City Council
Report
City Council Meeting: May 26, 2026
Agenda Item: 7.A
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To: Mayor and City Council
From: Oscar Santiago, Director, Finance Department, Budget Subject: Fiscal Year 2026-27 Proposed Budget and Fiscal Year 2026-28 Proposed Biennial Capital Improvement Program Budget
Recommended Action
Staff recommends that the City Council:
1. Review and provide direction to staff regarding the FY 2026-27 Proposed Operating Budget Adjustments (Attachment A) and FY 2026-28 Proposed Biennial Capital Improvement Program (CIP) Budget (Attachment B);
2. Direct staff to proceed with setting the FY 2026-27 Operating and FY 2026-28 Biennial Capital Improvement Program (CIP) Budget Adoption hearing on June 23, 2026;
3. Approve the position and classification changes (Attachment C);
4. Review and comment on the recommendations of the Fee Study Report, Fire Fee Study Report, and Cemetery Fee revisions (Attachments D, E and F);
5. Review and comment on the recommended updates to the Fiscal Policies (Attachment G); and
6. Adopt a finding of no possibility of significant effect pursuant to Section 15061(b)(3) (Common Sense Exemption) of the California Environmental Quality Act (CEQA) Guidelines.
EXECUTIVE SUMARY
Santa Monica prepares its operating and capital budgets on a two-year cycle, a municipal best practice that supports stable, long-term planning while streamlining financial management and policy decision-making. In odd-numbered years, the City brings a two-year operating plan to Council, which adopts the first year and approves the plan for the second. In even-numbered years, the City brings the biennial Capital Improvement Program (CIP) Budget to Council for adoption of the first year and approval of the second.
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This year, the biennial CIP is the centerpiece action before the Council, and this study session presents both the FY 2026-27 Proposed Operating Budget Adjustments and the FY 2026-28 Proposed Biennial CIP Budget for Council review and direction in advance of the June 23, 2026 adoption hearing.
Regarding the FY 2026-28 Proposed Biennial CIP Budget, the proposal developed for City Council consideration represents a defining transition for the City’s capital program, and is the centerpiece of this study session. For much of the past decade, and especially through the pandemic years, the CIP budget had functioned less like a true capital budget and more like a second operating account, absorbing recurring maintenance, fleet replacement, and technology costs that crowded out the delivery of meaningful public improvements.
The organizational Realignment Plan adopted in October 2025 changed that trajectory, first by moving recurring costs into the operating budget where they belong, and then by rebuilding the CIP as a focused, deliverable portfolio of priority projects. The result is a new budgetary foundation for capital reinvestment in Santa Monica, outlined via a $109.8 million FY 2026-27 and a $116.6 million FY 2027-28 capital program that, for the first time in years, is genuinely organized around capital delivery.
The proposed CIP initiates long-deferred investments such as the Memorial Park Redevelopment and Expansion; major event and Pier infrastructure upgrades in preparation for the FIFA World Cup and the LA28 Olympic and Paralympic Games; the renewal of the Camera Obscura building and the Main Library; parks investments at Tongva Park and Airport Park; streetlight modernization on Montana Avenue and in Mid-City; a slate of mobility and Vision Zero improvements; and upgrades at the Annenberg Community Beach House.
On the operating budget side, the proposed FY 2026-27 budget represents the second year of the FY 2025-27 Biennial Budget, originally approved by Council in June 2025.
This report asks Council to affirm that approved budget as revised, principally to 3 of 31
incorporate the Realignment Plan budget adjustments that were adopted in October 2025, and the operational updates approved in March 2026. In addition, the operating budget includes a set of cleanup adjustments that align departmental budgets with current staffing levels, refine program costs, and updates revenue estimates.
Importantly, after accounting for those Realignment Plan adjustments, the General Fund is now projected by be structurally balanced. For the current fiscal year (FY 2025-26), we are projecting a carry-forward surplus of approximately $8.95 million, from which the City will set-aside $3 million for the Council-approved Economic Recovery Reserve.
That leaves a carry-forward surplus fund-balance of around $5.95 million. We are also projecting a balanced FY 2026-27 operating budget, and when taking into account options related to the joint use agreement with the Santa Monica Malibu Unified School District (more details described below), the City remains on-track to achieve a structurally balanced operating budget by the start of our next Biennial Budget for FY 2027-29.
Additionally, this report also summarizes the results of the Citywide Fee Study, which updates City fees to reflect the current cost of delivering services and is projected to increase citywide cost recovery from 60% to 66%, or approximately $2.1 million across all Funds. Finally, the report proposes amendments to the City’s Fiscal Policies to incorporate the modernized Procurement Policy, following Council’s March 2026 adoption of the updated Purchasing System ordinance.
Collectively, the FY 2026-28 Proposed Biennial CIP Budget, the FY 2026-27 Proposed Operating Budget Adjustments, the fee study updates, and the revised Procurement Policy position the City to sustain enhanced service levels, maintain fiscal stability, and continue advancing the Realignment Plan’s goals of a safer, cleaner, more vibrant, and financially resilient Santa Monica.
The following table summarizes the Citywide FY 2026-27 Proposed Expenditure Budget for all Funds (in millions, rounded):
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Revised
Approved
Budget Plan1
Proposed
Changes
Proposed
Budget
All Funds - Citywide budget before adjustment for
reimbursements & transfers $999.1 $26.7 $1,025.8
Less reimbursements & transfers 2(120.1) 2.5 (117.6)
All Funds- Citywide budget net of
reimbursement & transfers $879.0 $29.1 $908.1
All Funds - Citywide FTE Permanent Positions 2,169.3 7.0 2,176.3 All Funds - Citywide FTE As-needed Positions 112.3 - 112.3 Total FTEs 2,281.6 7.0 2,288.6
1 Approved Budget Plan includes all Council-approved budget changes made in FY 2025-26, including Realignment Plan changes.
2 These are technical adjustments to eliminate double counting of certain expenditures appearing in two funds.
FY 2026-28 PROPOSED BIENNIAL CAPITAL IMPROVEMENT PROGRAM The Biennial CIP Process
Every two years, the City develops a five-year Capital Improvement Program (CIP) Budget (Attachment B). The first year of the Proposed CIP Budget (FY 2026-27) is adopted and funds are appropriated as part of the budget process. The second year (FY 2027-28) is approved, with staff returning to Council prior to the start of that fiscal year to seek budget adoption. Budget projections for FY 2028-29 through FY 2030-31 serve as planning tools that highlight anticipated long-term capital needs. Project needs are reevaluated during each biennial cycle so that allocations align with available funding and the latest City and Council priorities.
A Realignment of Santa Monica's Capital Program
The proposed FY 2026-28 Proposed Biennial CIP Budget represents a deliberate transition for Santa Monica. Over the decade preceding the COVID-19 pandemic, the City designed and delivered a remarkable series of transformative infrastructure projects that reshaped mobility, public space, sustainability, and civic identity.
Landmark investments were engaged by the City, including:
• Fire Station 1
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• City Hall East
• The Metro Expo Line extension
• The Airport Park expansion
• Complete streets initiatives
• Airport Avenue improvements
• Downtown revitalization enhancements
• Sustainable water infrastructure
These types of capital projects positioned Santa Monica nationally as a leader in urban innovation and climate-forward planning.
The pandemic years from 2020 through 2025 required the City to shift into a preservation and stabilization mode. Fiscal uncertainty, tourism declines, staffing constraints, and changing economic conditions redirected focus toward continuity of operations, critical maintenance, and essential service delivery. The City concentrated its resources on maintaining streets, utilities, parks, parking facilities, public safety infrastructure, and core mobility systems, all while managing significant structural budget pressures. Given these factors, innovative or nationally visible capital projects were deferred in order to preserve the core services that keep neighborhoods safe and clean.
That preservation posture also reshaped the capital budget itself. Over time, the CIP gradually drifted away from its intended purpose. Rather than functioning as a true capital budget – one that funds the design and construction of discrete, long-lived public improvements – it increasingly became a vehicle for recurring operating activity. In 6 of 31
recent years, more than 80% of CIP appropriations were directed not to capital project delivery but to ongoing maintenance, routine facility upkeep, vehicle replacement, and technology refresh cycles. Of note, these are necessary expenditures, but they are operating in nature given that they recur every year, they are not discrete projects, and budgeting them as “capital” obscured both the true cost of City operations and the capital program's actual capacity to deliver public improvements.
The organizational Realignment Plan adopted in October 2025 marked a turning point.
As part of the Realignment Plan, staff has worked deliberately over the past several months to move recurring maintenance, fleet replacement, and technology replacement costs out of the capital budget and into the operating budget, where they appropriately belong. Relocating these recurring costs presents a more honest picture of what it costs to operate the City, restores the capital budget to its proper role, and allows the CIP to be managed against a clear standard of on-time, on-budget project delivery.
To that end, by aligning City resources, operations, and leadership structure with Council priorities, the Realignment Plan has helped create an internal focus not merely focused on reacting to our external environment, but to proactively take the steps needed to move from recovery through realignment and towards the revitalization of Santa Monica.
The FY 2026-28 CIP is a product of this shift in mindset. The program advances a civic vision that addresses nearly a decade of deferred maintenance while simultaneously elevating Santa Monica’s public spaces to support major cultural, entertainment, athletic, and international events. With global attention increasingly focused on the Los Angeles region leading into the 2028 Olympic and Paralympic Games, the City has a generational opportunity to modernize infrastructure, reenergize public spaces, expand mobility options, strengthen climate resilience, and create civic destinations that serve residents and visitors alike. The proposed CIP therefore balances two equally important priorities: restoring and modernizing aging infrastructure systems, while also creating inspiring, flexible, high-capacity public spaces capable of supporting world-class gatherings and events.
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CIP Budget Overview
The FY 2026-28 Proposed CIP Budget funds 77 capital projects across 17 funds. The total Proposed Budget is $109.8 million in FY 2026-27 and $116.6 million in FY 2027-
28. The FY 2026-27 figure represents an increase of approximately $0.6 million (less than one percent) compared with the FY 2025-26 Adopted Budget of $109.2 million.
The General Fund represents 16.6% of the total CIP Budget over the biennial period.
The Proposed FY 2026-27 General Fund CIP budget is $19.9 million, followed by $17.6 million in FY 2027-28, in order to fund seventeen projects, primarily focused on infrastructure. The non-General Fund portion represents the remaining 83.4% of the total, with a Proposed Budget of $89.9 million in FY 2026-27 and $99.0 million in FY 2027-28. Non-General Fund resources are mostly restricted and can be used only for projects within their respective funds.
Signature Capital Investments
The FY 2026-28 Proposed Biennial CIP Budget advances a strategic evolution from reactive maintenance toward true capital reinvestment. The next generation of projects is designed to repair aging infrastructure, improve resilience and sustainability, increase event-readiness and operational flexibility, create memorable public spaces, stimulate economic activity and tourism, support neighborhood vitality, and position Santa Monica as a premier international coastal destination. The signature investments are organized around four priorities, as outlined below.
1. Preparing for Major Events and the 2028 Games
Santa Monica's global identity places the city at the center of international attention during the 2028 Olympic and Paralympic Games and the broader wave of major events ahead, including the FIFA World Cup (2026) and the 2027 Super Bowl. The biennial CIP prioritizes infrastructure capable of supporting largescale pedestrian activity, festival and event operations, enhanced transit access, public safety coordination, an elevated media and visitor experience, and 8 of 31
universal accessibility. Priority event-readiness investments totaling approximately $14.4 million in FY 2026-27 include:
• Major Event Infrastructure (Electrical Switchgear)
• Downtown Maintenance Service Enhancements
• Tongva Park Repairs and Improvements
• Smart Curbside Management Solution
• Camera Obscura Redesign Implementation
• Pier Railing and Lighting Renewal Project
• Pier Fire Sprinkler Replacement
In addition, the existing Pier Bridge replacement project that is currently underway also qualifies as being part of this particular investment strategy, combining seismic safety, accessibility, mobility modernization, and visitor experience improvements ahead of the 2028 Games.
2. Reinvesting in Parks and Open Space
Santa Monica’s parks are among the City’s most valued public assets, supporting recreation, health, youth programs, environmental resilience, and neighborhood connectivity for residents of all ages. The return of the Memorial Park Redevelopment and Expansion (Phases 1 and 2) marks an important milestone following the project's earlier pause, and demonstrates the City's renewed commitment to delivering critical recreational improvements. The project is moving forward with a diverse funding strategy drawing on multiple sources, including up to $20 million from a Santa Monica College bond measure, a 9 of 31
planned $7 million contribution from the Santa Monica-Malibu Unified School District, various grants, and General Fund support, all of which help to ensure its long-term viability and successful completion (first-year FY 2026-27 work for Memorial Park relies on non-General Fund sources, with General Fund participation programmed beginning in FY 2027-28).
Additional parks investments totaling approximately $2.5 million in FY 2026-27 include replacement of the synthetic turf sports field at Airport Park and the Virginia Avenue Park Playground Replacement, keeping heavily used community spaces safe and fully usable.
3. A Citywide Infrastructure Recovery Initiative
Years of constrained capital spending has created a growing list of maintenance obligations across transportation, utilities, civic facilities, and public spaces. The FY 2026-28 CIP therefore proposes a citywide infrastructure recovery initiative totaling approximately $7.9 million focused on:
• Facility Renewal Program
• Main Library Building Finishes Renewal and Lighting
• Main Library Cafe and Central Courtyard Reactivation
• Citywide Workspace Optimization
The Main Library, which reaches its 20-year mark this year, is a particular focus of this effort, pairing building finishes and systems renewal with a new Library Cafe and the reactivation of the central courtyard. The initiative also advances streetlight modernization for Montana Avenue and Mid-City, improving safety and the nighttime environment in two key corridors. Together, these investments 10 of 31
recognize that maintaining basic infrastructure quality is foundational to resident trust, visitor experience, economic vitality, and long-term fiscal sustainability.
4. Modernizing Transportation and Mobility
The City’s transportation investments continue to evolve from vehicle-centered infrastructure toward multimodal access and high-quality public realm design, advancing a Vision Zero future. The biennial CIP prioritizes the Smart Curb Management Program, Vision Zero and street safety improvements, parking enforcement license plate readers, annual paving and sidewalk repair (including Santa Monica Boulevard Phase 1 and the Chelsea intersection improvements), and 14th Street bike and pedestrian improvements. Community feedback continues to support the expansion of protected mobility infrastructure and safer neighborhood connections, and the parking enforcement license plate readers are also projected to generate new annual revenue for the City.
Beyond these four priorities, the CIP funds improvements at the Annenberg Community Beach House, and continues essential investments in the City’s Water Funds.
Regarding Water Fund related projects, the CIP includes reservoir improvements, water and wastewater main replacements, and the Moss Avenue Pump Station improvements, advancing Santa Monica’s long-term goal of water self-sufficiency.
In total, the FY 2026-28 CIP funds 77 capital projects across 17 funds; Attachment B provides the full detail.
Taken together, the FY 2026-28 Capital Improvement Program presents an opportunity to continue Santa Monica’s transition towards a period defined by reinvestment, renewal, and civic leadership. There are numerous civic projects to address beyond the items included in this year’s CIP plan, however, the capital budget as has been developed to begin addressing nearly a decade of deferred maintenance, while simultaneously creating dynamic, high-quality public spaces. All of these efforts too support our continued Citywide efforts geared towards Realignment, so that the City can 11 of 31
advance towards our next period of community revitalization as defined by economic vitality, environmental resilience, and civic excellence.
FY 2026-27 OPERATING BUDGET BACKGROUND
The Biennial Budget Process
On June 24, 2025 (Attachment K), the City Council adopted the first year and approved the second year of the FY 2025-27 Biennial Operating Budget, and adopted the second year of the FY 2024-26 Biennial Capital Improvement Program Budget.
On October 28, 2025 (Attachment J), the City Council adopted the Santa Monica Realignment Plan, which organized a series of interlocking programs and projects across five strategic priorities, as summarized below:
The Realignment Plan deployed $60 million in previously allocated reserves to stabilize operations, rebuild capacity, and catalyze private sector reinvestment. The FY 2025-26 budget incorporated the first year of Realignment Plan appropriations, and this Proposed Budget incorporates the appropriations for FY 2026-27.
On March 24, 2026 (Attachment I), the Council approved targeted operational adjustments to operationalize and extend Realignment service levels citywide. The update highlighted measurable progress, including:
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• Part I crime down 12.5%
• Full sworn police staffing for the first time in over 20 years • The City Attorney's Criminal Division filing rate increased to approximately 88% of all legally fileable cases
• 92.5% on-time, first-round plan checks
• All library branches reopened
• Significant progress on Downtown capital improvements • An expanded Homeless Support Team and maintenance operations As the City prepares to adopt the second year of the biennial operating budget and the first year of the new biennial CIP, that fiscal plan is being advanced against the backdrop of an uneven broader economic environment.
Overview of Economic Conditions
The U.S. economy is still expanding but at a more moderate pace. The Federal Reserve maintained the federal funds target range at 3.50%–3.75% in April 2026.
National inflation was 3.3% year-over-year in March 2026, and real Gross Domestic Product grew at an annual rate of 2.0% in the first quarter of 2026.
Of note, California’s economic growth remains slower than the national average due to ongoing adjustments in the technology and commercial real estate sectors. The state’s unemployment rate was 5.5% in February 2026 (latest available), compared to 4.3% nationally in March 2026. Higher interest rates continue to affect borrowing costs, investment earnings, and commercial real estate values for both public agencies and the private sector.
Santa Monica’s economy is closely linked to tourism, hospitality, retail, small businesses, and professional services, and downtown revitalization continues to be a priority. In the first quarter of 2026, the City started to see indicators that point to renewed economic activity in Santa Monica, as follows:
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• The Third Street Promenade recorded 346,147 visitors in March 2026, and ground-floor commercial occupancy was reported at 75% as of April 30, 2026. • Hotels, a major source of revenue, reported improved occupancy rates at 79.5% in April 2026, with improving average daily rate (ADR) revenues of approximately $376.
Building on these indicators of renewed activity, Santa Monica is also positioned to benefit from an unprecedented wave of regional and global events over the next several years. The City will take center stage as the FIFA World Cup (2026), the 2027 Super Bowl at SoFi Stadium, and the LA28 Olympic and Paralympic Games draw millions of visitors to the region. Against that backdrop, the City is simultaneously launching a new annual beachfront music festival with our partners at Goldenvoice, with numerous other cultural programming and visitor-focused activations planned over the next few years.
Looking ahead, continued monitoring of tourism trends, downtown business conditions, and event-driven demand will help ensure that Santa Monica remains well-positioned to navigate a national environment of slower economic growth and higher interest rates while maximizing the benefits of this historic period of opportunity.
General Fund Operating Budget
At the time the Realignment Plan was adopted, the City was facing significant fiscal headwinds, with an estimated $29.6 million operating deficit in the General Fund for FY 2026-27, and an eroded free cash position.
As part of the Realignment Plan, an overarching fiscal strategy was developed to institute new internal expenditure controls, secure new programmatic revenues, and account for the scheduled expiration of the Joint Use Agreement with the Santa MonicaMalibu Unified School District (SMMUSD) in 2027. Taken together, those measures 14 of 31
produced a fiscal model under which the General Fund is projected to be structurally balanced by the end of FY 2026-27.
Current-Year (FY 2025-26) Results
The City’s fiscal recovery is now visible in current-year results. After incorporating the Realignment Plan budgetary adjustments, which include the planned use of reserve funds, the FY 2025-26 General Fund operating budget is tracking to a year-end surplus of $8,949,205. Consistent with prior Council direction, $3,000,000 of that amount will be set aside to fund the Economic Recovery Reserve, leaving a carry-forward surplus of $5,949,205. This outcome reflects both disciplined expenditure management and revenue performance that, in aggregate, has held up well against budget.
Progress on New Programmatic Revenues
Since the Realignment Plan’s adoption, the City has moved more quickly than initially anticipated on several of the key fiscal initiatives identified in the Plan, as follows:
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• Digital signage program: Adopted in December 2025 and projected to generate approximately $4.5 million annually when stabilized, we originally anticipated that new signs would be installed in Q1-2027. Based on more recent developments, the new signage is now targeted for installation by the end of Q3-2026 / start of Q4-2026.
• Ambulance Operator program: Fully launched in February 2026, the program has been performing as expected, with around 650 ambulance transports per month being performed by the Fire Department since the City took over operations. As revenue collection efforts ramp up, we are projecting $5.5 million in revenues in FY 2026-27, with revenue collection efforts projected to stabilize by the end of FY 2026-27 to create an ongoing $7 million / year revenue stream. • Parking rate restructuring: As the new parking rates are fully implemented, the FY 2026-27 budget projects an increase of around $7.2 million per year in revenues compared with FY 2025-26 projected actuals.
• Strong cash-on-hand position: The City currently maintains approximately $94 million in unobligated General Fund cash, providing a stable operating foundation and flexibility to manage unforeseen needs.
• Improved contingent liability environment: Through new strategies deployed by the City Attorney's Office, the City has achieved measurable reductions in exposure to contingent liabilities, materially strengthening its overall risk profile.
Major Event Licensing Revenue Being Conservatively Managed Of particular note, the FY 2026-27 budget is being further structured to take a conservative revenue posture in that the spending plan does not account for any revenues from major event licensing agreements. With that being said, recently finalized agreements are expected to generate approximately $6.8 million in direct revenue through licenses signed for FIFA World Cup activations (2026), the 16 of 31
Goldenvoice music festival (2026), an ESPN broadcasting partnership (2027), and a slate of Olympic hospitality and venue agreements for 2028.
Further, staff is projecting additional licensing agreements to be finalized over the next several months that will create a material increase in licensing revenues to the City.
Joint Use Agreement with the Santa Monica-Malibu Unified School District The City’s long-range fiscal model also accounts for the scheduled expiration of the Joint Use Agreement between the City and the Santa Monica-Malibu Unified School District (SMMUSD). Under the Joint Use Agreement, the City currently contributes approximately $12 million annually to the District in exchange for community use of District facilities. The Agreement is scheduled to expire in 2027, consistent with the mutually agreed upon terms between the City and the District that were established through the April 2022 First Modification to the Agreement.
Upon expiration, this approximately $12 million annual obligation will come off the City's books in 2027. The City’s General Fund operating budget is projected to be structurally balanced by the end of FY 2026-27 when incorporating that scheduled change into the forecast.
Separately, a citizens’ initiative is currently being advanced such that, if it qualifies for the ballot and is approved by the voters, would establish a parcel tax to provide a new revenue stream for the City. Subject to City Council direction, should that measure qualify and be approved by the voters, staff would anticipate returning to Council to renegotiate and bring back an extension of the Joint Use Agreement with SMMUSD which reflects that new revenue framework.
Conversely, should the measure not qualify for the ballot or not be approved, and should the City Council wish to extend the Agreement beyond the current 2027 expiration, that will require continued General Fund financial support to the District, and staff would anticipate needing to identify corresponding operational cost savings and, 17 of 31
potentially, service level reductions, in order to sustain that level of funding for the Joint Use Agreement.
FY 2026-27 Budgetary Outlook
As the City moves into FY 2026-27, the General Fund operating budget remains structurally balanced under the Realignment Plan framework, with ongoing revenues being sufficient to support ongoing operating expenditures. The Proposed Budget also includes a planned, limited, one-time use of reserves that are being caried forward from the surplus in FY 2025-26 totaling approximately $4.67 million to fund three specific non-recurring investments that have been deferred for years:
• The Camera Obscura Redesign Implementation ($3.0 million, carried in the CIP) • The replacement of Santa Monica Fire Department Self-Contained Breathing Apparatus ($1.0 million)
• The Aqueous Film-Forming Foam (AFFF) Removal and Disposal Project ($670,297), a one-time cost driven by a regulatory mandate to remove, treat, and dispose of legacy firefighting foam
Apart from this targeted one-time reserve use for one-time costs, the FY 2026-27 General Fund operating budget is balanced.
Key Revenues to Watch
As the City moves into FY 2026-27, several key General Fund revenues warrant close monitoring:
Property Tax and Documentary Transfer Tax
This revenue stream combines to represent approximately 20.4% of all General Fund revenues. Property tax revenues remain stable, supported by continued growth in assessed valuation; the City's tax base increased by 3.98% in the most recent 18 of 31
assessment cycle and by approximately 36% over the past five years. Because Proposition 13 limits annual increases in assessed value, property tax revenues remain steady from year to year, providing predictable funding even when market activity softens. Documentary Transfer Tax revenue is less predictable and varies with sales volume, property type, and median sale prices, though the City has received approximately $10 million annually over the last three fiscal years.
Sales Taxes (both Sales tax and Transaction and Use tax) Combined, this revenue source represent approximately 15.0% of General Fund revenues, and are performing well. HdL Companies, the City’s sales tax consultants, indicate that the near-term outlook carries elevated uncertainty, with the ongoing conflict in the Middle East and disruption to oil flows representing a meaningful risk to the forecast. At the same time, the economy retains real sources of resilience, including robust AI and data center investment and continued spending by upper-income consumers. HdL reports that Santa Monica's adjusted Bradley-Burns sales tax receipts for the most recent reported quarter of 2025 (October through December) declined by
2.9%, driven largely by a soft new-vehicle sales environment and store closures affecting several retail categories. By comparison, taxable sales across Los Angeles County increased by 0.4% over the same period, while the Southern California region reported growth of 1.0%.
Despite this near-term variability, staff projects that Sales Tax for FY 2025-26 will grow moderately by 2.1% (approximately $1.5 million) compared to FY 2024-25, with an additional 3.6% growth anticipated in FY 2026-27, driven by the City's historic push to host major events along its coastline. The following infographic compares Santa Monica’s fourth-quarter sales tax for calendar years 2024 and 2025:
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Transient Occupancy Tax (Hotel Tax)
This revenue source represents approximately 14.3% of General Fund revenues. Hotel tax is currently tracking slightly below earlier projections, reflecting broader statewide declines in domestic and international travel during 2025; however, the revenue is trending back toward expectations as the City rebuilds momentum through a robust slate of cultural programming and visitor-focused activations.
According to Santa Monica Travel & Tourism, hotel occupancy was 62.5% in December 2025 with an ADR of approximately $328, and by April 2026 occupancy had climbed to
79.5% with ADR rising to approximately $376. As a result, hotel tax revenue for FY 2025-26 is projected to grow by 6% (approximately $3.7 million) over FY 2024-25, with an additional 9% increase anticipated in FY 2026-27.
The following table compares hotel occupancy rates and ADR for December and April over two years:
December April
2024 2025 2025 2026
Occupancy: 62.1% 62.5% 74.59% 79.51%
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ADR: $ 331.00 $ 328.28 $ 353.18 $ 376.45
Business License Tax
This revenue stream, representing approximately 8.3% of General Fund revenues, is performing well and is projected to increase as the City continues to strengthen compliance efforts. In addition, voter-approved Measure F, which modernized the City's Business License Tax Ordinance, will continue to generate additional revenue, with Phase II taking effect in FY 2026-27 and the final phase in FY 2027-28.
Parking Revenues
Parking represents approximately 8.0% of General Fund revenues. While parking operations experienced some near-term challenges this year – including the postponement of the rate restructuring for Downtown Parking Structures, and operational challenges associated with text-to-pay parking meter transitions – the underlying outlook is improving. With the rate restructuring now fully implemented, and operational adjustments being instituted, parking revenue is projected to rise from approximately $33.3 million in estimated FY 2025-26 actuals to approximately $40.6 million in FY 2026-27, an increase of more than $7 million (about 22%).
Staff will continue to monitor external factors that influence parking demand, including evolving mobility preferences, tourism and gas price fluctuations, remaining Downtown retail and dining vacancies, and ongoing remote and hybrid work patterns.
Other Funds
Among the larger funds contributing to the City's operations, the Water, Wastewater, Big Blue Bus (BBB), Airport, Resource Recovery and Recycling (RRR), Cemetery, Pier, and Housing Authority Funds are projected to generate sufficient revenue and fund balance to cover operational and capital needs during the forecast period. The Beach Recreation Fund and the internal services fund for Information Technology 21 of 31
Replacement are projected to require General Fund assistance, driven by continued revenue constraints and major infrastructure investments.
Proposed Adjustments to the FY 2026-27 Revised Budget Plan The FY 2026-27 approved budget plan has already been revised to incorporate changes approved by Council throughout FY 2025-26, including all Realignment Plan changes. In addition, the items below are new proposed adjustments included in the FY 2026-27 Proposed Budget.
Revenue Adjustments – General Fund
Based on a comprehensive review of all revenue projections, projected revenues for FY 2026-27 are being modestly adjusted downward by 0.4% ($1.9 million). The adjustment primarily reflects lower-than-anticipated parking revenues (partially attributable to the postponed implementation of the Downtown parking rate restructuring and operational adjustments). Revenue decrease amounts are being partially offset by new revenues from the recently completed fee study (Attachments D and E), and by greater-thanprojected business license tax and investment earnings.
Revenue Adjustments – Other Funds
Adjustments across the Other Funds result in a net increase of approximately $38.3 million (7.9%), driven by a combination of project-related reimbursements, timing adjustments, updated regional revenue estimates, and cost-pressure changes. Key changes include:
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• Big Blue Bus Fund: Net increase of approximately $53.1 million, primarily from project drawdowns and reimbursements to align with projected capital expenditures.
• Airport Fund: Decrease of approximately $4.5 million, primarily due to rent and utility credits being applied later than expected.
• Local Return Fund: Decrease of approximately $1.9 million to align with revised Proposition A and Proposition C Local Return allocations. • Miscellaneous Grants Fund: Decrease of approximately $7.9 million, primarily from timing of anticipated reimbursements and updated funding marks, partially offset by new Measure A and LACAHSA awards.
• Self-Insurance, Bus (Transit Liability) Fund: Increased payment of $3.0 million from the Big Blue Bus Fund to reflect rising insurance costs. • Wastewater Fund: Increase of $1.9 million, primarily reflecting the rate increase pursuant to the 2025 Water Rate Study.
• Internal Service Funds (Information Technology Replacement & Services and Vehicle Management): Decrease of $5.9 million due to reducing and postponing General Fund contributions until actual costs are known.
Revenue budget changes are detailed in Attachment A.
Expenditure Adjustments – General Fund
Staff also conducted a full reassessment of projected costs associated with the Realignment Plan, incorporating updated operational needs, current-year spending trends, and refined cost estimates. Based on this analysis, staff realigned funding across departments to offset proposed new investments, resulting in a nominal net 23 of 31
impact to the General Fund of approximately $9,000 compared with the estimate included in the March 2026 Realignment Plan update. Key items include:
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• Staffing changes, including:
o Housing & Human Services Department
▪ An Affordable Housing Development Administrator, along with a Human Services Administrator and a Senior Human Services Analyst to lead the Restorative Justice Program.
o City Manager’s Office
▪ A Multimedia Services Manager and a Press Secretary to strengthen internal and external communications.
o Human Resources
▪ An Assistant Director of Human Resources and a Senior Human Resources Analyst to support organizational development and training efforts.
o Public Works
▪ A Transportation Planning Associate to advance the preferential parking program.
• Funding for Santa Monica Fire Department (SMFD) equipment, including replacement of Self-Contained Breathing Apparatus and the Aqueous FilmForming Foam (AFFF) Removal and Disposal Project for the removal, treatment, and disposal of legacy Class B foam from SMFD apparatus and storage containers.
• Funding for contract services in support of the Realignment Plan and the Airport Conversion project.
• Reclassification of replacement vehicle and technology program contributions (previously budgeted in the Capital Improvement Program) into the Operating Budget. As described in the CIP discussion, this change aligns recurring fleet and technology replacement with its operational nature and reserves the CIP for genuine, project-based capital outlays.
Expenditure Adjustments – Other Funds
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Operating expenditure adjustments for FY 2026-27 in the Other Funds result in a $44.0 million (12.7%) net increase from the Approved Budget Plan. Significant increases include:
• Measure GS Fund: $16.9 million allocation of available funds for voter-approved uses, including the Santa Monica Rent Aid Program and additional support for housing services and homelessness prevention.
• Vehicle Management Fund: $9.5 million representing the reclassification of new and replacement vehicle program expenses (funded by $7.8 million in contributions from other funds), all moved from the capital budget to the operating budget.
• Big Blue Bus Fund: $3.0 million payment to the Self-Insurance, Bus Fund to cover increased insurance liability costs.
• Miscellaneous Grants Fund: $2.4 million increase, primarily from new awards supporting housing and human services programs.
Staffing Adjustments - All Funds
Combined staffing adjustments across all funds result in a net increase of 7.0 FTE positions. All other staffing changes align operations across departments through restructuring, reclassification, and workload adjustments without additional short-term budget impact. Attachment C details all staffing adjustments.
CITY FEES, FINES, AND RATES
As part of the City's annual budget development process, staff conduct a comprehensive review of all fees and fines to determine whether adjustments are needed to maintain appropriate cost-recovery levels. This year, that work included a citywide fee study, a comprehensive review of SMFD’s emergency medical services delivery, and cemetery fee updates.
Citywide Fee Study
Since 1988, Council has directed staff to periodically calculate the cost of providing services that primarily benefit individual users rather than the community at large, and to 26 of 31
determine whether the City is recovering an appropriate share of those costs through user fees. City policy calls for full cost recovery for these services, with limited exceptions (for example, certain Recreation and Arts and Housing and Human Services fees average roughly 30% cost recovery, reflecting Council pricing policies that prioritize access to community recreation and social services).
This year’s comprehensive study, prepared by MGT of America, analyzed the cost of services across multiple departments. Building and Safety fees were not included, pending implementation of the new land-use software, and will be presented to Council at a later date.
Based on the study, which evaluated approximately 800 fees, staff recommends increasing 311 fees, decreasing 180, and maintaining approximately 190 at current levels. Staff also recommends establishing 71 new user fees (including 53 in the General Fund) and deleting 29 fees, with an additional eight proposed for deletion due to restructuring and consolidation. Implementing the study's recommendations is anticipated to generate approximately $2.1 million in additional annual user-fee revenue, including $1.5 million in the General Fund.
Attachment D provides a summary of the study results and the consultant’s report.
Fire Department Fee Study
In parallel, the Santa Monica Fire Department completed an in-depth review of its emergency medical services delivery, conducted by AP Triton, LLC. After reviewing the analysis, staff recommends continuing to align SMFD’s Basic Life Support and Advanced Life Support transport rates with the LA County Ambulance Rate Schedule to improve cost recovery for ambulance transport. AP Triton also recommends establishing a new “Treat No Transport” fee and a new Motor Vehicle Accident Fee to recover hazardous materials cleanup costs at vehicle collisions. Following the State’s release of updated Fire Hazard Severity Zone maps on March 24, 2025 (which, for the first time, included Santa Monica), AP Triton further recommends creating four initial inspection fees and three re-inspection fees for properties in the Very High Fire Hazard Severity Zone.
Additional detail is provided in Attachment E.
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Other Fees
While not included in the citywide fee study, staff recommends several new fees and fee updates in the Cemetery to align pricing with comparable items, correct inconsistencies, and account for increased vendor costs:
1. The Eternal Light crypt section consists of marble-front spaces that are too small for casket burials. The Cemetery proposes reclassifying these spaces as extralarge niches that can hold up to eight cremated remains.
2. As part of the Mausoleum and Cemetery Maintenance CIP, a new 117-niche “Serenity” columbarium will be added to the first floor in FY 2026-27.
Details of the proposed Cemetery fee changes are found in Attachment F.
Fines
Staff from various departments continue to review current fines and any proposed revisions will be presented with the Proposed Budget on June 23, 2026.
FISCAL POLICY UPDATES
The City’s procurement system has not been comprehensively updated in several decades. Existing policies are fragmented across the Municipal Code, administrative instructions, and departmental practices, resulting in inconsistent application of rules, delays in contract execution, and limited flexibility to adjust procurement thresholds in response to inflation and market conditions. To address these challenges, staff developed a three-part modernization framework consisting of a Procurement Ordinance establishing a centralized purchasing system; a Procurement Policy, adopted annually as part of the City's Fiscal Policies; and updated Administrative Instructions providing detailed day-to-day procedures.
On March 10, 2026, City Council adopted the ordinance updating Municipal Code Chapter 2.24 – Purchasing System. Included as Attachment G is the Procurement Policy that will be incorporated into the City's Fiscal Policies, which defines competitive bidding and source selection requirements; procurement award thresholds for City Manager and City Council approval; ethical standards and vendor communication 28 of 31
protocols; and procedures for cooperative purchasing, emergency procurement, and alternative delivery methods.
Moving forward, the policy is intended to be reviewed and adopted annually by the City Council as part of the Fiscal Policies. Once adopted, staff will finalize updated Administrative Instructions that replace the outdated 2020 Administrative Instruction and ensure consistent implementation across departments.
Past Council Actions
Meeting Date Description
06/24/25
(Attachment J)
Adoption of the First Year and Approval of the Second Year of the FY 2025-27 Biennial Budget, Adoption of the Second Year of the FY 2024-26 Biennial Capital Improvement
Program Budget
10/28/25
(Attachment I)
Santa Monica Realignment Plan
03/24/26
(Attachment H)
Santa Monica Realignment Plan Update
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ENVIRONMENTAL REVIEW
The FY 2026-27 Proposed Budget is exempt from CEQA pursuant to Section 15061(b)(3) and of the CEQA Guidelines. The Proposed 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.” This report provides a programmatic overview of the City’s budget. The implementation of capital projects or programs and changes to fees would be subject to future CEQA review as applicable. 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. Furthermore, approval of the position and classification changes is categorically exempt pursuant to Section 15324 of the CEQA Guidelines. Section 15324 (Class 24) exempts actions taken by regulatory agencies to regulate employee wages, hours of work, or working conditions where there will be no demonstrable physical changes outside the place of work.
FINANCIAL IMPACTS AND BUDGET ACTIONS
Recommended FY 2026-27 proposed budget adjustments result in:
Revenues (in millions, rounded)
Revised
Budget Plan A
Proposed
Adjustment
Proposed
Budget
General Fund 511.4 (1.9) 509.5
Other Funds 487.8 38.3 526.1
Reimburse & Transfer B(120.0) 2.5 (117.6)
Total 879.1 38.9 918.0
Operating Expenditures (in millions, rounded)
Revised
Budget Plan A
Proposed
Adjustment
Proposed
Budget
General Fund 522.7 2.4 525.1
Other Funds 346.8 44.0 390.8
Reimburse & Transfer B(108.6) (9.0) (117.6)
Total 761.0 37.4 798.4
Capital Expenditures (in millions, rounded)
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FY 2026-27
Proposed Budget
FY 2027-28
Proposed Budget Plan
General Fund 19.9 17.6
Other Funds 89.9 99.0
Total 109.8 116.6
Full Time Equivalent Positions (rounded to nearest tenth) Revised
Budget Plan A
Proposed
Adjustment
Proposed
Budget
General Fund
Permanent 1,389.2 8.0 1,397.2
Temporary 103.8 - 103.8
General Fund Total 1,493.0 8.0 1,501.0
Other Funds
Permanent 780.1 (1.0) 779.1
Temporary 8.5 - 8.5
Other Funds Total 788.6 (1.0) 787.6
All Funds
Permanent 2,169.3 7.0 2,176.3
Temporary 112.3 - 112.3
Total Staffing 2,281.6 7.0 2,288.6
A Reflects year-to-date budget adjustments approved by Council on 6/10/25 (Item 4E), 6/24/25 (Items 4E and 4G), 7/8/25 (Item 4L), 7/29/25 (Item 4K), 7/29/25 (Item 4L), 10/14/25 (Item 11B), 10/28/25 (Item 11A), 11/18/25 (Item 4A), and 3/24/26 (Item 11C) as well as refined program costs from those estimated in October 2025 and March 2026.
B These are technical adjustments to eliminate double counting of certain revenues and expenditures appearing in two funds.
Prepared By: Oscar Santiago, Director
Approved Forwarded to Council
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Attachments:
A. Attachment A - Budget Changes
B. Attachment B - Proposed FY 2026-28 CIP Budget
C. Attachment C - Personnel Changes
D. Attachment D - Fee Study Report
E. Attachment E - Fire Fee Study Report
F. Attachment F - Cemetery Fee Revisions
G. Attachment G - Fiscal Policy (Procurement)
H. Attachment H - March 24, 2026 Staff Report
I. Attachment I - October 28, 2025 Staff Report
J. Attachment J - June 24, 2025 Staff Report
K. Written Comments
L. PowerPoint Presentation
M. Presentation Item