SANTA MONICA, Calif. -- At first glance, this picturesque coastal enclave bordering Los Angeles appears to have it all: palm trees along a famed shopping promenade, wide beaches and a wealthy tax base.

Instead, Santa Monica is in recovery mode. It is trying to bounce back from a string of problems -- mounting liability settlements, falling international tourism and years of fading retail businesses -- that led the city of roughly 90,700 to declare "fiscal distress" in September.

"There was a real sense, I think, a year ago that maybe Santa Monica's best days were behind it," City Manager Oliver Chi said in an interview. But, he added, "it can still be one of the coolest places on the planet."

Business operators say foot traffic has recently improved along the Third Street Promenade, where the California sun warms shoppers who dip in and out of stores like Patagonia and Starbucks. World Cup visitors have provided a welcome boost.

But the recovery remains tenuous in a retail district still checkered with empty stores -- including a three-level space in a struggling nearby mall that Nordstrom abandoned last year. Downtown retail and restaurant vacancy rates, at around 20%, are among the highest in Los Angeles County, according to CoStar.

Sitting on just over 8 square miles, Santa Monica is hemmed in by the Pacific on one side and Los Angeles neighborhoods on three others. Its 116-year-old pier, with a Ferris wheel above the waves, has long been a tourist draw just north of L.A.'s Venice Beach.

Santa Monica ran into many problems right as the Covid pandemic struck six years ago.

In March 2020, the city signed the first wave of sex-abuse settlements -- stemming from decades-old claims against a former IT employee -- that have since grown to some $230 million. That is equivalent to nearly 30% of the city's annual budget.

When hotel- and sales-tax revenue began imploding weeks later due to pandemic shutdowns, city leaders laid off more than 400 municipal employees, roughly 20% of its workforce. During the civil unrest that followed George Floyd's murder in May 2020, looters ransacked scores of downtown stores, traumatizing local business owners.

More recently, the city has been stung by declining numbers of international tourists, long a lifeblood, in response to President Trump's policies, Chi said. The January 2025 wildfires displaced thousands of affluent residents of nearby Pacific Palisades, dealing another blow to Santa Monica's customer base.

The compounding problems became visible on the Promenade, a famed pedestrian mall still home to brands like Apple and Abercrombie & Fitch.

"It became not nice," said A.J. Sacher, operations manager at the popular sports bar Barney's Beanery, which he said suffered four or five overnight break-ins in 2020 and 2021. "Santa Monica is hyperdependent on tourism and hospitality, and so if it's not a nice and safe place to be, they're going to have major problems."

Michael Mandel, co-owner of Pier Pizza & Subs on Santa Monica's famed pier, said mental-health crises and drug use in public spaces scared away families and shoppers.

"The open consumption of drugs in public is absurd," Mandel said, adding that the problem isn't limited to Santa Monica but is visible across Los Angeles. "You clean that up, you know, you start to see the streets get cleaned up again."

With its warm, dry climate, Santa Monica has long attracted people without a roof over their heads. In the 1990s, city officials fenced off the scenic Palisades Park, overlooking the Pacific Ocean, because too many homeless were camping in it, said Jim Harris, executive director at the Santa Monica Pier Corp.

And "they're more noticeable now because there are fewer other people," Harris said.

Civic leaders and business owners say the city's natural appeal and decades of good fortune bred complacency. Santa Monica's council in 2001 famously voted down a planned Target store downtown, and in 2018 banned fast-food restaurants with more than 100 locations.

"It was an inertia that assumed the city could coast on its revenue and reserves without recognizing that both those were more fragile than people assumed," said Rick Cole, who served as city manager from 2015 to 2020.

The car-free Promenade was an innovative concept decades ago. But Santa Monica didn't keep up with the times as other hot spots vying for visitors added events and dining, Harris said. Now, roughly one in four of the Promenade's storefronts are closed.

Santa Monica Place, an open-air mall two blocks from the beach that used to host a Louis Vuitton and other luxury stores, went into receivership last year. Its owner defaulted on a $300 million loan in 2024, citing "challenges in the broader marketplace here in Santa Monica."

The mall's food court now features only one eatery, a lonely Sbarro. Its last remaining anchor tenant, the Nordstrom, shut its doors last August after 15 years.

Santa Monica is trying to become less standoffish to businesses in its comeback bid. The City Council voted to allow fast-food chains in 2023. Louisiana-based Raising Cane's Chicken Fingers recently opened on the Promenade, while Taco Bell Cantina announced plans to do so.

Late last year, the council approved a "realignment plan" designed to restore public safety, rebuild the local economy and stabilize city finances. It includes more police patrols in the downtown core. Santa Monica is also moving its downtown homeless shelter further from the Promenade.

The city recently established an "entertainment zone" on the Promenade and other restaurant-heavy areas, allowing visitors to purchase and walk with open alcohol containers Friday through Sunday and during special events. It has also slashed restaurants' outdoor-dining fees and implemented AI-based software to speed processing of building and business permits.

The interventions are beginning to yield results. Property crime has dropped, city statistics show, and the police department is projected to be fully staffed for the first time in two decades. The city balanced its budget by reaching deep into reserves and squeezing additional revenue from higher parking fees and outdoor advertising.

At the pier, foot traffic is finally nearing prepandemic levels of roughly 12 to 14 million visitors annually, Harris, the executive director, said. "We have far more events than we ever had before," he said.

The World Cup has helped. The pier hosted a Michelob Ultra-sponsored watch party during the opening round, and soccer fans boosted revenue at Barney's Beanery, too, the operations manager said.

The 2028 Olympics is another big opportunity to draw visitors. Santa Monica officials have already signed deals with national delegations from France, Switzerland and England to host hospitality events there during the Games, and they are hoping to land more.

"The real way to get back to prosperity is we need the local economy to thrive again," said Chi, the city manager. "What we can do is create an environment in the city that's investable."

Write to Paul Kiernan at paul.kiernan@wsj.com

(END) Dow Jones Newswires

July 05, 2026 20:00 ET (00:00 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.