Merced economy clearing up, but hard choices might still lie ahead

tmiller@mercedsunstar.comJanuary 23, 2014 

— Many of the signs economists use to forecast growth are looking good in Merced, but some officials are saying it’s not yet time to celebrate.

An increase in building activity and sales tax, as well as a decline in unemployment, are in the forecast for much of the state. That will also be true for Merced, but it will happen a little slower, according to Jordan Levine, an economist from Beacon Economics of Los Angeles.

“It’s not time to go out and pop the champagne corks or do anything like that, but we are making slow but steady ongoing progress,” Levine said.

He shared his company’s forecast for the Merced area this week with Merced City Council.

Levine expects the area to continue to add jobs. Merced County had about 59,000 jobs in November, he said, about 500 more than the previous year and 4,000 more than 2010.

Levine said those jobs, which are counted through business surveys, have been spread relatively evenly across the different industries. The numbers are still about 800 short of Merced’s peak, he said.

A household survey of employment, which also includes people who are self-employed or in another nontraditional sector, shows an increase of about 8,000 from March 2009.

“As a result of the downturn, a lot of folks moved out of the formal sector into more informal sectors of employment,” he said.

An even better sign of an improving economy is the 7.6 percent increase in 2013 taxable sales in Merced over 2012, Levine said. Home prices have also increased by 26.4 percent and will continue to go up, but not so much, he added.

Levine said the number of nonresidential building permits is expected to rise as well.

Some activity is visible in Merced, whether it be the 2,000-square-foot Chipotle Mexican Grill next to the 4,200-square-foot Panera Bread on R Street, or the buildings leveled on the corner of 16th Street and Martin Luther King Jr. Way to make room for a 9,180-square-foot Family Dollar store and other buildings.

Continuing to make Merced the business and retail hub of the county will be integral to growth in revenue, said city Finance Director Brad Grant.

When developing a five-year outlook for city revenue, Grant said, he and his staff look at trends as far back as 22 years as well as input from outside auditing firms. “A forecast is not a budget; we’re not making expenditure decisions here, but it does frame the resources,” he said. “We have to prioritize what we do want to do when we get into the budget discussions.”

The five-year forecast covers only discretionary funds, which make up about 20 percent of the budget, Grant said. The other funds are earmarked for specific needs. It also calls for an annual average increase in the general fund of 4 to 5 percent.

The assumptions made by the city do not include the addition of new positions or projects, nor do they include the purchase of new vehicles or computers. Grant said finding the funding for new programs would mean the City Council will have to make tradeoffs somewhere else in the budget.

Mayor Stan Thurston said the forecast has revenue outpacing expenditures, but only enough to save about $800,000 a year. “I’m calling this a ‘survival budget’ if we don’t do something,” he said. “It’s sustainable, but we’re not gaining anything really.”

Thurston said the City Council will need to look seriously at a possible change in the way the city delivers services. Those sort of discussions will likely be part of the Feb.1 goal-setting meeting. “We’ve got hard decisions to make,” he said.

Sun-Star staff writer Thaddeus Miller can be reached at (209) 385-2453 or tmiller@mercedsunstar.com.

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