Managing Budgets

Here is a question for you. Does a municipality need to adjust to economic conditions after the yearly budget was approved?

Inflation Rate

Let’s review the facts. The inflation rate in the Lehigh was 5.2% in 2007(See Morning Call Article: The price of growth still high in Valley February 19, 2008). The Lehigh Valley inflation rate has exceed the US inflation rate for thee 5th straight year. Some good examples of factors that is the driving force of the Lehigh Valley inflation rate food prices, dairy products, and oil prices.

Housing Market

“The average price of an existing home rose 3 percent to $222,000 in January. In the Lehigh Valley, the price of a newly constructed home with four bedrooms and 21/2 baths rose 28 percent to $495,000 compared to January 2007, according to the Lehigh Valley Association of Realtors”. The time to sell a house was 68 days compared to 61 days last year. The number of homes sold last year hit the lowest level since 2001. (See Morning Call article: Ups and Downs in the Valley February 12, 2008). So far, we seem to be to avoid the national housing decline, but it sure seems we have housing issues as sheriff sale’s in the various townships seems to be increasing.

Jobs

“Unemployment in the Lehigh Valley ended the year at 4.6 percent, as the region added 7,500 jobs during the year, according to the Pennsylvania Department of Labor and Industry. The average of monthly jobless rates during 2007 was significantly lower, at about 4.2 percent, marking a low in March of 3.75 percent” (See Morning Call article: In Fighting Trim February 10, 2008).

Saving our pennies!

So, we seem to have mixed results. As inflation increase, our disposable income is declining. The job market is good, so we can retain some hope for avoiding a local recession. The housing is still hanging on. The key question is for how long. Nationally, we seem to be in a recession with escalating fuel price and further reductions in housing prices.

So what does all this mean? We need to watch our pennies and adapt to a very volatile economy. As our revenue streams decrease, we will need to reduce our expenses in-year!

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Sincerely,David Billings