1) Operations and Public Space Management: A clean, safe, and welcoming environment is the foundation for success in Downtown Santa Monica. DTSM provides enhanced services in the areas of public safety, custodial maintenance, and social outreach, while also providing oversight of City of Santa Monica services. Together, DTSM and the City fulfill the responsibility of creating a thriving and inviting community space for everyone. Operations and Public Space Management services make up 72.3% of the DTSM, Inc’s FY 2025-26 Budget. Several adjustments have been made within this category. A key change is the reallocation of a portion of Legion Corporation’s contract from Downtown Security Services line item to Downtown Outreach Program line item (resulting in a 328% increase in Outreach compared to FY 2024-25) to emphasize the increased attention on enhanced security through outreach and mitigation efforts.
Funds previously deployed to Parking Structure Maintenance have been reduced by 50% and reallocated to Zone 3, Lincoln and Colorado Boulevard Maintenance efforts as well as to the Outreach Program. The proposed service adjustments this year include reallocation of the City’s Promenade Maintenance staffing (2.5 FTE) to support Parking Structure Maintenance efforts. DTSM’s Block by Block team will, in turn, assume responsibilities for providing Zone 3 cleaning of the streets, sidewalks and alleys. This shift in services is revenue-neutral for both parties, as mandated by the DTSM Master Services Agreement. 2) Communications, Events, & Development: DTSM furthers the reputation and economic vitality of Downtown Santa Monica and the Third Street Promenade through consistent branded communications, hosted and facilitated events, and 6 of 8
economic development. Communications, Events and Development services make up 20.7% of the DTSM FY 2025-26 Budget. This priority area includes the following directives: Community Events and Activations, Partnerships, Public Relations and Promotions, Economic Development and Advocacy, Data and Research, and Communications and Outreach. The Community Events and Activations line item has been increased by 33% from last year’s budget.
Approximately $150,000 in funding will be reallocated from the Promenade Micro-Activations line item to the Community Events line item. This shift aims to enhance the new Entertainment Zone, a central strategy for reinvigorating public space and increasing foot traffic downtown. DTSM will also continue to prioritize Economic Development, Public Relations and Advertising to help fund positive news on new business openings, to help promote the ease of doing business in Santa Monica and earmarking funds for more business events such as quarterly Broker Happy Hours, all done in close partnership with City’s Community Development Department.
3) Organization Management: DTSM is an efficient and effective organization that employs professional staff to manage relationships and services that support Downtown Santa Monica. These functions require centralized administrative support funded through revenues received by DTSM throughout the fiscal year.
Organizational Management services make up 7% of the DTSM FY 2025-26 Budget. This priority area includes Administrative Functions, Professional Support, and Board and Staff Education and Development.
Third Street Promenade Public-Serving Programs and Amenities License Agreement On September 10, 2018, the City and DTSM entered into a Third Street Promenade Public-Serving Programs and Amenities License Agreement to authorize DTSM, within the pedestrian area of the Third Street Promenade ("License Area") to provide publicserving programs and amenities to increase pedestrian experiences, enhance the sense of place, engage the community, and activate public use of the License Area.
Upon expiration, Council permitted an extension on July 25, 2023, with the addition of a 7 of 8
Promenade Vending Cart Program for a term of four years, with three annual options to renew, for the Parties to assist and facilitate the Uses in the License Area to create an environment that encourages and supports the presence of pedestrians, enhances the sense of place, engages the community, and increases overall public visitation in and through the License Area.
In support of the newly-created Third Street Promenade Entertainment Zone, staff recommend granting DTSM the ability to expand the Vending Cart concept to include pop-up events with alcohol service (e.g. satellite beer gardens) within the new Third Street Promenade Entertainment Zone and to include a shared revenue opportunity for DTSM and the City. This will help to generate additional funding for both DTSM and City in support of downtown strategic priorities, including further marketing, events, capital improvement projects and clean/safe efforts.
Environmental Review
The proposed DTSM agreements with the City are exempt from CEQA pursuant to Section 15061(b)(3), 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.” The agreements are administrative in nature and would provide for continued operations and budgeting for DTSM services. Therefore, it can be seen with certainty that the recommended actions would not result in adverse physical impacts on the environment, and as such, is exempt from CEQA.
Past Council Actions
Meeting Date Description
07/09/2024
(attachment A)
DTSM FY24/25 Budget and Work Plan and Master Services
Agreement
07/25/2023
(attachment B)
Third Street Promenade Public-Serving Programs and
Amenities License Agreement
Attachment C DTSM Annual Audit 2024
Financial Impacts and Budget Actions
There are no immediate financial impacts or budget actions necessary as a result of the recommended actions. It is estimated that the license agreement will generate some 8 of 8
additional revenue for both DTSM and City budgets, but the amount is currently unknown due to the new status of the Entertainment Zone. Staff will return to Council if specific budget actions are required in the future.
Prepared By: Jennifer Taylor, Economic Development Manager Approved Forwarded to Council
Attachments:
A. FY25-26 DTSM Annual Work Plan FINAL
B. Attachment B - Third Street Promenade License Agreement (Web Link) C. 2024 Downtown Santa Monica Audit Report
D. FY25-26 DTSM Adopted Budget
E. July 9, 2024 Council - Adoption of DTSM Annual Work Plan + Budget (Web Link) F. July 9, 2024 Council - Adoption of DTSM Annual Work Plan + Budget G. Written Comments