At first glance, Santa Monica appears to have it all: palm trees along a famed shopping promenade, wide beaches and a wealthy tax base. This picturesque coastal enclave bordering Los Angeles has long been a symbol of California prosperity.

Instead, the city of roughly 90,700 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 have left vacant storefronts dotting once-bustling corridors.

The crisis prompted officials to declare "fiscal distress" in September, a rare designation signaling the city cannot meet its financial obligations. The declaration unlocks state oversight and potential assistance but also underscores the depth of the downturn.

Now, city leaders are scrambling to stabilize finances while preserving the quality of life that defines this iconic beach community. The path forward remains uncertain as Santa Monica confronts challenges that threaten its postcard-perfect image.