May 14th , 2008

County of Henrico, Virginia

Henrico County, Virginia

Financial Issues Facing Henrico County

• Economic Overview• Current Local Government Issues• Keeping Up With Growth

Henrico County, VA

Economic Overview• Uncertainty in National Economy• Real Estate – National• Real Estate – State and Regional

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

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%*

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

99

00

01

02

03

04

05

06

07

08

CPI-U (Jan. v. Jan.)

*Note: Current year increases are measured from January 07 to January 08

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.

0.0

2.0

4.0

6.0

8.0

CY94 CY95 CY96 CY97 CY98 CY99 CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07

United States Virginia Henrico

Economic Overview

CONSUMER CONFIDENCE– Has dipped significantly since July 2007.– February 2008 level lowest since 2003.

50

60

70

80

90

100

110

120

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Economic Overview

Real Estate – National News• Home foreclosures at an all-time high in

the final quarter of 2007.• Construction spending experienced the

largest decrease in 14 years from December 2007 to January 2008, and it continues to fall.

• Median price of a single-family home fell 5.1 percent from Jan. 2007 to Jan. 2008.

• Single-family home sales fell 22.4 percent from Jan. 2007 to Jan. 2008.

Economic Overview

Real Estate – State and Regional News

• In 2007, the number of houses sold fell:– 15 percent in Virginia.– 12 percent for the Richmond region.

• Virginia saw a slight increase in home prices – median price increased 1.2 percent.

• Home prices in the Richmond area increased by an average of 5.8 percent in 2007.

• Richmond Metro Area ranks 95th in the top 100 metro areas in the nation in number of foreclosures.

Henrico County, VA

Current Local Government Issues• Overview• State Budget Shortfall

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.

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

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.

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).

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

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.

State Budget Shortfall

• 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

State Budget Shortfall (cont’d)

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.

Current Local Government Budget Issues

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.

Current Local Government Budget Issues

Financial Issues Facing Henrico County

Keeping Up With Growth• Henrico County Statistics• Fixed Costs Increases• Infrastructure Costs

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.

Population versus Average Daily Membership (ADM) 1970-2008

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50,000

100,000

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300,000

350,000

Population

0

10,000

20,000

30,000

40,000

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60,000

ADM

Population ADM

Note: FY2008 is estimated.

Henrico County Statistics

0200400600800

1,0001,2001,4001,600

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Annual Increases in Student Population

Henrico County Statistics

-500

250

1,000

1,750

2,500

3,250

4,000

19

85

19

87

19

89

19

91

19

93

19

95

19

97

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99

20

01

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03

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05

20

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Number of Henrico PositionsPositions per 1,000 Residents

General Government Employees Number per 1,000 residents FY85-FY08

Henrico County Statistics

Schools by Type1970-2008

30 31 33 33 34 37 42 44 45

4 5 6 6 68

10 12 13

6 78 8 8

88

9 9

0

10

20

30

40

50

60

70

80

1970 1975 1980 1985 1990 1995 2000 2005 2008

Elementary Middle High

Current statistics do not include 3 Specialty centers.

Henrico County Statistics

Number of Fire Stations1970-2008

1012 12 13

17 17 1720

02468101214161820

1970 1975 1980 1985 1990 1995 2000 2005-2008

Henrico County Statistics

Library Facilities1970-2008

12

6 67

9 910

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1970 1975 1980 1985 1990 1995 2000 2005-2008

Henrico County Statistics

Recreation Facilities1970-2008

8 1019 25

3240

50 55

78

0

10

20

30

40

50

60

70

80

1970 1975 1980 1985 1990 1995 2000 2005 2008

* 2008 Figure includes 17 recreation & community centers, and 61 shelters

Henrico County Statistics

County of Henrico Real Estate Tax Rate

Real Estate Tax Rate: Per $100 of Assessed Valuation.

$0.98$0.96

$0.94$0.92

$0.90

$0.87

$1.03

$0.80

$0.85

$0.90

$0.95

$1.00

$1.05

CY78-CY79

CY80-CY95

CY96 CY97-CY04

CY05 CY06 CY07-CY08

Henrico County Statistics

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

Millions

The FY2008-09 budget amounts reflect current estimates.

Health Care Cost to County

FY2001-02 to FY2008-09

$18.1

$27.5$31.5

$35.6

$41.9$47.0

$52.5 $54.2

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20

30

40

50

60

Am

oun

t ($

mil

lion

s)

2002 2003 2004 2005 2006 2007 2008 2009

Fiscal Year

Fixed Cost Increases

Millions

VRS Costs FY2001-02 to FY2008-09

$35.5 $36.4 $38.3

$47.8$53.0

$63.0$68.6

$75.3

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40

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VR

S A

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t ($

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2002 2003 2004 2005 2006 2007 2008 2009Fiscal Year

Fixed Cost Increases

Millions

Gasoline and Diesel Costs: All Funds

FY2001-02 to FY2008-09

$4.4 $5.0 $5.7$8.1

$14.5$12.3 $12.9

$2.9

$13.3

$0$2$4$6$8

$10$12$14$16$18

2002 2003 2004 2005 2006 2007 2008 2009Prop.

Fiscal Year

Fixed Cost Increases

• “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 45GASB 45

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.

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

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

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

County of Henrico, Virginia

May 14th , 2008