Merfolk, much like hobgoblins, are one of those races currently a weak +1. Assigning its LA is going to be a matter of determining whether it'd be overpowered at +0.
Let's take a look: merfolk have a swim speed of 50 feet, a land speed one-tenth of that, and a +2 bonus to dexterity, constitution, and charisma. They're also aquatic with the amphibious quality and... well, that's it.
Sure, the stat boosts are nice, and the swim speed is above-average even for aquatic races, but even in a fully underwater campaign I doubt +1 LA is balanced. +0 assigned for the time being.
Bring me your disagreement: I shall bathe in it!
Next are completely unsuspicious treasure chests!