MERCED — The Merced City Council unanimously approved a plan to loan city employees money, using vacation time as collateral.

"I think this is a fantastic idea," said Mayor Stan Thurston.

The program has been designed to help individuals who are struggling to pay bills, said Brad Grant, city finance director.

"Given the difficulty currently experienced by some employees of obtaining credit, and because (union contract) concessions haven't made it any easier, we recommend this for your consideration," he said.

Employees will be able to use up to half of the vacation time they have accrued to obtain a loan, which would accrue administrative fees and interest.

Councilman Mike Murphy expressed a little concern over employees' need to take vacation time.

"We try to encourage people to take their vacation to be away and recharge," he said. "This runs counter to that."

However, he and others agreed economic needs outweighed that concern.

"There are a number of employees who are hurting," said Mike Conway, city spokesman. "Some of them took some major hits in the wallet in the last round of (union) bargaining."

The interest rate would be set by the city finance officer on the day prior to making the loan, calculated at the U.S. Treasury rate of a like maturity, plus 1 percent.

The city would deduct biweekly payments from the employee's paycheck. The loan could be repaid over 10 years. If an employee stops working for the city before the loan is repaid, the balance will be deducted from his or her vacation payout.

Employees will be able to take out one loan at a time. Only full-time workers who have passed probation will be eligible to participate.

The city has never offered such a plan, although some public agencies in the state do provide employee loans, according to city officials. The city has provided funds for police officer trainees to attend the academy, buy books and training supplies.

Under California law, accrued vacation days are the same as earned wages. When an employee leaves an organization, the balance must be paid.

As of October, city of Merced employees have accrued $2.32 million of vacation time.

Reporter Joshua Emerson Smith can be reached at (209) 385-2486 or jsmith@mercedsunstar.com.