Merced's Unusual Steps to Fulfill Developers Obligations

October 7, 2008 9:56:03 PM PDT
The city of Merced is taking an unusual step to complete about eight million dollars worth of infrastructure projects that developers can't afford to finish.Construction crews are picking up where the developer behind this north Merced subdivision left off.

Mike Conway said, "There were two projects in the City of Merced that we had agreements with the developers to do certain things that they fell through on."

The projects include widening G Street along Bellevue Ranch East and building this bike path in the abandoned Highland Park subdivision off Olive Avenue. The developers had agreed to make the improvements, but when the housing crisis hit they said they simply could not afford to do the work. That's why the city voted this summer to call in the bonds the developers took out to guarantee the projects would be paid for.

"It's essentially an insurance policy that they put up," said Conway.

City spokesperson Mike Conway says this is the first time in at least three decades that a bonding company has been used to fulfill a developer's obligations. But the council felt it was a necessary step.

Conway said, "We don't want the public being out there being held responsible to make these improvements that the developer said they would."

"They could have asked anyone here ... "

U.C. Merced Economics Professor Shawn Kantor says many developers in the area are now facing financial problems because they had unrealistic expectations about the university's immediate impact before it opened in 2005.

Kantor said, "The University is going to grow, it's going to take many years for that to happen. So demand got far ahead of supply, at some point that's why prices were rising significantly in this area. And then eventually reached a point where supply exceeded demand and the bubble started bursting."

Kantor says it's impossible to predict exactly when the market will bounce back, but he believes finishing these projects now will help the city's economic recovery process.

Professor Shawn Kantor said, "Having that infrastructure in place and making the neighborhoods attractive at least will put us some way toward having people move back in or willing to move back in which will help those house prices."

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