City Council to discuss biennial budget plan focused on economic growth

February 28, 2025 6:11 PM
by Oscar Santiago

The Santa Monica City Council will come together on Saturday, March 8, to lay out priorities and a framework for the city’s 2025-2027 Operating Budget, with a strategic renewed focus on economic development to ensure an equitable and sustainable financial future for the city.

Here’s a snapshot of where we’re at and how we plan to move forward.


The Forecast 

For many years, Santa Monica has benefited from a strong economy built on tourism, technology and health sectors, and investment in new housing.  

Coming out of the COVID-19 pandemic, revenue losses, reductions in city staff, and reorganization of city services posed significant challenges, but we have seen notable progress in our recovery. However, changes in key industries and consumer behavior,  combined with traditional brick and mortar businesses going away, and high inflation, have resulted in formidable budget challenges for the city.  

In recent years, the council and city staff have made a concerted effort to focus on economic recovery through prudent fiscal planning, refinement of city financial policies and processes, and voter approved tax revenue measures. We’ve also seen a meaningful return of businesses and tourists back to the city, and major investment in hospitality, retail and housing in Santa Monica. 

Still, challenges persist.   

Santa Monica’s budget is in a structural deficit. While that might sound concerning, acknowledging our reality is a necessary first step to get us on the right path to best serve our community. 

The five year forecast for the city’s General Fund ― the central fund from which most city’s services are paid ― shows that expenditures will significantly exceed revenues until Fiscal Year 2028-29, even with the use of the new Measure F (business license tax) and K (parking facility tax) revenues. This means the city will need to continue to draw on already depleted reserves ― the city’s version of a savings account ― for the next three years to balance the budget.  

That is not sustainable over the long term. 

As finance director, I am recommending a strategy that curbs all discretionary expenditure growth utilizing $60 million in city reserves to give us the opportunity to develop and implement a more aggressive and sustainable revenue-generating economic revitalization strategy to strengthen our local economy and bring long-term stability to the city’s budget 

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


Financial challenges

The city’s financial challenges result from a combination of disruptions in key revenue areas plus high inflation and increasing costs for labor in a competitive labor market. Revenues from sales, hotel taxes and parking charges ― key revenue streams for the city’s General Fund ― have all been lower than anticipated in recent years due to changes in travel, remote work and consumer habits.  

The recent Palisades Fire north of our city did not do any structural damage in Santa Monica, but it has taken an economic toll on local businesses, impacting shopping, dining and travel. As a result, this fiscal year will have less revenues than our already conservative estimates. 

We continue to face difficulties on the spending side, with inflation, labor and other costs going up, paired with deferred maintenance of our city infrastructure. Our ongoing legal liabilities, including settlements related to the actions of a former employee and a lawsuit related to voting districts, have cost the city more than $230 million in just the past few years. 

As a city, we have worked together to attract new business and investment to Santa Monica.  In recent years, we’ve streamlined permit processes and relaxed or added zoning ordinances to make it easier to open new shopping and dining experiences throughout the city. These measures have helped, but more still needs to be done.

The city is also likely to see impacts from the new federal administration, including cost increases for construction due to tariffs, potential reductions in federal grant funding for key programs and projects, and a decline in tourism. One key project that heavily relies on federal funding is the Pier Bridge Replacement project, which is set to begin later this year.


A Plan for Economic Growth

The major focus of our financial strategy going forward is a renewed and reinvigorated focus on economic development to increase revenues. We’ll continue to build on the strong foundation we’ve already built and “Reimagine, Reinvest & Reinvent” to further economic growth. 

The city has created an economic development task force centered under the Community Development Department, under the new leadership of Director Arminé Chaparyan, bringing together representatives from all city departments to fast-track strategic growth initiatives to engage community partners, businesses and investors and explore innovative approaches to bring exciting new amenities for tourists and residents alike.

These efforts include:

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

The next two years represent an important moment for the city to build on its strengths ― a beautiful coastal environment, strong tourism industry, tech and wellness hub, substantial investment in hotels and housing, trusted community partnerships, and a brand identity known worldwide ― to reinvigorate Santa Monica.  

For more on the March 8 council budget workshop, click here.

Authored By

Oscar Santiago
Finance Department Director

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City Management, Your City Hall