Innovative program allows city employees to take out loans using vacation time

150 150 Niki Woodard

(Photo Credit: Ron Johnson/Wikimedia Commons)

Through adversity, creative solutions often emerge. 

The City of Merced is trailblazing a path that it hopes will help some city employees in need to secure a bit of financial solace, just in time for the holiday season. 

On the Monday before Thanksgiving, Merced City Council unanimously approved a program that allows city employees to take out loans using their accrued vacation time as collateral. 

One week after the program was approved, nine employees have already made requests for loans. 

“The beauty of this program is that there is built-in collateral,” said City Manager John Bramble. “This is a no-risk program for the city.”

Employees can take out up to 50 percent of accrued vacation time and can only take out one loan at a time. The employee determines their repayment schedule, up to ten years, and the amount is deducted from their paychecks with an interest rate equal to the federal rate plus one percent for administrative costs. 

“I don’t know of any other city in California doing this,” said Brad Grant, financial director for the city.

According to Grant and Bramble, other cities have conducted loan programs for specific expenses such as computers, education expenses or mortgage payments, but no city has authorized a general loan program such as this. 

“Vacation is a benefit due to the employee,” said Bramble. “Since we already have a financial obligation there, we set aside these funds.”

The recession and a 15-17 percent reduction in wages and other benefits for city employees formented the need for the program. Bramble also cited the potential impact of a California sales tax increase and uncertainty at the federal level regarding payroll and Social Security tax rates. 

Here’s the rundown on how the program works:

General employees of the City of Merced accrue 3.7 hours of vacation time every two weeks, up to a maximum of 192 hours. 

If an employee earning approximately $50,000 had a total of 150 hours of available vacation time, he or she could take out a loan for up to 75 hours, or about $1,800. 

That sum would go a long way toward mortgage payments, car repairs, home improvements and/or medical expenses. 

“We vetted it very, very carefully with inside and outside experts and legal experts and no one could find any issues with it,” said Bramble. “We think it’s a very positive thing for our employees.”

In light of the persistently sluggish economic outlook troubling our households, cities and state, we wonder why more cities and employers aren’t offering such a program. Do you think the City of Merced is onto something?


Niki Woodard

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