District of Columbia: Status of the Proposed New Convention Center
Project (Letter Report, 09/25/97, GAO/AIMD-97-148).

Pursuant to a congressional request, GAO reported on the progress of the
proposed new convention center project for Washington, D.C., focusing on
the project's: (1) approval process; (2) building design; (3) estimated
costs; (4) dedicated revenues; and (5) financing plans.

GAO found that: (1) the Washington Convention Center Authority (WCCA) is
faced with the challenge of obtaining sufficient financing for the
construction of the new convention center project; (2) the total
cost--predevelopment and construction, including contingencies--is now
estimated to be about $650 million, excluding $87 million of borrowing
costs and certain reserve requirements; (3) WCCA already has sufficient
funds from dedicated taxes for the $40 million in projected
predevelopment costs of which a reported $15.6 million was expended as
of July 31, 1997; (4) however, funding for the entire estimated $610
million in construction costs is uncertain; (5) WCCA plans to issue
revenue bonds backed by dedicated taxes to finance a portion of the
construction cost of the project; (6) however, WCCA would need to have
its authority to use the taxes currently dedicated to the project
expanded to include using them for construction and would have to adopt
and submit for City Council review a resolution authorizing the issuance
of revenue bonds; (7) the current stream of existing annual dedicated
tax revenues is not sufficient to support the debt required to fund the
project's estimated construction cost; (8) the current earmarked tax
collections are estimated to support a revenue bond issuance of $423
million; (9) WCCA estimated that if $51 million of interest earnings
from bond proceeds as well as $30 million of cash on hand from dedicated
taxes as of July 31, 1997 are added to the estimated $423 million, total
estimated revenues would amount to $504 million; (10) however, this
would leave a shortfall of approximately $106 million; (11) assuming
estimated costs are accurate, WCCA would need about $114 million ($106
million plus an estimated $8 million to satisfy an operation and
maintenance reserve) if it were to enter the market in October 1997, as
originally contemplated, to obtain bond financing; (12) WCCA, with the
assistance of financial advisors, has been exploring options such as
additional funds from the District, federal funding, and sale of the
existing convention center to supplement the dedicated tax revenues;
(13) also, before the project can move forward, the National Capital
Planning Commission (NCPC), the central agency for conducting planning
and development activities for federal lands and facilities in the
National Capital Region, including the District of Columbia, must
approve the concept design as well as address community concerns
regarding the project; and (14) since GAO's December 1996 report, WCCA's
estimated completion date has slipped 1 year to December 31, 2000, and
based on the delays and approvals required, this date is uncertain.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-97-148
     TITLE:  District of Columbia: Status of the Proposed New Convention 
             Center Project
      DATE:  09/25/97
   SUBJECT:  Convention facilities
             Facility construction
             Municipal bonds
             Financial analysis
             Construction costs
             Cost analysis
             Future budget projections
             Municipal taxes
IDENTIFIER:  DC Rainy Day Fund
             District of Columbia
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on the District of Columbia,
Committee on Government Reform and Oversight, House of
Representatives

September 1997

DISTRICT OF COLUMBIA - STATUS OF
THE PROPOSED NEW CONVENTION CENTER
PROJECT

GAO/AIMD-97-148

Convention Center Project

(901752)


Abbreviations
=============================================================== ABBREV

  ACHP - Advisory Council on Historic Preservation
  CAFR - Comprehensive Annual Financial Report
  DFR - Department of Finance and Revenue
  DSRF - Debt Service Reserve Fund
  EPA - Environmental Protection Agency
  GSA - General Services Administration
  MOA - Memorandum of Agreement
  NCPC - National Capital Planning Commission
  O&M - Operation and Maintenance
  SHPO - District of Columbia State Historic Preservation Officer
  WCCA - Washington Convention Center Authority

Letter
=============================================================== LETTER


B-278005

September 25, 1997

The Honorable Thomas M.  Davis, III
Chairman, Subcommittee on the
District of Columbia
Committee on Government Reform
and Oversight
House of Representatives

Dear Mr.  Chairman: 

You requested that we monitor and periodically report on the progress
of the proposed new convention center project for Washington, D.C. 
This report, our fourth on this issue, discusses the project's
approval process, building design, estimated costs, dedicated
revenues, and financing plans. 

The Washington Convention Center Authority (WCCA), an independent
authority of the District Government, is responsible for the
management and development of the new convention center. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

WCCA is faced with the challenge of obtaining sufficient financing
for the construction of the proposed new convention center project. 
The total cost--predevelopment and construction, including
contingencies--of the proposed new convention center is now estimated
to be about $650 million, excluding $87 million of borrowing costs
and certain reserve requirements.  WCCA already has sufficient funds
from dedicated taxes for the $40 million in projected predevelopment
costs of which a reported $15.6 million was expended as of July 31,
1997.  However, funding for the entire estimated $610 million in
construction cost is uncertain at this time. 

WCCA plans to issue revenue bonds backed by dedicated taxes to
finance a portion of the construction cost of the project.  However,
WCCA would need to have its authority to use the taxes currently
dedicated to the predevelopment costs of the project expanded to
include using them for construction and would have to adopt and
submit for City Council review a resolution authorizing the issuance
of revenue bonds.  The current stream of existing annual dedicated
tax revenues is not sufficient to support the debt required to fund
the project's estimated construction cost.  The current earmarked tax
collections are estimated to support a revenue bond issuance of $423
million.  WCCA estimated that if $51 million of interest earnings
from investment of bond proceeds as well as $30 million of cash on
hand from dedicated taxes as of July 31, 1997, which is estimated to
be available for construction, are added to the estimated $423
million, total estimated revenues would amount to $504 million. 
However, this would leave a shortfall of approximately $106 million. 
Assuming currently estimated costs are substantially accurate, WCCA
would need about $114 million ($106 million plus an additional
estimated $8 million to satisfy an operation and maintenance reserve)
if it were to enter the market in October 1997, as originally
contemplated, to obtain bond financing.  WCCA, with the assistance of
financial advisors, has been exploring financing options such as
additional funds from the District, federal funding, and sale of the
existing convention center to supplement the dedicated tax revenues. 

Also, before the project can move forward, the National Capital
Planning Commission (NCPC), the central agency for conducting
planning and development activities for federal lands and facilities
in the National Capitol Region, including the District of Columbia,
must approve the concept design as well as address community concerns
regarding the project.  Since our December 1996 report, WCCA's
estimated completion date has slipped 1 year to December 31, 2000,
and based on the delays and approvals required, this date is
uncertain. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Plans for the new convention center were initiated in 1993 by the
District's Hotel and Restaurant Associations, the Convention and
Visitors Association, and the District of Columbia government.  The
Washington Convention Center Authority Act of 1994\1 (1994 Act)
authorizes WCCA to construct, maintain, and operate the new
convention center, as well as maintain and operate the existing
convention center.  The current design calls for a total of 2.1
million gross square feet, which includes approximately 730,000
square feet of prime exhibit space compared to the existing
convention center which has a total of 800,000 gross square feet,
including 381,000 gross square feet of exhibit space.  According to
the 1997 Market Demand Update for the Washington, D.C., Convention
Center, the proposed new convention center is projected to rank
eighth, based on the gross square feet of prime exhibit space, in the
United States when completed, and the size of the proposed new
convention center should remain highly marketable into the 21st
century. 

In August 1994, when the District created WCCA, it also earmarked
additional revenues to finance the project.  Section 301 of the 1994
Act amended the District of Columbia Income and Franchise Tax Act of
1947 (1) to decrease the tax on the privilege of corporations,
financial institutions, and unincorporated businesses to do business
in the District from 10 percent of taxable income to 9.5 percent of
taxable income and (2) to impose a surtax of 2.5 percent on the 9.5
percent tax.  Amounts collected from the surtax are to be transferred
to the WCCA.\2

Sections 302 and 303 of the 1994 Act amended the District of Columbia
Sales Tax Act and the District of Columbia Compensating Use Tax Act,
respectively (1) to decrease the tax rate from 11 percent to 10.5
percent on hotel gross receipts and to add an additional tax of 2.5
percent on hotel gross receipts and (2) to add an additional tax of 1
percent to the 9 percent tax on the gross receipts from the sales of
food or drink (including alcohol) to be consumed on the premises and
from the rental of vehicles and trailers.  Amounts collected from the
additional taxes are to be transferred to the WCCA.\3

Section 304 of the 1994 Act amended the Hotel Occupancy and Surtax on
Corporations and Unincorporated Business Tax Act of 1977 to provide
40 percent of the $1.50 tax already being collected on the occupancy
of each hotel room to the WCCA and to allocate the remaining 60
percent as follows:  50 percent to the Washington Convention and
Visitors Association, 37.5 percent to the Mayor's Committee to
Promote Washington, and 12.5 percent to WCCA for advertising and
promotion.\4

The fourth sentence of section 446 of the Home Rule Act, D.C.  Code
Ann.  47-304 (1981), as amended, provides that "...no amount may be
obligated or expended by any officer or employee of the District of
Columbia government unless such amount has been approved by an act of
Congress, and then only according to such act."\5 Section 101 of the
District of Columbia Convention Center and Sports Arena Authorization
Act of 1995, (Public Law No.  104-28, 109 Stat.  267 (1995), D.C. 
Code sec.  47-396.1 (1981, 1996 supp.)), authorized WCCA's use of the
revenues attributable to sections 301-304 of the 1994 Act to
financing the operation and maintenance of the existing convention
center and for the preconstruction activities relating to the new
convention center.\6

According to WCCA officials, the proposed new convention center is
intended to allow the District to compete for larger conventions and
trade shows.  A 1993 feasibility study by Deloitte & Touche,
commissioned by the local hospitality industry, stated that even
though the District is viewed as a desirable location, the existing
convention center, which has about 381,000 gross square feet of
exhibit space, is small compared to the convention centers of other
cities such as Atlanta, New York, Chicago, and Philadelphia. 

The original proposal from the 1993 feasibility study called for
building a new convention center in two phases with the first phase
to be completed at the end of 1997 with approximately 554,000 gross
square feet of exhibit space and the second phase to be completed at
the end of 1999 with another 254,000 gross square feet of exhibit
space.  Since that study was completed, WCCA has ruled out a
two-phase development project because the first phase essentially
would not provide enough exhibit space to compete with cities with
larger convention centers.  The cost of both phases was estimated at
$521 million. 

In addition, the 1993 feasibility study, which was projected through
the year 2003, estimated that direct and indirect economic benefits
to the District from the construction of the project would include
560 new jobs, $4 million in increased revenue, and $260 million in
other economic output such as spending related to convention center
operations and development.  For the Washington metropolitan area,
the study projected 1,600 jobs, $28 million in incremental taxes, and
$558 million in economic activity.  Projected long-term benefits by
the fifth year of operation of the new convention center included
2,500 permanent jobs, $44 million in incremental taxes, and $640
million in incremental economic output for the District.  WCCA
contracted with a management consulting firm to update the 1993
feasibility study, which will include an update of the economic
benefits to the District.  The study is expected to be completed by
September 30, 1997. 

The current master plan calls for constructing a new convention
center at Mount Vernon Square, the legislatively\7 preferred site,
located at Ninth Street and Mount Vernon Place, North West.  In the
1993 feasibility study, eight potential sites were identified and
evaluated against certain criteria such as physical and location
characteristics, historic preservation, parking, and cost, including
land acquisition and construction.  As a result of this analysis, the
Mount Vernon Square site was determined to be the preferred site due
to its close proximity to the District's downtown businesses and
because the District owns the majority of the land, thus, minimizing
the cost of land acquisition. 


--------------------
\1 The WCCA was created by the Washington Convention Center Authority
Act of 1994, D.C.  Law 10-188, September 28, 1994, 41 DC 5333, 6823,
D.C.  Code Ann.  secs.  9-801 through 9-819. 

\2 D.C.  Code Ann.  secs.  47-1807.2, 47-1807.2a, 47-1808.3,
47-1808.3a (1981, 1996 Supp.). 

\3 D.C.  Code Ann.  secs.  47-2002, 47-2002.2, 47-2002.3, 47-2202,
47-2202.1, 47-2202.2 (1981, 1996 Supp.). 

\4 D.C.  Code Ann.  secs.  47-3202, 47-3206 (1981, 1996 Supp.). 

\5 As discussed later in this report, sections 11508 and 11509 of the
Balanced Budget Act of 1997, have authorized the District to issue
revenue bonds backed by a pledge of dedicated taxes and to use such
taxes to pay the principal and interest on such bonds without further
action by Congress. 

\6 See also sec.  208(c) of the 1994 Act, D.C.  Code Ann.  sec. 
9-809(c) (1981) (1995 Rep.  Vol.). 

\7 Sec.  101(12) of the 1994 Act, D.C.  Code Ann.  sec.  9-801(12)
(1981). 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
------------------------------------------------------------ Letter :3

To determine the status of the proposed new convention center
project, we interviewed WCCA officials, contractors, regulatory
agencies (National Capital Planning Commission and the Advisory
Council on Historic Preservation), and District officials to
determine and assess WCCA's progress toward meeting critical
milestones. 

We reviewed the master plan, which contains the concept design and
requirements for the new convention center, and compared the design
to the existing facility to determine if the new convention center
will provide additional exhibit space.  We also compared the new
convention center exhibit space to facilities in other cities, based
on the 1997 Market Demand Update, to determine the ranking in terms
of prime exhibit space once the project is completed. 

We analyzed the current predevelopment and construction cost
estimates for the project as of May 31, 1997, to determine how they
compare to the previous cost estimates prepared by WCCA.  We reviewed
documents and held discussions with WCCA officials to obtain reasons
for variations from previous cost estimates for the proposed new
convention center. 

We reviewed financial records and current balances to determine the
amount of dedicated taxes reported as collected and transferred to
WCCA.  In addition, we reviewed the lockbox procedures that were
established to collect the dedicated taxes. 

We also reviewed WCCA's plans for financing the new convention center
project to determine whether adequate funding is available to finance
the project.  In addition, we reviewed alternative sources of
financing proposed by WCCA. 

We conducted our review between March 1997 and July 1997 in
accordance with generally accepted government auditing standards. 
Also, we considered the results of previous work.\8 While we reviewed
transactions to determine the reasonableness of the dedicated taxes
collected, deposited, and transferred to WCCA, we did not audit the
reported taxes collected and deposited for the new convention center
project to determine if the District government accurately calculated
and transferred all dedicated taxes to WCCA's escrow account. 

We requested written comments on a draft of this report from the
Mayor of the District of Columbia or his designee.  These comments
are discussed in the "District's Comments and Our Evaluation" section
and are reprinted in appendix I. 


--------------------
\8 District of Columbia:  Status of Convention Center Project
(GAO/AIMD-94-191, September 15, 1994), District of Columbia:  Status
of Sports Arena and Convention Center Projects (GAO/T-AIMD-95-189,
July 12, 1995), District of Columbia:  Status of Sports Arena and
Convention Center Projects (GAO/T-AIMD-95-221), Status of Convention
Center Project (GAO/AIMD-96-44R, February 21, 1996), and District of
Columbia:  Status of the New Convention Center Project
(GAO/AIMD-97-17, December 20, 1996). 


   STATUS OF APPROVAL PROCESS FOR
   THE PROPOSED NEW CONVENTION
   CENTER
------------------------------------------------------------ Letter :4

The project has reached the regulatory review phase which involves
the WCCA obtaining necessary permits, reviews and approvals from
federal and local regulatory agencies. 

NCPC is reviewing the design of the project as provided by law.\9
During its approval process, NCPC is also considering the
environmental impact of the conceptual design on the construction
site and neighborhood.  The environmental impact study (EIS) is
complete and was reviewed by the federal Environmental Protection
Agency (EPA).  According to WCCA's Manager of Contracts, NCPC did not
receive comments from EPA within the comment period. 

Also, NCPC, WCCA, the Advisory Council on Historic Preservation, the
District of Columbia State Historic Preservation Officer, the Mayor,
and the Chair of the D.C.  City Council, entered into a Memorandum of
Agreement (MOA) on September 12, 1997, following consultations under
section 106 of the National Historic Preservation Act.\10 The MOA
contains a plan to mitigate a number of community, business, civic,
and historic preservation concerns regarding the project.  As a
result of the signing of the MOA, NCPC has resumed consideration of
the project and has scheduled hearings on the proposed convention
center for September 22 and 25, 1997. 

Another critical phase in the development process of the project is
obtaining authority to use the dedicated revenues attributable to
section 301-304 of the 1994 Act to finance the construction of the
project.  Next, WCCA would have to adopt a resolution to issue the
revenue bonds (subject to the City Council review).  As part of the
financing phase, WCCA would be required to obtain a credit rating for
revenue bond financing from rating agencies.  Based on WCCA's current
schedule, the financing phase is scheduled for completion in late
Fall of 1997, and groundbreaking is planned for late 1997 or early
1998.  When we last reported in December 1996,\11 WCCA estimated that
the project would be completed by December 31, 1999.  The estimated
completion date is now December 31, 2000.  However, if more delays
occur in the regulatory process and the finalization of a financing
plan, this project could be further delayed. 

WCCA has to acquire 15 remaining parcels of land for the Mount Vernon
Square site.  According to WCCA officials, the District does not
anticipate any problems in acquiring the remaining properties, either
by negotiated sale or, if necessary, by exercise of its power of
eminent domain.\12


--------------------
\9 Section 5 of the Act of June 6, 1924, as amended, 40 U.S.C.  sec. 
71d(c) (1994) and section 16 of the Act of June 20, 1938, D.C.  Code
Ann.  sec.  5-432 (1981).  See generally 40 U.S.C.  secs.  71-71i
(1994). 

\10 16 U.S.C.  sec.  470f (1994) and its implementing regulations, 36
C.F.R.  Part 800 (1996). 

\11 See footnote 8 in this report. 

\12 D.C.  Code Ann.  sec.  16-1311 (1981). 


   NEW CONVENTION CENTER MASTER
   PLAN
------------------------------------------------------------ Letter :5

According to requirements in the master plan, which WCCA officials
told us are still the current thinking, the proposed new convention
center will almost double the exhibit space for conventions and
expositions available at the existing convention center.  The current
convention center has 800,000 gross square feet consisting of 381,000
gross square feet of exhibit space on two levels.  The upper level
has three exhibit halls with 276,000 square feet of exhibit space;
the lower level contains 105,000 square feet of exhibit space. 

The master plan for the proposed new convention center calls for a
partially below-ground facility with approximately 2.1 million gross
square feet that includes 730,000 gross square feet of prime exhibit
space.  The master plan organizes the new facility into three
buildings with the approximate height ranging from 35 feet on the
northern end to 130 feet on the southern end of the complex
consistent with the Building Height Act restriction.\13

The proposed new convention center would have four levels with a
completely below ground exhibit level containing 500,000 square feet
of contiguous exhibit space and adjacent loading docks.  The street
level would consist primarily of lobby/registration space, meeting
rooms, service/support space with some retail and community space on
the perimeter.  The upper level has additional meeting rooms and
230,000 square feet of column free exhibit space.  The ballroom level
(the fourth level) also includes the central kitchen. 

The current convention center is ranked 30th, in terms of prime
exhibit space, among competing convention centers in the United
States, and the proposed new convention center is expected to be
ranked eighth after completion, as shown in table 1. 



                                Table 1
                
                  Ranking of Major Convention Centers'
                          Prime Exhibit Space

                               Prime exhibit
                                       space
                               (gross square
City/convention center                 feet)          Ranking
------------------------  ------------------  ------------------------
Chicago (McCormick                 2,128,500             1
 Place)
Orlando (Orange County)            1,100,600             2
New Orleans (Ernest N.             1,100,000             3
 Morial)
Las Vegas (Las Vegas)                970,000             4
Atlanta (Georgia World               950,000             5
 Congress)
Las Vegas (Sands Expo)               935,000             6
New York (Jacob K.                   760,000             7
 Javits)
District of Columbia                 730,000             8
 (New Convention Center)
District of Columbia                 381,000             30
 (Existing Convention
 Center)
----------------------------------------------------------------------
Source:  Market Demand Update for the Washington, D.C.  Convention
Center, Deloitte & Touche LLP, February 1997. 

According to WCCA officials, the current master plan contemplates a
state of the art facility with technology, including fiber optics and
improved telecommunications capabilities to meet future District
demands for convention exhibit space.  To compete with other
convention centers, WCCA's proposed plan would increase the number of
loading docks, column spacing, ceiling heights, and floor loads in
the exhibit space to attract some of the major trade shows. 

WCCA must obtain NCPC's and the City Council's approvals before the
project can move forward.  In addition, WCCA's Board of Directors has
determined that the "design build method" for the proposed new
convention center would best meet WCCA's cost and scheduling
requirements for the new convention center. 

The design/build approach combines the responsibilities for designing
and constructing the project in a single entity rather than
separating the responsibilities among a number of entities.  To
mitigate development risks, WCCA's design/build contract would need
to include performance clauses with specificity to prevent cost
overruns and construction delays. 


--------------------
\13 Section 5 of the Act of June 1, 1910, as amended, D.C.  Code Ann. 
sec.  5-405 (1981). 


   ESTIMATED PROJECT COSTS
------------------------------------------------------------ Letter :6

The estimated total predevelopment and construction costs, including
contingencies, of the proposed new convention center have increased
by a net of $100 million to approximately $650 million\14 from the
$550 million that was last reported.\15 The increase is caused by
several factors, primarily a $118 million increase in construction
cost, now estimated to be about $534 million, excluding
contingencies, compared to the previous estimate of $416 million and
offsetting declines in predevelopment costs.  Table 2 highlights the
total estimated project costs for the new convention center.  The
increase in the construction costs are primarily associated with (1)
additional steel necessary to construct the facility, (2) excavation
and slurry wall costs from lowering the building 50 feet below ground
to reduce the building height above ground, (3) shifting the building
mass south, (4) providing retail and community space on the
perimeter, (5) reducing construction across L Street which requires
finished elevations on both sides of the street, and (6) allowing M
Street to remain open for local traffic, which requires creating an
overpass over the street and reinforcing the street over the below
ground exhibit space.  The majority of these revisions are in
response to NCPC's concerns, the section 106 mitigation plan
(required by the National Historic Preservation Act), and community
concerns. 



                                     Table 2
                     
                        Total Estimated Project Costs and
                       Expenditures for the New Convention
                                      Center

                                          Revised 4-
                             Four-year          year                Expenditures
                           estimate as   estimate as      Increase   as of 7/31/
Category                   of 10/23/96    of 5/31/97    (decrease)            97
------------------------  ------------  ------------  ------------  ------------
Total predevelopment       $63,531,212   $39,911,731  ($23,619,418   $15,629,953
 cost/expenditures\a                                             )
Construction costs
Building and site          347,750,000   417,500,000    69,750,000             0
Other construction costs    41,500,000    76,714,269    35,214,269             0
Fixtures/furnishings/       27,000,000    40,000,000    13,000,000             0
 equipment
================================================================================
Total construction        $416,250,000  $534,214,269  $117,964,269             0
 costs/expenditures
================================================================================
Total predevelopment and  $479,781,212  $574,126,000   $94,344,788   $15,629,953
 construction costs/
 expenditures
Project contingency        $70,218,788   $75,874,000    $5,655,212             0
================================================================================
Total project costs/      $550,000,000  $650,000,000  $100,000,000   $15,629,953
 expenditures
--------------------------------------------------------------------------------
Source:  WCCA.  We did not independently verify this information. 

\a Includes cost for land acquisition. 

Estimated contingencies are up approximately $6 million over the
previous estimate of $70 million.  The increase is due primarily to
Section 106 mitigation and other regulatory issues, such as the
implementation of the transportation management plan. 

Predevelopment costs, down $24 million from the previous estimate of
$64 million, fell largely because certain costs previously budgeted
for bond insurance and investment banking services will now be paid
from future bond proceeds.\16

As of July 31, 1997, WCCA incurred predevelopment costs of
approximately $15.6 million, which are primarily for program
management services, architect/engineering design, environmental
impact study, land acquisition, and legal services. 


--------------------
\14 The $650 million does not include WCCA's preliminary estimate of
approximately $87.3 million in borrowing costs and certain reserve
requirements.  These costs are $12.2 million for bond insurance,
underwriter's discount, and cost of issuance; a debt service reserve
of $16.7 million; an operation and maintenance/marketing reserve of
$46.2 million (including $16.2 million for marketing); and a capital
reserve of $12.2 million.  According to WCCA, this information was
developed as of August 28, 1997.  This information was provided to
GAO on September 10, 1997. 

\15 See footnote 8 in this report. 

\16 See footnote 14 for an explanation of the cost of borrowing. 


   DEDICATED TAX REVENUE
   COLLECTIONS
------------------------------------------------------------ Letter :7

WCCA receives a portion of the District's hotel sales and use taxes,
hotel occupancy tax, corporation franchise, and unincorporated
business taxes to help fund operations of the existing convention
center and the predevelopment costs of the proposed new convention
center.\17 Since October 1994, taxes have been collected monthly, and
based on audited financial statements,\18 WCCA had received
approximately $33 million and $35.5 million in tax revenues for
fiscal years 1995 and 1996, respectively.  The District projects tax
revenues to WCCA of about $35 million for fiscal year 1997 and
average annual amounts of about $36 million for fiscal years 1998 to
2002. 

As of July 31, 1997, WCCA had received about $97 million in dedicated
tax revenues.  WCCA had invested approximately $67.6 million of the
$97 million in Fannie Mae and Freddie Mac discount notes, which are
earning an average of about 5.5 percent annually.  Table 3 highlights
the receipts and disbursements from the dedicated tax revenues
collected since inception in fiscal year 1995. 



                                Table 3
                
                 Washington Convention Center Authority
                Dedicated Tax Revenues, October 1, 1994
                             -July 31, 1997

Revenues
----------------------------------------------  ----------  ----------
Dedicated taxes received by WCCA                            $97,081,94
 Interest received from investments                                  8
 Interest on bank account balances                           3,491,899
                                                               421,105
======================================================================
Total revenues                                              $100,994,9
                                                                    52
Expenditures
Predevelopment expenditures                     $15,629,95
 Operating subsidy                                       3
 Repayment of loan from Rainy Day Fund\a         8,225,000
 Bank charges                                    4,200,000
                                                     6,955
======================================================================
Total expenditures                                          $28,061,90
                                                                     8
Funds available end of period                               $72,933,04
                                                                     4
Investments                                                 $67,579,64
                                                                     0
======================================================================
Cash balance                                                         $
                                                             5,353,404
----------------------------------------------------------------------
\a The Rainy Day Fund provides funds to the District of Columbia to
be used at the discretion of the Mayor and the City Council for
mandatory and unavoidable expenses.  In the case of WCCA, Rainy Day
Funds were used to continue operations of the existing convention
center while awaiting congressional approval on the use of the
dedicated tax revenues. 

Source:  WCCA.  We did not independently verify this information. 

In our December 1996 report,\19 we stated that WCCA is considering
the use of revenue bonds, backed by the dedicated taxes, to finance
the construction cost of the project.  Also, during our discussions
with rating agencies officials, they informed us that the rating
might be improved if the collection process for the dedicated taxes
were separated from the District's tax collection process.  Since
that time, the District has separated the dedicated taxes from the
District's tax collection process by having businesses send the
dedicated tax payments directly to lockboxes under the control of the
banks.  As of February 1997, lockboxes have been established at
Signet Bank and First Union Bank for the collection of all the
dedicated convention center taxes, and the banks will now be
responsible for transferring these tax revenues to WCCA. 

Further, based on a report by the District of Columbia Auditor,\20
which discusses the convention center dedicated tax revenues, WCCA
was entitled to approximately $1 million in additional dedicated tax
revenues from the District.  The District subsequently transferred
the $1 million to WCCA.  The dedicated tax revenues became effective
as of fiscal year 1995, and, according to the District of Columbia
Auditor, the shortfall in tax revenues transferred to WCCA occurred
primarily in the early months of fiscal year 1995.  Based on the
audit, the underpayment occurred primarily due to the Department of
Finance and Revenue's (DFR) failure to calculate the additional
dedicated taxes owed the WCCA based upon reconciliations of sales and
use tax payments that were completed 60 to 90 days after DFR's
initial reporting period.  Based upon these reconciliations,
additional dedicated taxes should have been transferred to the WCCA. 
Thus, the establishment of lockboxes for the collection of the
dedicated tax revenues could result in more timely and accurate
receipt of revenues as well as improve the likelihood for an
investment grade rating should WCCA decide to issue revenue bonds to
finance the construction cost of the project. 


--------------------
\17 A portion of the dedicated taxes are required by law to be
allocated to the WCCA for advertising and promotion.  In addition, a
portion of the dedicated taxes are allocated for use by the
Washington Convention and Visitors Association and the Mayor's
Committee to Promote Washington.  Approximately $5.2 million and $5
million was allocated for these purposes in 1996 and 1995,
respectively. 

\18 Washington Convention Center Authority, Financial Statements,
September 30, 1996 and 1995, audited by KPMG Peat Marwick LLP. 

\19 See footnote 8 in this report. 

\20 Washington Convention Center Authority, Accounts and Operations
for Fiscal Years 1995 and 1996, June 24, 1997. 


   FINANCING PLANS
------------------------------------------------------------ Letter :8

WCCA plans to issue revenue bonds backed by dedicated taxes to
finance the construction cost of the project.\21 Section 490 of the
Home Rule Act (Public Law No.  93-198, as amended) was recently
amended to authorize the District to issue revenue bonds backed by a
pledge of dedicated taxes to finance various capital projects or
other undertakings, including convention facilities.\22 In addition,
the fourth sentence of section 446 of the Home Rule Act was recently
amended to, among other things, authorize the District to disburse
dedicated tax revenues to pay the principal of, interest on, or
premium for any authorized revenue bond without further action by the
Congress.\23 However, the 1997 Act did not expand the authority to
use the tax revenues attributable to sections 301-304 of the 1994 Act
to construct the new convention center.  In addition, section 204 of
the 1994 Act\24 provides that WCCA may not adopt a resolution to
authorize a bond issuance without submitting the resolution to the
City Council for a 30-day review period during which the Council may
adopt a resolution disapproving the bond issuance.  Assuming that
WCCA receives authority to use the revenues attributable to sections
301-304 of the 1994 Act for constructing the project and that the
City Council does not disapprove the bond issuance, current
projections of future dedicated tax revenues are not sufficient to
support debt service costs for the full amount of the estimated
construction cost.\25

In March 1997, WCCA engaged a financial advisory services firm\26 to
provide various financial services related to the convention center
finances.  In its proposal dated May 15, 1997, as well as subsequent
proposals since May, the financial advisory services firm outlined
several financing options for WCCA such as the issuance of revenue
bonds, federal grants, lease arrangements, sale of the existing
convention center, vendor participation/naming rights, and
reallocation of a portion of the hotel occupancy tax.  Table 4
depicts a financing option that WCCA is considering, assuming that
all necessary approvals are granted regarding the use of currently
dedicated revenues.  As stated previously, the total cost of the
project is estimated at $650 million--$610 million is estimated for
construction costs, including contingencies, and $40 million is
estimated for predevelopment costs.  WCCA already has sufficient
funds from dedicated taxes for predevelopment activities.  However,
the funding for the construction cost is uncertain at this time. 
Based on WCCA's estimate, table 4 shows a financing gap of $106
million that must be addressed before WCCA can enter the bond market. 
We have projected the estimated shortfall to be about $114 million
since WCCA will need an additional $8 million to satisfy a $30
million operation and maintenance reserve, which is required by the
rating agencies before WCCA can enter the bond market.\27



                                Table 4
                
                A Financing Option for the Construction
                   Cost of the New Convention Center

                         (Dollars in millions)

----------------------------------------------------  ----  ----  ----
Estimated construction cost to be financed                  $610
 (including contingencies):
Funding sources:
Senior and junior lien bonds                          $423
Interest earnings from construction fund                51
Cash on hand (WCCA)                                     30   504
Shortfall                                                         $106
----------------------------------------------------------------------
Source:  WCCA.  This table does not include $40 million of dedicated
tax revenue, which is already available to fund predevelopment costs. 
The senior and junior lien bonds are based on a 30-year term. 

The following information describes the above financing option in
more detail. 

Senior and Junior Lien Bonds.  The foundation of WCCA's financing
plan is to generate the maximum amount of revenue bond funding for
the construction cost of the new convention center project, which,
according to the financial advisors, could be accomplished by using a
senior lien and junior lien bond structure.\28

As previously stated, WCCA collects approximately $35 million
annually from the dedicated tax revenues.  Of this amount,
approximately $7.5\29 million is needed annually for operating
expenses of the existing convention center, which leaves
approximately $27.5 million as collateral for the issuance of revenue
bonds.  According to WCCA's financial advisors, the $27.5 million in
annual revenue would support approximately $423 million in bond
proceeds, assuming an average interest rate of about 6.3 percent.\30

Senior lien bondholders will be provided higher coverage,\31 and this
financing will be based on historical tax collections of the
dedicated tax revenues.  Junior lien bondholders will accept some of
the credit risk of projected growth in the dedicated revenues, and
this financing structure will be predicated on a 1 percent growth per
year in the dedicated tax revenues. 

A critical component of financing costs involves the level of risk
associated with the bond.  Higher risk bonds generally have higher
interest rates, may require insurance, or may require the issuer to
set up large debt service reserves.  Officials at bond rating
agencies have indicated that a number of factors are important in
their assessment of bonds that are backed by dedicated revenues. 
First, if the bond is backed by a tax, the collection history of the
tax is important.  Bonds backed by taxes that have a solid collection
history are less risky than those backed by new or unproven taxes. 
Second, the tax backing for a bond is less risky if it is assessed on
a broader range of goods, services, or population.  Third, revenue
streams that have some legislative risk (that is, revenues based on
an appropriation) make the bond higher risk.  Finally, the general
economic strength of the area is critical to the bond assessment. 

Since the majority of the funds, 69 percent ($423 million of $610
million), for the financing of the convention center is expected to
come from bonds backed by the dedicated tax revenues, we have
attempted to determine the collection history of the taxes and the
District's assumptions regarding future collections.  As previously
stated, the dedicated taxes are derived from portions of the
District's hotel occupancy, the corporation franchise, the
unincorporated business franchise, and sales and use taxes
(restaurant meals, rental cars, and hotel rates).  These taxes are
not new.  The majority of the taxes was generated from rate increases
of existing taxes (corporation franchise and unincorporated business
franchise and sales and use taxes), and the rest (hotel occupancy
tax) was diverted from taxes that previously went to the District's
general fund. 

The majority of the dedicated revenues that WCCA receives,
approximately 79 percent in fiscal year 1996, is derived from sales
and use taxes (restaurant and rental cars and hotel rates), which are
parts of the District's general sales and use tax.  Based on the
District's Comprehensive Annual Financial Report (CAFR), in fiscal
year 1996, the District collected $467.5 million in total general
sales and use taxes, and WCCA received $27.9 million, or about 6
percent, of this total.  The District is unable to disaggregate the
specific taxes that are dedicated to WCCA from the general sales and
use tax category, and as a result, the District could not provide us
with audited historical data for these specific taxes.  Based on
information received from the District, we compared information from
the District's Business Tax Information System to information
reported in the District's CAFR, and that information reflects
different amounts for the taxes for the same reporting periods.  For
example, in fiscal year 1995, the District's CAFR showed total
general sales tax of $485.6 million and the Business Tax Information
System showed $468.8 million, a difference of approximately $17
million.  Therefore, it is difficult to discern how these specific
taxes have performed over the past 5 years.\32 In addition, the
District could not provide us with projections for these specific
taxes for the next 5 years. 

Construction Fund Earnings.  WCCA's financial advisors project that
WCCA could generate about $51 million in interest earnings from bond
proceeds between 1997 and 2001.  The bond proceeds would be deposited
in a construction fund.  During the construction period, funds that
are not drawn from the account would be invested to generate the $51
million. 

WCCA Cash-on-Hand.  As of July 31, 1997, WCCA has on hand
approximately $72.9 million in dedicated tax revenues, with $24.4
million earmarked for the remaining predevelopment costs, and about
$2.5 million budgeted for additional operating subsidy of the
existing convention center for the remainder of fiscal year 1997,
leaving $46 million.  WCCA plans to use $30 million of this money to
help finance the construction cost of the project.  The remaining $16
million as well as a projected $5.8 million in additional collection
for the remaining months (August and September) of fiscal year 1997
is needed to establish an operation and maintenance reserve (O&M),
which is required, by the rating agencies, to be available before
WCCA enters the bond market.  WCCA's financial advisors estimate that
about $30 million would be required for the O&M reserve.  It is
projected that about $22 million would be available at the end of
fiscal year 1997 to be applied toward the reserve.  Thus, assuming
currently estimated costs are substantially accurate, WCCA needs
about $114 million ($106 million plus an additional $8 million for
O&M reserve) if it were to enter the market in October, as originally
planned, to obtain bond financing. 

WCCA is considering several financing options to close the shortfall,
such as reallocation of the total amount of hotel occupancy tax from
the District, sale of the existing convention center, and federal
grants.  However, it is uncertain at this time as to the outcome of
these options.  For example, the disposition of the existing
convention center would not occur for some time, and it is uncertain
how much WCCA would benefit from its disposition/sale, especially
since there is an outstanding debt of $75 million on this center.  In
addition, section 304 of the 1994 Act, D.C.  Code Ann.  sec.  47-3206
(1981, 1996 Supp.), makes 40 percent of the dedicated hotel occupancy
tax available to WCCA for financing the project while the remaining
60 percent (about $5 million annually) is allocated for other
purposes.  WCCA is actively seeking to gain control of the 60 percent
allocated for other purposes to assist it in closing a portion of the
funding gap of the project.  Table 5 highlights some of the financing
options that WCCA is considering to close the funding gap. 



                                Table 5
                
                Other Construction Financing Options for
                       the New Convention Center

                                                        Estimated/
                                                        potential
Options                     Proposed revenue source     funding
--------------------------  --------------------------  --------------
Third lien bonds/cash flow  Bond proceeds               $24 million
sale\a

Additional funds from debt  Bond proceeds               $20 million
extension\b

Reallocation of existing    Dedicated taxes of          $80 million in
dedicated taxes\c           $5 million                  bond proceeds

Debt service/DSRF           Accelerated interest        $12 million
investment agreement\d      earnings

Federal assistance:

Direct grant\e              Department of               $45 million
Direct loan\f               Transportation and other
Contingent guarantee\g      federal agencies, e.g.,
                            Department of Commerce,
                            Department of Treasury, &
                            Environmental Protection
                            Agency

Lease of the existing       General Services            $20.5 million
convention center\h         Administration (GSA)        (annual GSA
                                                        lease
                                                        payments)

Private sector              Naming/vending rights;      $25 million
participation in new        vendor financing
facility\i

Sale/disposition of         Sale/lease proceeds         $40 million
existing convention
center\j

Special tax/development     Leveraging of future tax    $50 million
district on existing        revenues
site\k
----------------------------------------------------------------------
\a WCCA would sell third lien debt supported by the pledged revenues
at a coverage of 110 percent.  Revenues remaining after the payment
of the senior and junior lien debt would be used to pay principal and
interest on this third lien. 

\b The term of the bond would be extended from 30 years to as many as
40 years. 

\c The Washington Convention and Visitors Association and the Mayor's
Committee to Promote Washington receive a portion of the hotel
occupancy tax. 

\d Debt Service/Debt Service Reserve Fund (DSRF) Investment
Agreement.  A trust account would be established to receive dedicated
revenues to pay bondholders.  Under the terms of an investment
agreement, WCCA would enter into an agreement with a third party
giving that party the right, into the future, to invest these funds. 
In exchange for the future right to invest these funds, a third party
will make an upfront payment to WCCA. 

\e Certain portions of the project may be eligible for conventional
federal grant assistance (mass transit and certain environmental
remediation costs).  WCCA is currently researching whether this
project may qualify for federal grants and loans. 

\f Long-term loan made for gap funding which would be repaid from
negotiated sources of revenue. 

\g Interim financing vehicle to bridge time gap between project
approvals and realization of later funds. 

\h GSA leases the existing site with guaranteed nonappropriation
annual payments or GSA may seek private sector development partner
and subleases. 

\i Vendors of certain services (such as communications and catering)
may be willing to pay a lump sum for the rights to provide these
services. 

\j The existing site could be sold at some point over the next 4
years. 

\k A tax increment district is developed on the existing site and/or
its environs, and the revenues generated would be collected from
assessments on any taxable real estate developed within this area. 


--------------------
\21 Generally, District revenue bonds may be financed by a pledge of
available revenues (including dedicated taxes and fees), assets or
property (or security therein), or by a mortgage on real property. 
Otherwise, they do not involve the pledge of or involve the full
faith and credit or taxing power of the District (other than with
respect to any dedicated taxes) and are not debts of the District. 
D.C.  Code Ann.   47-334 (1981) as amended by section 11508 of the
Balanced Budget Act of 1997 (1997 Act), set forth in 143 Cong.  Rec. 
H6165-67 (daily ed.  July 29, 1997). 

\22 D.C.  Code Ann.  sec.  47-334 (a)(1), (c), as amended by section
11508 of the 1997 Act, 143 Cong.  Rec.  H6165 (daily ed.  July 29,
1997).  Prior to the 1997 Act's amendment, section 490(c) precluded
the District from pledging taxes to pay the principal, interest, or
other charges due on revenue bonds.  D.C.  Code Ann.  sec.  47-334(c)
(1981). 

\23 Section 446 of the Home Rule Act, as amended by section 11509 of
the 1997 Act, set forth in 143 Cong.  Rec.  H6167 (daily ed.  July
29, 1997).  See also section 490(f)(3) of the Home Rule Act as
amended by section 11508 of the 1997 Act. 

\24 D.C.  Code Ann.  sec.  9-805(a) (1995 Rep.  Vol.). 

\25 The D.C.  Auditor is required to annually audit the accounts of
the WCCA and determine whether the revenues from the dedicated taxes
are sufficient to meet the projected expenditures and reserve
requirements for the upcoming year.  If they are not sufficient,
Section 305 of the Washington Convention Center Authority Act
requires the mayor to impose a surtax on convention center dedicated
taxes, excluding the tax on the sale of restaurant meals and
alcoholic beverages to eliminate the projected deficit. 

\26 Columbia Equity Financial Corporation and Evensen Dodge
Incorporated.



\27 This does not include $16.2 million in an additional reserve for
marketing that was subsequently disclosed in information presented in
footnote 14. 

\28 Senior lien debt has first priority on the revenue pledged to the
bonds.  Junior lien debt has priority claims on residual dedicated
revenue. 

\29 Operation and Maintenance (O&M) expenses have historically
exceeded revenues derived from operations.  In 1997, the deficit is
projected to be about $7 million.  According to the financial
advisors, this is not unusual for a convention center.  Based on
industry standards of performance, it has been estimated that O&M
expenses will stabilize at a modest $1 million deficit in the year
2008.  In the interim, the deficit has been projected to increase to
$9 million per year as the WCCA increases expenditures to market the
new convention center and then gradually decline from that level as
WCCA operations stabilize. 

\30 This interest rate assumption was based on the prevailing
interest rate as of May 21, 1997, and the projected issuance date of
the bonds was October 1997. 

\31 The senior lien bonds are structured based on 1.50 times coverage
of historical collections of the dedicated revenues.  The junior lien
bonds are structured based on a 1.25 times coverage based on a
projected growth in dedicated revenues of one percent per year.  The
junior lien bonds carry an interest rate 50 basis points higher than
the senior lien securities.  The bonds are assumed to be sold in
November of 1997 and proceeds are drawn down over an 18-month draw
schedule commencing in January 1998. 

\32 Based on the CAFR, the District's total general sales and use tax
receipts averaged $453 million annually for the past 5 years (fiscal
year 1992 to 1996), or an average annual growth of about 1.4 percent. 
The general sales and use taxes peaked in fiscal year 1995 at about
$486 million, declined to about $468 in fiscal year 1996, and, based
on District's forecast, are expected to surpass the 1995 level until
fiscal year 1999. 


---------------------------------------------------------- Letter :8.1


   DISTRICT'S COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

On August 29, 1997, we provided the Mayor of the District Government
with copies of a draft of this report for review and comment.  In a
September 9, 1997 meeting, WCCA officials, including the Project
Director, General Counsel, and the Chief Financial Officer, generally
concurred with our report and provided additional information. 
Written comments from the Mayor are reprinted as appendix I.  We have
incorporated changes as appropriate throughout the report. 

WCCA provided updated information concerning its progress in
obtaining the necessary regulatory approvals and developing a
financing plan.  Specifically, WCCA stated that it appears to have
obtained consensus on an MOA that will be signed by the necessary
regulatory agencies.  Since the Mayor commented on this report, all
parties have signed the MOA, and NCPC has scheduled hearings on the
proposed convention center for September 22 and 25, 1997, to consider
site and design approval for the new convention center at Mount
Vernon Square, alley and street closings, as well as the urban
renewal plan amendments necessary to allow construction to begin at
Mount Vernon Square.  These are key issues that must be resolved
before WCCA can proceed with the project. 

WCCA told us that it has a financing plan to eliminate the funding
gap for the proposed convention center.  This plan proposes to
reallocate the Hotel Occupancy Tax revenues imposed by D.C.  Code
Section 47-3206--and now available to the Washington Convention and
Visitors Association and the Mayor's Committee to Promote
Washington--for the payment of debt service for the new convention
center.  In addition, the term of convention center bonds would be
authorized to mature in up to 40 years.  Current law limits bond
maturity to 30 years from issuance.  WCCA is drafting legislation to
authorize the above changes.  Approval of these or alternative steps
are key issues in moving ahead with the convention center project. 

We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate and House Committees on Appropriations
and their subcommittees on the District of Columbia; and the Senate
Committee on Governmental Affairs, Subcommittee on Oversight of
Government Management, Restructuring and the District of Columbia,
and the Ranking Minority Member of your Subcommittee.  Major
contributors to this report are listed in appendix II.  If you or
your staff need further information, please contact me at (202)
512-4476. 

Sincerely yours,

Gloria L.  Jarmon
Director, Civil Audits




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DISTRICT OF
COLUMBIA
============================================================== Letter 



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   ACCOUNTING AND INFORMATION
   MANAGEMENT DIVISION,
   WASHINGTON, D.C. 
-------------------------------------------------------- Appendix II:1

Hodge Herry, Assistant Director
Barbara Shields, Audit Manager
Johnny Bowen, Audit Manager


   OFFICE OF GENERAL COUNSEL
-------------------------------------------------------- Appendix II:2

Richard Cambosos, Senior Attorney


*** End of document. ***