The City Council will meet on Tuesday to consider the resolution, with officials saying the move is necessary to address financial strains from a reduction in tourism tax revenue and an increase in liability costs.
The mayor noted that fiscal distress is not the same as a fiscal emergency. Under a fiscal emergency, city services would be affected.
City leaders blame a decline in tourism dollars that began during the COVID-19 pandemic.
Mayor Lana Negrete says one of the biggest hits to the city's bottom line has been the more than $229 million Santa Monica paid out to settle sexual abuse cases involving former city employee Erik Uller.
Uller, a former city police dispatcher, worked with boys and girls at a police nonprofit's after-school program. He killed himself in 2018 after being charged with various molestation counts.
City officials also cite tariffs, deportations, tax cuts and deregulation as additional fiscal challenges.
City News Service contributed to this report.