May 14th , 2008

1. Good morning. I�d like to thank everyone with the AGA and the VLGAA for being given the opportunity to present at this joint seminar. (edit) Good morning. I�d like to thank everyone with the AGA and the VLGAA for being given the opportunity to present at this joint seminar. (edit)

2. Henrico County, Virginia Financial Issues Facing Henrico County Economic Overview Current Local Government Issues Keeping Up With Growth I�d like to begin with just a brief overview of the Country�s current economic condition, followed by some of the most pertinent current local government issues, as well as some general budget related information. (edit) (next slide)I�d like to begin with just a brief overview of the Country�s current economic condition, followed by some of the most pertinent current local government issues, as well as some general budget related information. (edit) (next slide)

3. Henrico County, VA Economic Overview Uncertainty in National Economy Real Estate � National Real Estate � State and Regional

4. Economic Overview Uncertainty in the National Economy News from the first few months of 2008: Consumer confidence at lowest point since 2003. Home foreclosures soar to an all-time high in the final quarter of 2007. Delinquency rate for all mortgages nationwide climbed to nearly 6.0 percent in the quarter. Employers slashed 63,000 jobs in February 2008, the most in five years Dollar slides to record lows in March 2008. Oil prices at record levels Right now, there exists a lot of uncertainty about the immediate future of the national economy, with many economists speculating that we are currently in a recession. A recession is technically defined as two or more consecutive quarters of negative GDP growth. Given this definition, we won�t know for sure if the economy is in a recession for months, but there is no arguing that the national economy is, at best, struggling. Recent national news has been very negative. Consumer confidence is at its lowest point since 2003, and some of the reasons are: home foreclosures soared to an all-time high in the final quarter of 2007, delinquency rates for mortgages nationwide climbed to nearly 6.0 percent in the quarter. Fed Chairman Ben Bernanke stated in March that foreclosures will continue to rise, and continued declines in national house prices are likely. Employers slashed 63,000 jobs in February 2008. The dollar slid to record lows in March 2008 and the slide continues. Consequently, oil prices have reached record levels any many experts are projecting the price of oil to continue to increase. (Next Slide) Right now, there exists a lot of uncertainty about the immediate future of the national economy, with many economists speculating that we are currently in a recession. A recession is technically defined as two or more consecutive quarters of negative GDP growth. Given this definition, we won�t know for sure if the economy is in a recession for months, but there is no arguing that the national economy is, at best, struggling. Recent national news has been very negative. Consumer confidence is at its lowest point since 2003, and some of the reasons are: home foreclosures soared to an all-time high in the final quarter of 2007, delinquency rates for mortgages nationwide climbed to nearly 6.0 percent in the quarter. Fed Chairman Ben Bernanke stated in March that foreclosures will continue to rise, and continued declines in national house prices are likely. Employers slashed 63,000 jobs in February 2008. The dollar slid to record lows in March 2008 and the slide continues. Consequently, oil prices have reached record levels any many experts are projecting the price of oil to continue to increase. (Next Slide)

5. Economic Overview INFLATION 4.3%* increase marks highest jump in CPI-U since 1991 Core up 2.5%* (minus food & energy) Gasoline index up 30.4%* Inflation in January 2008 saw a jump of 4.3%, the highest January over January increase in the consumer price index since 1991. This is unusual because with a typical economic slowdown, the rate of inflation falls. The 2002 figure on this graph reflects the inflation growth during the last recession the economy experienced, which measured at a low 1.1%. In other words, the U.S. economy is dealing with a two economic issues simultaneously a struggling economy AND inflationary worries. Gasoline price increases weigh very heavy on the inflation increase, as the gasoline index is up an astounding 30.4% from January 07 to January 08. Note: Core inflation (minus food & energy) is up 2.5%, the largest increase since 2002. All items less energy increased 2.8%, the highest since 1996. Inflation in January 2008 saw a jump of 4.3%, the highest January over January increase in the consumer price index since 1991. This is unusual because with a typical economic slowdown, the rate of inflation falls. The 2002 figure on this graph reflects the inflation growth during the last recession the economy experienced, which measured at a low 1.1%. In other words, the U.S. economy is dealing with a two economic issues simultaneously a struggling economy AND inflationary worries. Gasoline price increases weigh very heavy on the inflation increase, as the gasoline index is up an astounding 30.4% from January 07 to January 08. Note: Core inflation (minus food & energy) is up 2.5%, the largest increase since 2002. All items less energy increased 2.8%, the highest since 1996.

6. Economic Overview UNEMPLOYMENT After three years of steady decline, 2007 average national unemployment showed no improvement. Virginia and Henrico County remained steady year over year. After three years of steady decline in national unemployment, the 2007 average rate remained unchanged from 2006 at 4.6%. However, since March 2007, national unemployment figures have been increasing steadily. January 2008 statistics reflect a 4.93% unemployment rate, which reflects a 7.2% increase over January of 2007. In February 2008, employers slashed jobs nationally by 63,000, the most in five years. However what seems like a contradiction in February 2008 the national unemployment rate of 4.8%, was a slight improvement from January 2008. However, this improvement is very misleading, as the Department of Labor which reports unemployment rates, stated the reason why the jobless rate went down is because a large number of people stopped looking for work, perhaps discouraged by their prospects, and left the labor force. Note: Henrico County�s unemployment posted 3.4% in January 2008, up from 3.1% in December 2007 and 2.9% in January 2007. Virginia unemployment posted a 3.8% unemployment rate in January 2008, up from 3.3% in December 2007 and 3.2% in January 2007. After three years of steady decline in national unemployment, the 2007 average rate remained unchanged from 2006 at 4.6%. However, since March 2007, national unemployment figures have been increasing steadily. January 2008 statistics reflect a 4.93% unemployment rate, which reflects a 7.2% increase over January of 2007. In February 2008, employers slashed jobs nationally by 63,000, the most in five years. However what seems like a contradiction in February 2008 the national unemployment rate of 4.8%, was a slight improvement from January 2008. However, this improvement is very misleading, as the Department of Labor which reports unemployment rates, stated the reason why the jobless rate went down is because a large number of people stopped looking for work, perhaps discouraged by their prospects, and left the labor force. Note: Henrico County�s unemployment posted 3.4% in January 2008, up from 3.1% in December 2007 and 2.9% in January 2007. Virginia unemployment posted a 3.8% unemployment rate in January 2008, up from 3.3% in December 2007 and 3.2% in January 2007.

7. Economic Overview CONSUMER CONFIDENCE Has dipped significantly since July 2007. February 2008 level lowest since 2003. One of the most analyzed economic indicators is that of Consumer Confidence which is measured by the conference board. This indicator measures how much faith the consumer has in the current economy. The level of consumer confidence is very important as the consumer market accounts for 2/3 of the US economy (purchases). The consumer confidence level dipped significantly in the second half of CY2007. This trend has continued into 2008, as the February 2008 consumer confidence level dropped to the lowest since 2003. This is no surprise with the price of oil hitting record highs, inflation hitting a 17-year high, the number of foreclosures hitting record highs, and the value of a dollar hitting new lows. Lowered consumer confidence can result in reduced spending which has a direct and substantial impact on our local sales tax revenues. One of the most analyzed economic indicators is that of Consumer Confidence which is measured by the conference board. This indicator measures how much faith the consumer has in the current economy. The level of consumer confidence is very important as the consumer market accounts for 2/3 of the US economy (purchases). The consumer confidence level dipped significantly in the second half of CY2007. This trend has continued into 2008, as the February 2008 consumer confidence level dropped to the lowest since 2003. This is no surprise with the price of oil hitting record highs, inflation hitting a 17-year high, the number of foreclosures hitting record highs, and the value of a dollar hitting new lows. Lowered consumer confidence can result in reduced spending which has a direct and substantial impact on our local sales tax revenues.

8. Economic Overview Now to briefly speak about the current real estate market.Now to briefly speak about the current real estate market.

9. Economic Overview Statewide, the number of houses sold fell by 15% in Virginia in 2007, and by 12% in the Richmond region, while the prices of homes rose regionally. The Richmond Metro Area fared well comparatively in terms of foreclosures among the nations top 100 metro areas, ranking 95th. Statewide, the number of houses sold fell by 15% in Virginia in 2007, and by 12% in the Richmond region, while the prices of homes rose regionally. The Richmond Metro Area fared well comparatively in terms of foreclosures among the nations top 100 metro areas, ranking 95th.

10. Henrico County, VA Current Local Government Issues Overview State Budget Shortfall

11. Current Local Government Budget Issues Every locality in Virginia has different local issues that are typically confronted each year in the budget process. No �one size fits all� summary. There are some overall similarities and concerns that local governments share. Henrico County�s recent experience is likely indicative of some of these overall concerns. Every locality has different local issues that it faces each year during the budget process, however, there are some fundamental similarities and concerns that are shared among localities universally. Henrico�s recent experiences is indicative of some of these overall concerns. Every locality has different local issues that it faces each year during the budget process, however, there are some fundamental similarities and concerns that are shared among localities universally. Henrico�s recent experiences is indicative of some of these overall concerns.

12. Current Local Government Budget Issues In the past five years, Henrico County�s fixed costs have increased significantly. Personnel cost increases including health care, Virginia Retirement System and Retirement and Group Life benefits Increases in fuel � gasoline, diesel Heating cost increases � natural gas and electricity Fixed costs related to personnel have increased dramatically in recent years, with health care VRS and Group Life benefits comprising the majority of these costs. In addition, increases in the cost of both diesel and gasoline fuel, natural gas and electricity have risen significantly. Fixed costs related to personnel have increased dramatically in recent years, with health care VRS and Group Life benefits comprising the majority of these costs. In addition, increases in the cost of both diesel and gasoline fuel, natural gas and electricity have risen significantly.

13. Current Local Government Budget Issues Construction costs have exploded between 2003 and 2007, due to costs of energy and raw materials. Operational costs of new facilities continue to increase. Cost of providing critical public services � Education and Public Safety far exceeds any factor that considers population growth and inflation. Construction costs, including the cost of land, materials and inputs, and the energy used in the construction process, have all risen significantly in the past few years. Construction costs, including the cost of land, materials and inputs, and the energy used in the construction process, have all risen significantly in the past few years.

14. Current Local Government Budget Issues At the same time, the Virginia General Assembly continues to �examine� appropriate levels of local government taxation while mandates on local services continue. Capping of PPTRA reimbursements - 2006. Some State funding reduced in recent years has yet to be restored. Continued concern within the legislature regarding the local taxation of Real Estate. State mandates continue on local services � most recently in the form of additional local match requirements (CSA, Victim Witness Program).

15. Current Local Government Budget Issues And finally�GASB �45 and its implications for local government. For Henrico County - $6.4 million in the FY2007-08 budget. FY2008-09 - $6.73 million

16. Current Local Government Budget Issues On February 12, 2008, Governor Kaine revised revenue forecasts for the second time. The revised revenue projection impacted the current FY2008 budget as well as the 2008-10 Biennial Budget. In FY2008, the State projects a budget shortfall totaling $980 million. For FY2009 & FY2010, the State projects a budget shortfall totaling $1.05 billion. On August 20, 2007, the Secretary of Finance delivered a presentation to the General Assembly�s Finance & Appropriations Committees � the Governor projected a budget shortfall totaling $641 million for FY2008. On February 12, 2008, Governor Kaine announced a revised revenue forecast for the FY2008-10 Biennial Budget and the current year budget. The anticipated revenue shortfall for FY2008 had ballooned to $980 million. The Governor also announced a projected shortfall of $1.05 billion in the coming Biennial Budget. On August 20, 2007, the Secretary of Finance delivered a presentation to the General Assembly�s Finance & Appropriations Committees � the Governor projected a budget shortfall totaling $641 million for FY2008. On February 12, 2008, Governor Kaine announced a revised revenue forecast for the FY2008-10 Biennial Budget and the current year budget. The anticipated revenue shortfall for FY2008 had ballooned to $980 million. The Governor also announced a projected shortfall of $1.05 billion in the coming Biennial Budget.

17. The shortfall in FY2008 is largely due to the over-estimation of revenues by the State (Recordation Tax, Interest on Investments, and Corporate Income Tax). The State anticipated a continued boom in real estate and the economy, which were reflected in their revenue estimates. Current Local Government Budget Issues The State�s budget shortfall is primarily due to an over-estimation of revenues for the Recordation Tax, Interest on Investments and Corporate Income Tax. The State had anticipated a continuance of a stronger economy and growth in the real estate market, and this was reflected in their revenues estimates. The State�s budget shortfall is primarily due to an over-estimation of revenues for the Recordation Tax, Interest on Investments and Corporate Income Tax. The State had anticipated a continuance of a stronger economy and growth in the real estate market, and this was reflected in their revenues estimates.

18. State Budget Shortfall (cont�d) With the original revenue forecast, the Governor announced that State agencies would face a funding reduction of approximately 5.0 percent in the current fiscal year. In his revised revenue forecast, the Governor asked many agencies to absorb an additional 3.5 percent reduction. These reductions will likely impact localities as State agency funding and local funding is intertwined in many cases. The original revenue forecast resulted in the Governor cutting State agency funding by approximately 5.0 percent in the current fiscal year. In the revised revenue forecast, many agencies were told to absorb an additional 3.5 percent reduction These reductions will likely impact localities as State agency funding and local funding is intertwined in many cases. The original revenue forecast resulted in the Governor cutting State agency funding by approximately 5.0 percent in the current fiscal year. In the revised revenue forecast, many agencies were told to absorb an additional 3.5 percent reduction These reductions will likely impact localities as State agency funding and local funding is intertwined in many cases.

19. State Budget Shortfall (cont�d) FY2008-09 Adopted Budget - 37.2% of Henrico�s General Fund revenues are State revenues. Emphasis on conservative posture continues. State funding accounts for 37.2% of General Fund revenues, so shortfalls such as this not only add a huge element of uncertainty in budget preparation, but may also compromise the adequacy of State funded programs with which Henrico County is involved. State funding accounts for 37.2% of General Fund revenues, so shortfalls such as this not only add a huge element of uncertainty in budget preparation, but may also compromise the adequacy of State funded programs with which Henrico County is involved.

20. Financial Issues Facing Henrico County Keeping Up With Growth Henrico County Statistics Fixed Costs Increases Infrastructure Costs

21. Summary of Henrico County�s General Information Henrico County�s population has grown by approximately 2.0 percent a year since the 1970�s. In the past 20 years, the school age population has grown by about 2.5 percent per annum. The County has kept pace with infrastructure needs and service level demands by developing and adhering to multi-year financial plans. By adhering to these multi-year plans and maintaining strict expenditure controls, the County has been able to reduce its Real Estate Tax rates over time. This is just a summary of some general information about Henrico County. This is just a summary of some general information about Henrico County.

22. Population versus Average Daily Membership (ADM) 1970-2008 This slide depicts the yearly increase in total population versus the increase in student enrollment. This slide depicts the yearly increase in total population versus the increase in student enrollment.

23. School staff is projecting that the annual increases in the student population will increase to 900 new students beginning in FY2011-12 and that this period of low growth is only temporary. Student Average Daily Minimums, as of September 30, last five years Fiscal Year ADM Increase FY03-04 44,761 1,271 FY04-05 46,109 1,348 FY05-06 47,071 962 FY06-07 47,537 466 FY07-08 47,958 421 FY08-09 (projected) 48,245 287 FY08-09 (projected) 48,245 287 FY09-10 (projected) 48,900 655 FY10-11 (projected) 49,700 800 FY11-12 (projected) 50,600 900 FY12-13 (projected) 51,500 900 School staff is projecting that the annual increases in the student population will increase to 900 new students beginning in FY2011-12 and that this period of low growth is only temporary. Student Average Daily Minimums, as of September 30, last five years Fiscal Year ADM Increase FY03-04 44,761 1,271 FY04-05 46,109 1,348 FY05-06 47,071 962 FY06-07 47,537 466 FY07-08 47,958 421 FY08-09 (projected) 48,245 287 FY08-09 (projected) 48,245 287 FY09-10 (projected) 48,900 655 FY10-11 (projected) 49,700 800 FY11-12 (projected) 50,600 900 FY12-13 (projected) 51,500 900

24. Includes Roads and Utilities. All General Government positions.Includes Roads and Utilities. All General Government positions.

25. Schools by Type1970-2008 This slide depicts the number of schools by type. The number of elementary, middle and high schools continues to increase consistent with the growing population. There have been seven new schools built since 2000: Elementary � 3 new schools Middle - 3 new schools High - 1new schoolThis slide depicts the number of schools by type. The number of elementary, middle and high schools continues to increase consistent with the growing population. There have been seven new schools built since 2000: Elementary � 3 new schools Middle - 3 new schools High - 1new school

26. Number of Fire Stations1970-2008 Note � We started providing EMS service in 1988. We now run 13 EMS units and are projected to record 27,100 EMS and rescue calls for service in 2008. Note � We started providing EMS service in 1988. We now run 13 EMS units and are projected to record 27,100 EMS and rescue calls for service in 2008.

27. Library Facilities1970-2008 Newest facility � Tuckahoe library � 50,000 sf. Newest facility � Tuckahoe library � 50,000 sf.

28. Recreation Facilities1970-2008 This slide depicts the number of recreation facilities from 1970 through 2008. Information provided by Recreation and Parks. This slide depicts the number of recreation facilities from 1970 through 2008. Information provided by Recreation and Parks.

29. County of Henrico Real Estate Tax Rate This chart looks at Henrico County�s Real Estate Tax Rate over a 30 year time span. What this shows is that during this 30 year time period (CY78-CY08), the Real Estate Tax Rate in Henrico County will have been reduced six times. Of those six Real Estate Tax Rate reductions, five will have occurred since CY1996 and three will have occurred since CY2005. The Board of Supervisors is well aware that one of our most difficult tasks is to balance the need for a fair tax structure against the demands for services particularly Education and Public Safety. Henrico has done this during the last 30 years and will continue to provide the best services at the lowest costs in the future. This chart looks at Henrico County�s Real Estate Tax Rate over a 30 year time span. What this shows is that during this 30 year time period (CY78-CY08), the Real Estate Tax Rate in Henrico County will have been reduced six times. Of those six Real Estate Tax Rate reductions, five will have occurred since CY1996 and three will have occurred since CY2005. The Board of Supervisors is well aware that one of our most difficult tasks is to balance the need for a fair tax structure against the demands for services particularly Education and Public Safety. Henrico has done this during the last 30 years and will continue to provide the best services at the lowest costs in the future.

30. Counties in the United States with AAA/AAA/Aaa GO Bond Ratings Arlington County, VA Baltimore County, MD Chesterfield, County, VA Cobb County, GA DuPage County, Ill. Fairfax County, VA Forsyth County, NC Greenville County, SC Gwinnet County, GA Hennepin County, MN Henrico County, VA Howard County, MD Kent County, MI Mecklenburg County, NC Monmouth County, NJ Montgomery County, MD New Castle County, DE Palm Beach County, FL Salt Lake County, UT St. Louis County, MO Wake County, NC Henrico County is one of 21 counties in the country that has been awarded a triple A bond rating from each of the three primary bond rating agencies. The other Virginia localities recognizing this distinction are Chesterfield, Fairfax, and Arlington. Henrico County is one of 21 counties in the country that has been awarded a triple A bond rating from each of the three primary bond rating agencies. The other Virginia localities recognizing this distinction are Chesterfield, Fairfax, and Arlington.

31. Fixed Cost Increases The cost of health insurance for the County of Henrico, including Education will total nearly $54.2 million in FY2008-09. This chart is included for historical purposes. Seven years of information are included. In this time period, the County�s portion of health insurance costs for employees and dependents has increased by 190.6 percent. This year, the Proposed budget includes an increase of 11.9 percent. As you are aware beginning January 1, 2008 the County transitioned from a fully insured to a self-insured health care program. With the fully insured program, in exchange for the payment of a premium an insurance company assumed the risk of the program, administered the program, and paid the claims. With the transition to the self-funded program, the County pays claims and third party administrative fees. Self-insurance allows the County to more fully control all aspects of the plan including setting rates to smooth out the impact of increases on employees and the County, while maintaining adequate funding to cover claims, expenses, and reserves. This conversion to self-insurance resulted in a small increase in the cost of health care for the County in FY2008-09. However the cost of health care will continue to rise at levels greater than inflation and the self-insurance program does resolve those issues. It only allows Henrico to have more control over the program. (Next Slide) The cost of health insurance for the County of Henrico, including Education will total nearly $54.2 million in FY2008-09. This chart is included for historical purposes. Seven years of information are included. In this time period, the County�s portion of health insurance costs for employees and dependents has increased by 190.6 percent. This year, the Proposed budget includes an increase of 11.9 percent. As you are aware beginning January 1, 2008 the County transitioned from a fully insured to a self-insured health care program. With the fully insured program, in exchange for the payment of a premium an insurance company assumed the risk of the program, administered the program, and paid the claims. With the transition to the self-funded program, the County pays claims and third party administrative fees. Self-insurance allows the County to more fully control all aspects of the plan including setting rates to smooth out the impact of increases on employees and the County, while maintaining adequate funding to cover claims, expenses, and reserves. This conversion to self-insurance resulted in a small increase in the cost of health care for the County in FY2008-09. However the cost of health care will continue to rise at levels greater than inflation and the self-insurance program does resolve those issues. It only allows Henrico to have more control over the program. (Next Slide)

32. VRS Costs FY2001-02 to FY2008-09 A second fixed cost that has impacted this Proposed budget is the required retirement contribution to the Virginia Retirement System (VRS) on behalf of all Henrico County employees. As this graph shows, total payments to the VRS for all General Government and Education employees for retirement premiums is expected to total $75.3 million in FY2008-09. This is an increase of $6.7 million, or 9.8 percent. In looking at the eight years on this chart, the cost of VRS retirement costs has increased by 112.1 percent. The increases over the years are due to continued enhancements of benefits by the Virginia General Assembly, previous losses that have been incurred by the VRS, and increases in the total complement, which has grown in conjunction with the growth in population (Next Slide) A second fixed cost that has impacted this Proposed budget is the required retirement contribution to the Virginia Retirement System (VRS) on behalf of all Henrico County employees. As this graph shows, total payments to the VRS for all General Government and Education employees for retirement premiums is expected to total $75.3 million in FY2008-09. This is an increase of $6.7 million, or 9.8 percent. In looking at the eight years on this chart, the cost of VRS retirement costs has increased by 112.1 percent. The increases over the years are due to continued enhancements of benefits by the Virginia General Assembly, previous losses that have been incurred by the VRS, and increases in the total complement, which has grown in conjunction with the growth in population (Next Slide)

33. Gasoline and Diesel Costs: All Funds FY2001-02 to FY2008-09 Gasoline and diesel cost increases have impacted many sectors of the economy � and the news seems to change daily regarding what the long term costs will be in this area. What we do know is that we have to increase budget estimates based upon prices today. The FY2007-08 budget was recently amended to include $2,895,000 in additional funding to cover costs associated with the County�s required consumption of both Diesel and Gasoline fuel. (Next Slide) Gasoline and diesel cost increases have impacted many sectors of the economy � and the news seems to change daily regarding what the long term costs will be in this area. What we do know is that we have to increase budget estimates based upon prices today. The FY2007-08 budget was recently amended to include $2,895,000 in additional funding to cover costs associated with the County�s required consumption of both Diesel and Gasoline fuel. (Next Slide)

34. �Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions�. Became effective with FY2007-08 budget � Bond Rating implications. Will require annual payments to a Fiduciary Fund (Trust Fund) of approximately 2 pennies of our tax rate. Henrico County has fully funded GASB 45 requirements in the budget, although this new cost will have a continual impact on budgetary flexibility. GASB 45 is a new accounting requirement from the Governmental Accounting Standards Board (GASB). The GASB 45 pronouncement known to accountants as �Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions� will present significant funding issues for many local governments throughout the United States when it goes into effect with the FY2007-08 budget. The requirement is one that requires an actuarial analysis of retiree health care benefits be performed and based upon that analysis - requires localities to begin funding future benefits that will be paid over a 30 year amortization period. The accounting requirement is very similar to the parameters of the Virginia Retirement System where the pre-payment of funds by the County will be made available to active retirees as part of their retirement benefits. The �liability� that arises as a result of GASB 45 resides with each respective local government. To this end, there are bond-rating implications that must be considered as well as liabilities that will be recorded on the County�s balance sheet. Henrico County completed the required actuarial analysis of our future liabilities under GASB 45 and the results required a payment of $6.3 million to a Fiduciary (Trust in Agency) Fund beginning in the FY2007-08 budget. It is the intent of the County of Henrico to fully meet this funding requirement beginning in FY2007-08 and each year thereafter. Beginning with next year�s budget, a transfer from the General Fund to a Fiduciary Fund for this purpose will be established and will be budgeted annually. This is very important in that Bond Rating Agencies have added GASB 45 and how localities fund this liability to their rating analysis. (Next Slide) GASB 45 is a new accounting requirement from the Governmental Accounting Standards Board (GASB). The GASB 45 pronouncement known to accountants as �Accounting and Financial Reporting by Employers for Post Employment Benefits Other than Pensions� will present significant funding issues for many local governments throughout the United States when it goes into effect with the FY2007-08 budget. The requirement is one that requires an actuarial analysis of retiree health care benefits be performed and based upon that analysis - requires localities to begin funding future benefits that will be paid over a 30 year amortization period. The accounting requirement is very similar to the parameters of the Virginia Retirement System where the pre-payment of funds by the County will be made available to active retirees as part of their retirement benefits. The �liability� that arises as a result of GASB 45 resides with each respective local government. To this end, there are bond-rating implications that must be considered as well as liabilities that will be recorded on the County�s balance sheet. Henrico County completed the required actuarial analysis of our future liabilities under GASB 45 and the results required a payment of $6.3 million to a Fiduciary (Trust in Agency) Fund beginning in the FY2007-08 budget. It is the intent of the County of Henrico to fully meet this funding requirement beginning in FY2007-08 and each year thereafter. Beginning with next year�s budget, a transfer from the General Fund to a Fiduciary Fund for this purpose will be established and will be budgeted annually. This is very important in that Bond Rating Agencies have added GASB 45 and how localities fund this liability to their rating analysis. (Next Slide)

35. Infrastructure Costs As noted, in the past 20 years, the number of students in Henrico�s school system has increased by about 2.5% per year. Over the past 5 years, average yearly increase in students has been approximately 700. Maintaining adequate public infrastructure (schools, fire stations, roads, parks and libraries) is a continuing issue for the County of Henrico. The Five Year CIP is the tool used to plan for these facilities. Operating costs associated with capital projects to facilitate the growth experienced in the County is an ongoing concern. The Five Year Capital Improvement Program is the tool Henrico uses to plan for the costs associated with these projects. Operating costs associated with capital projects to facilitate the growth experienced in the County is an ongoing concern. The Five Year Capital Improvement Program is the tool Henrico uses to plan for the costs associated with these projects.

36. Infrastructure Costs In the past five years, the County has had two major General Obligation Bond Referenda that have been approved by the voters. November, 2000: $237.0 million March, 2005: $349.3 million The 2000 GO Bond Referendum approved by the voters totals $237.0 million. The 2005 GO Bond Referendum approved by the voters totals $349.3 million. Between both referenda, the County�s voters have authorized the issuance of $586.3 million in GO Bonds. The 2000 GO Bond Referendum approved by the voters totals $237.0 million. The 2005 GO Bond Referendum approved by the voters totals $349.3 million. Between both referenda, the County�s voters have authorized the issuance of $586.3 million in GO Bonds.

37. Infrastructure Cost Summary Maintaining current levels of service (schools, fire stations, EMS, roads, etc) will continue to require new capital infrastructure. Cost of land. Costs of construction have increased significantly in past 24 months. Uncertainty in the municipal bond market Maintaining service levels for schools, public safety and roads will require many new capital infrastructure commitments in coming years. The cost of construction has increased dramatically in the past several months. There also exists a great amount of uncertainty concerning long-term municipal rates on debt financing. Maintaining service levels for schools, public safety and roads will require many new capital infrastructure commitments in coming years. The cost of construction has increased dramatically in the past several months. There also exists a great amount of uncertainty concerning long-term municipal rates on debt financing.

38. Infrastructure Cost Summary Virginia localities � limited revenue generation tools. Effective multi-year planning is paramount. Lately, developing and adhering to multi-year financial plans has been made more difficult due to State funding reductions, alterations of local revenue sources, and the lack of a State budget having been adopted. State = 37.2% of Henrico�s General Fund revenues. Thank you There are limited tools at our disposal to generate revenue to provide the level of services afforded to our citizens, and multi-year planning is key to the effective budgeting of these revenues. Multi-year planning has become increasingly more difficult as a result of inconsistencies in state funding, which comprises a large portion of Henrico�s General Fund revenues. It is Henrico�s goal to consistently provide high quality services to our citizens through a conservative and pragmatic approach to fiscal planning. That concludes my presentation. Thank you for your time. There are limited tools at our disposal to generate revenue to provide the level of services afforded to our citizens, and multi-year planning is key to the effective budgeting of these revenues. Multi-year planning has become increasingly more difficult as a result of inconsistencies in state funding, which comprises a large portion of Henrico�s General Fund revenues. It is Henrico�s goal to consistently provide high quality services to our citizens through a conservative and pragmatic approach to fiscal planning. That concludes my presentation. Thank you for your time.