Santa Monica, long a beacon of economic strength in Southern California, has endured its share of struggles in recent years.
Its once-bustling downtown shopping district has taken a post-pandemic hit, with the Third Street Promenade in need of reinvention and the upscale Santa Monica Place mall about to lose its anchor Nordstrom. Other factors include post-pandemic shifts in the entertainment industry and new tariffs.
But Santa Monica finds itself on the brink of a financial crisis for another, less expected reason as well: Hundreds of millions of dollars in sex abuse settlements.
The city still faces 180 claims of sexual abuse by a former Santa Monica police dispatcher, a scandal that has already cost the city $229 million in settlement payouts. On Tuesday, the city declared itself in fiscal distress, a move that raised concerns among city workers that cuts, and perhaps layoffs, were coming.
“The financial situation the city is dealing with is certainly serious,” said Oliver Chi, city manager for the city, during Tuesday’s City Council meeting.
The worries among city workers reached such a peak that before Tuesday’s meeting Chi sent out an email to all city employees, trying to reassure them no layoffs were being planned.
“Let me be clear,” the email, reviewed by The Times, read. “This action is not about layoffs or staff reductions.”
Santa Monica’s recently approved budget for 2025-2026 expects $473.5 million in revenue, but $484.3 million in costs, and city officials worry that the sexual abuse scandal could continue to put a drain on city coffers that are already reeling from an economic downturn.
Many cities are reeling from declining tax revenues and struggling businesses.
But officials point to the alleged sexual abuse by Eric Uller, a former city dispatcher, as the factor pushing Santa Monica into full-blown financial crisis.
Uller preyed on children mostly in predominantly Latino neighborhoods of the city, often traveling in an unmarked police vehicle, or his personal SUV, which was outfitted with police equipment, according to court records.
For decades, Uller volunteered at the Police Activities League after-school program, but it wasn’t until 2018 that he would be arrested and charged. He died by suicide in November 2018, but the effects of the abuse would continue to reverberate in the city for years.
A year later in 2019, AB 218 was passed and extended the statute of limitations for childhood sexual abuse. The new law meant that victims of sexual abuse had until they were 40 years old, or up to five years after discovering they were victims of abuse, to file a claim.
The new law unleashed waves of litigation against school districts, counties and cities. In April, Los Angeles County agreed to a $4-billion tentative settlement involving 6,800 abuse claims, some of them going back to the 1980s, involving probation camps, juvenile halls and the MacLaren Children’s Center.
For Santa Monica, the new law meant that taxpayers could face a considerable tab in lawsuits related to Uller’s abuse.
More than 200 children were believed to have been molested by the former city employee. Uller had been hired and continued to work with children despite a 1991 background check that revealed he had been arrested as a teen for molesting a toddler he baby-sat, according to a report reviewed by The Times.
Santa Monica has gone through four rounds of settlement talks with those who have filed claims, Chi said, and is set to begin on a fifth set of negotiations with 180 additional claimants.
But current and former officials said the current financial woes of the city could not be placed solely on the legal claims, and that its dire financial situation could be seen taking shape years ago.
“The city of Santa Monica has failed to reign in unnecessary spending for a number of years, and we’ve known this financial crisis has been looming for a while,” said former Santa Monica Mayor Phil Brock, who lost his seat in the November election.
The city has faced a steep downturn in tourism and retail revenues, Brock said, as well as several businesses that have left downtown and the promenade.
“I think you might have to right side services, and look at areas where [the city] might be overstaffed,” he said. “I recommend we go back to basics.”
The city has struggled to address the homeless population in the city, he said, as well as the perception of safety in a city that is meant to draw in international tourists and visitors from the larger Los Angeles areas looking for an escape, he said. The city has had some success, he said, but the declining revenue and pending lawsuits have created a “perfect storm” for the city.
Jon Farzan, who owns three hotels in the city, said the sour economic outlook in the city has been evident for some time.
“Santa Monica business has been down,” Farzan said.
A former board member of Downtown Santa Monica Inc., Farzan is one of two former members who recently filed a lawsuit against the City Council, alleging six directors were wrongly removed. The nonprofit was established to promote, oversee maintenance and host special events in the downtown area. They claim they were removed for pushing the city to provide services in the downtown area.
The city has not responded to the suit in court.
Brock said the city’s largest hurdle is the pending claims from the Uller scandal, which he said has drawn “some unscrupulous lawyers.”
Although the city is insured, several of the individual claims have resulted in settlements from $700,000 to less than $1 million and, with the city’s $1-million deductible with some insurance companies, much of the brunt has been faced by the city’s budget. The city has sued some of its insurers to recover some of the funds.
Tuesday’s declaration of “fiscal distress,” approved unanimously by the seven-member City Council, has drawn worries and speculation by the city’s roughly 2,000 employees. In 2020, the city laid off roughly 400 employees, according to a presentation from the city manager, and the city’s current projection is that revenue for the city is declining.
Judith Serling, a representative with Teamsters, said during the meeting she’d been receiving calls and questions from city employees asking about possible layoffs.
“People are scared of losing their jobs,” Serling said Tuesday. “People were scared of having their wages cut.”
Santa Monica officials had initially been set to consider a “fiscal emergency,” a move that would have triggered authorities by the city to address it, such as cuts and dipping into reserves. But the declaration voted on Tuesday instead called for a declaration of “fiscal distress,” which Chi said was meant more for the city to communicate its financial situation with other agencies, help in seeking grants and other funding, and as a tool to work on a “realignment of city operations.”
“There is no doubt that the financial circumstances facing the city are serious, and the resolution developed for City Council consideration is a tool identified by staff intended to help institute a broader strategy,” the city said in a statement.
But what exactly that strategy is remains unclear. City officials said a plan is expected to be presented to the City Council in late October.
Santa Monica Mayor Lana Negrete said the declaration could help the city with applying for grants, to work with the California Coastal Commission to expedite the process of changing parking rates in the city, and to help push California legislators in supporting bills that could provide relief to Santa Monica and other jurisdictions that have been facing significant liability as a result of AB 218 and past sexual abuse claims.
Chi pointed out there are bills being considered that would limit claims from AB 218, and could prove helpful for the city.
“We are carrying the weight of more than $229 million in sexual abuse allegations,” said Mayor Pro Tem Caroline Torosis. “We owe it to survivors to properly address this, but we owe it to Santa Monicans to protect our city’s financial stability.”
What steps exactly the city is set to take remain unclear. One city official, who asked not to be named because they weren’t cleared to speak on the record, said employees remained skeptical of what steps the city would take, and whether it could mean cuts to their pay or benefits. Earlier this year, the city reached an agreement with about 10 employee unions.
During Tuesday’s meetings, some residents urged city leaders not to cut services, but the future seems unclear.
“I’ve heard a lot of people saying we need more staff, we need more police officers and all of that is true,” Chi said. “But the reality is no matter how many resources we have, no matter how many police officers we have, no matter how much we have here in the city, there’s always going to be a need for more. What we need to do is try to figure out how do we utilize the resources that we do have in the best way possible.”
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