A staff report emphasizes the urgency of addressing the city’s dire financial situation to prevent further economic instability.

Santa Monica city leaders are considering declaring a fiscal emergency due to a severe budget crisis exacerbated by ongoing sexual abuse litigation, which has cost hundreds of millions of dollars and threatens the city's financial stability.

The financial strain is worsened by the settlement costs, declining revenues from tourism and taxes, and the economic impacts of the COVID-19 pandemic, leading to significant shortfalls in city revenue.

This crisis is further compounded by issues like homelessness, crime, and a retail collapse, with many capital projects remaining unfunded due to budget constraints.

The proposed 2025-2026 budget shows expenditures of $484.3 million against revenues of only $473.5 million, highlighting a substantial shortfall that threatens fiscal stability.

Known as the 'People's Republic of Santa Monica,' the city’s policies focus on climate change, criminal justice reform, and resisting immigration enforcement, though it is not officially a sanctuary city.

The city has paid over $229 million in settlements related to sexual abuse allegations against a former police dispatcher, with claims from more than 180 victims, and the settlement was finalized in 2023.

City officials have expressed fears of bankruptcy if bold measures are not taken, with some suggesting drastic actions are necessary to address the crisis.

City leaders are scheduled to vote on declaring a fiscal emergency on September 10, 2025, in response to the mounting financial challenges.

Additional economic challenges include federal policies like tariffs and deportations, which are expected to impact local and national economies, and the city’s recent decision to end negotiations to host beach volleyball during the 2028 Olympics due to financial concerns.

These federal policies add to the economic uncertainties facing Santa Monica and the broader Los Angeles area, which is also experiencing rising legal payouts, reduced services, and increased costs from employee raises.