In 2025, the City declared fiscal distress due to declining revenues, extraordinary legal settlement obligations, the lingering financial effects of the COVID-19 pandemic and decline in commercial activity, and the Palisades Fire. The City of Santa Monica’s latest projected budget (2027 Budget Addendum) does have a structural balance, meaning expenditures are about even with revenues. It is important to note that this structural balance is dependent upon passage of Measure ES, according to City officials.

The Realignment Plan was unanimously approved by the City Council in October, 2025. The City’s Realignment Plan is intended to reverse the City budget’s structural deficit, and restore budget balance. One core provision of the Realignment Plan is elimination of the MFUA contribution. If the MFUA contribution were to continue, the City has stated that there would be corresponding reductions in other City services. (Source)

The City has stated that if it continues to make MFUA contributions at current levels, it will have to reduce or eliminate other City services.

In the most recent budget cycle, the City has allocated $60 million of reserve funds to balance its budget and continue operations. This practice is unsustainable, as the City’s unobligated cash reserves have dropped 77% from their high in 2018. In the current fiscal year, the City does show a surplus of approximately $8.9 million, due to revenues being higher than estimated. More than one-third of that amount, or $3 million, however, is set aside for the economic recovery reserve. This amount of surplus is still less than the annual contribution to SMMUSD under the MFUA. The 2026-27 budget is projected to be structurally balanced, but as City officials have noted, the balanced budget is dependent in part on passage of Measure ES. (Source)