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Parking spaces are at a premium in the lot outside Merritt Bakery and Restaurant at lunchtime, Tuesday, May 11, 2010 in Oakland, Calif. Merritt's owner, Charles Griffis, is involved in an ongoing dispute with the city of Oakland over the use of the lot by patrons of a neighboring grocery store. (D. Ross Cameron/Staff)

OAKLAND — The iconic Merritt Restaurant & Bakery received a $150,000 lifeline from the City Council on Tuesday night.

The 58-year-old establishment saw sales drop dramatically in recent years and built up debts in excess of $800,000, according to an outside report completed for the city in January.

Mayor Ron Dellums' office pushed for the loan, arguing it would help save the jobs of 55 people employed at Merritt.

"I think it shows a willingness by the city to step in and help an important business in the community," said Theo Oliphant, Dellums' executive director of public-private partnerships. "I'm glad that it got approved."

Voting in favor of the loan were Councilmembers Rebecca Kaplan (at-large), Desley Brooks (Eastmont-Seminary), Ignacio De La Fuente (Glenview-Fruitvale), Larry Reid (Elmhurst-East Oakland) and Nancy Nadel (Downtown-West Oakland).

Voting no were Council President Jane Brunner (North Oakland) and Councilmember Patricia Kernighan (Grand Lake-Chinatown), whose district includes the Merritt. Councilmember Jean Quan (Montclair-Laurel) abstained.

The $150,000 redevelopment loan brings the amount the city has invested to try to save the restaurant and bakery to $358,000 since October.

Tuesday's vote allows the city administration to negotiate a loan with Merritt's ownership. Oliphant said the money would be used to make "good faith" payments to creditors, hire an independent accounting firm to monitor the business and provide working capital to the restaurant and bakery.

The loan was approved on the condition accounting problems at Merritt would be addressed and that the $150,000 would not jeopardize other loans the company has received. The $150,000 will come from one-time redevelopment money and will not affect Oakland's troubled general fund.

What people on both sides of the issue agree on is that $150,000 alone won't solve the business' problems. Charles Griffis, who runs Merritt, maintains the drop in sales is largely because of a lack of parking after a nearby Albertsons, now a Lucky, doubled in size in the early 2000s.

"If something is not done about parking, this isn't going to work," Griffis said. "It is not just a money problem. The parking is what caused the money problem."

The January report, completed at Oakland's request by San Francisco-based Fare Resources, did blame parking for some of Merritt's woes — and said the city was partially responsible for not requiring the issue to be adequately addressed when the supermarket expanded.

The same report, however, said Merritt's labor costs were significantly higher than the national average for restaurants — even after cuts were made. It also said Merritt increased menu prices three times over a one-year period to try to generate more revenue. By one estimate, six to 10 groups of patrons per day would leave after seeing the menu prices, perhaps costing the Merritt as much as $6,000 a month.

Griffis insists more changes have been made: workers' hours have been reduced, employees have been cross-trained, the menu is new and utility costs have been slashed. Merritt was losing as much as $50,000 a month, but is now losing $12,000 to $13,000 a month, Griffis said.

Others remain seriously concerned about the debt and recent revelations about Merritt's accounting practices. Those practices included bank statements that were not reconciled, mixed use of personal and corporate funds, inadequate segregation of cash handling duties and untimely documentation of payroll data, according to a report by the Oakland-based Iryna Accountancy Corp. "If the city makes the loan it will probably keep the business going for another four months or so," Kernighan said. "But I really don't see it being enough to solve the problem, turn things around (and) make changes in the long-run."