08-27-1990 Council Packet - Laserfiche WebLink

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71990. TO: Mayor and City Council FROM: Mark E. Bernhardson, City Administrato DAIE: July 19, 1990 SUBJECT; Budget Guidelines 1991 Attachment: A. City of Orono's Statistical Chart - 7/90 Update ISSUE - Presentation of general guidelines for Council review, comment and amendment for the upcoming 1991 budget year. INTRODUCTION - In advance of the Council's consideration of the budget for 1991 the following represent thoughts, comments and anticipations for the 1991 budget year. DISCUSSION - Economic Outlook - Economic growth in the United .’tates the last several months has been uneven with mixed signals from various sectors. The initial months showed higher inflation with the Federal Reserve Bank maintaining tighter credit to stem inflation. This however, has also resulted in a slowdown particularly in tlie construction industry with the first five months of the year showing continual decreases in nation-wide building activity. Inflation rates for 1989 were at approximately 4.6% and the initial months in 1990 were at a similar ralie. While exports from the United States reached an all time monthly record, imports still continue to exceed them and the trade deficit has not shown the hoped for improvement. In addition, the Federal deficit continues to grow and recent budget estimates for the 1991 budget place the gap at a $168 bill ion shortfal1. In all this, the United States economic picture begins to pale in light of events in eastern Europe and Asia during the past year. With the unification of the Germanys for the first time in 45 years imminent and market economies being introduced in the balance of what was known as the "Eastern Block" and the Soviet Union, the need for funds and credit oing to that area continue to increase and will draw money away for investment and drive up interest rates in the United States. Additionally the Savings and Loan "bail out" in the United States cost continues to escalate which will have a further draw on the investment funds to help fund the transitioi: >o a more solid industry. Finally the deficit on the Federal ^ avel will create a draw of funds. While it is anticipated, because of slowdown in the U.S. economy and inflation, the Federal Reserve will be easing credit th;3 fall; because of worldwide and national demands in other areas; the cost of credit and interest rates will probably start to increase during 1990. Such may finally bring about ever decreasing activity in the U.S. economy, possibly to the point of