District of Columbia: Final Status on the Sports Arena (Letter Report,
07/27/98, GAO/AIMD-98-223).

Pursuant to a congressional request, GAO reviewed the progress of the
sports arena project in the District of Columbia, focusing on the
project's predevelopment costs, revenue collections, and bond redemption
status.

GAO noted that: (1) the District has spent $60 million, about 98 percent
of the estimated total cost of predevelopment activities, for the sports
arena; (2) as of April 30, 1998, the District estimated total
predevelopment costs to be about $61.5 million, a net increase of about
$2.9 million over its October 7, 1997, estimate, as reported in GAO's
November 1997 report; (3) the increase is largely due to the final
agreed upon price the District paid for a parcel of land included in the
arena site; (4) the only known expense not under contract or agreement
is the District cost for soil remediation and the removal of concrete
structures below the surface for a parcel of land transferred to the
Washington Metropolitan Area Transit Authority; (5) the District's
project manager for the sports arena has budgeted $700,000 for this
activity, which is included in the total estimated cost; (6) the
District's $5 million in remaining available funds for predevelopment
costs for the sports arena appears to be sufficient to meet all
estimated remaining expenditures; (7) as of April 30, 1998, the District
had spent about $60 million and an additional $1.5 million was budgeted
for the remaining predevelopment activities that will soon be completed,
leaving approximately $3.5 million to pay unanticipated expenses or to
redeem term bonds prior to their redemption dates; (8) collections from
the dedicated Arena Tax have been more than sufficient to pay principal
and interest of about $5.9 million annually on the bonds issued to
finance the predevelopment expenses; (9) for each of the past 3 years,
collections have exceeded the $9 million originally forecasted by the
District, totalling about $1.6 million more than the District's forecast
for the 3-year period; (10) as of April 30, 1998, the District had
redeemed $6 million of the serial bonds and $2.5 million of the term
bonds issued to finance the predevelopment expenses prior to their
maturity date; (11) GAO's analysis shows that if the present level of
collections are sustained, and revenues from the ground lease of the
sports arena and the existing debt service reserve funds are used, all
of the Arena bonds would be paid by 2002, about 8 years before the 2010
maturity date; and (12) this redemption schedule would save the District
about $16.4 million in interest costs, and allow about $7.7 million to
be transferred to the District's General Fund.

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

 REPORTNUM:  AIMD-98-223
     TITLE:  District of Columbia: Final Status on the Sports Arena
      DATE:  07/27/98
   SUBJECT:  Sports
             Convention facilities
             Facility construction
             Municipal bonds
             Municipal taxes
             Urban economic development
             Cost analysis
             Construction costs
             Financial management
IDENTIFIER:  District of Columbia
             DC Sports Arena
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


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

July 1998

DISTRICT OF COLUMBIA - FINAL
STATUS ON THE SPORTS ARENA

GAO/AIMD-98-223

Sports Arena

(916244)


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

  CDBG - Community Development Block Grant
  DCALP - District of Columbia Arena, L.P. 
  DOT - Department of Transportation
  EDRA - Exclusive Development Rights Agreement
  HUD - Department of Housing and Urban Development
  RLA - Redevelopment Land Agency
  WMATA - Washington Metropolitan Area Transit Authority

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


B-279333

July 27, 1998

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 sports arena\1 project in the District of Columbia.  This
report, our seventh\2 and final product on this issue, discusses the
project's predevelopment costs, revenue collections, and bond
redemption status. 


--------------------
\1 The sports arena project was subsequently named the MCI Center. 

\2 District of Columbia:  Status of Sports Arena Project
(GAO/AIMD-94-192, 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:  Sports Arena
(GAO/AIMD-95-209R, July 26, 1995); District of Columbia:  Sports
Arena (GAO/AIMD-96-43R, February 21, 1996); District of Columbia: 
Status of the Sports Arena (GAO/AIMD-97-19, December 31, 1996); and
District of Columbia:  Status of the Sports Arena (GAO/AIMD-98-26,
November 14, 1997). 


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

The District has spent $60 million, about 98 percent of the estimated
total cost of predevelopment activities, for the sports arena.  As of
April 30, 1998, the District estimated total predevelopment costs to
be about $61.5 million, a net increase of about $2.9 million over its
October 7, 1997, estimate, as reported in our November 1997 report. 
The increase is largely due to the final agreed upon price the
District paid for a parcel of land included in the arena site.  The
only known expense not under contract or agreement is the District
cost for soil remediation and the removal of concrete structures
below the surface for a parcel of land transferred to the Washington
Metropolitan Area Transit Authority (WMATA).  The District's project
manager for the sports arena has budgeted $700,000 for this activity,
which is included in the total estimated cost. 

The District's $5 million in remaining available funds for
predevelopment costs for the sports arena appears to be sufficient to
meet all estimated remaining expenditures.  As of April 30, 1998, the
District had spent about $60 million and an additional $1.5 million
was budgeted for the remaining predevelopment activities that will
soon be completed, leaving approximately $3.5 million to pay
unanticipated expenses or to redeem term bonds prior to their
redemption dates. 

Collections from the dedicated Arena Tax have been more than
sufficient to pay principal and interest of about $5.9 million
annually on the bonds issued to finance the predevelopment expenses. 
For each of the past 3 years, collections have exceeded the $9
million originally forecasted by the District, totaling about $1.6
million more than the District's forecast for the 3-year period.  As
of April 30, 1998, the District had redeemed $6 million of the serial
bonds and $2.5 million of the term bonds issued to finance the
predevelopment expenses prior to their maturity date.  Our analysis
shows that if the present level of collections are sustained, and
revenues from the ground lease of the sports arena and the existing
debt service reserve funds are used, all of the Arena bonds would be
paid by 2002, about 8 years before the 2010 maturity date.  This
redemption schedule would save the District about $16.4 million in
interest costs, and allow about $7.7 million to be transferred to the
District's General Fund. 


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

The District of Columbia government, acting through the Mayor, the
District's Redevelopment Land Agency (RLA),\3 and the District of
Columbia Arena, L.P.  (DCALP)--a limited partnership formed by the
owner of the Washington Wizards\4

and the Washington Capitals--agreed that DCALP would build a sports
arena (estimated to cost about $175 million) and that the District
would be responsible for financing certain predevelopment costs. 

The District agreed to be responsible for the predevelopment costs
of: 

  -- acquiring land, including the purchase of property not then
     owned by the District;\5

  -- connecting the Gallery Place Metrorail station to the sports
     arena;

  -- relocating District employees from two buildings on the site to
     other locations; and

  -- demolishing buildings, remediating soil,\6 relocating utilities,
     and securing all regulatory approvals necessary for construction
     of the sports arena. 

The Omnibus Budget Support Act of 1994 (Arena Tax Act),\7 as amended,
provides for a Public Safety Fee (Arena Tax) to be levied on
businesses located in the District based upon the annual gross
receipts of such businesses.  The Arena Tax is due on or before June
15 of each year.  The Arena Tax Act requires the Mayor to raise the
Arena Tax rates to provide for annual revenues of $9 million if the
Arena Tax revenues are estimated to be less than $9 million.  The
Arena Tax Act also authorized RLA to pledge the Arena Tax as security
to repay loans to finance predevelopment activities.  The Arena Tax
was first levied in fiscal year 1995 and mostly used to fund
predevelopment activities.  In subsequent years, the Arena Tax was
used to pay principal and interest (debt service) on the bonds as
required by the bond resolution.\8

To initially finance the predevelopment costs of the sports arena,
$2.5 million was advanced by the District's Sports Commission.\9 The
funds were provided with the understanding that they would be repaid
from the proceeds of a loan the District would secure.  In August
1995, the District received a $53 million loan commitment (line of
credit) from a consortium of banks.  In January 1996, RLA issued
about $60 million in revenue bonds backed by the Arena Tax and paid
off the $36.6 million portion of the line of credit used. 

The funds originally available to pay the arena's net predevelopment
costs\10 and to establish a debt service reserve totaled $66.6
million.  These funds consisted of (1) $57.4 million\11 in net bond
proceeds from the sale of RLA Revenue Bonds in January 1996 and (2)
about $9.2 million in 1995 net tax collections from the dedicated
Arena Tax.  Of the $66.6 million then available, $11 million was
placed in two reserves.  A mandatory $5 million capital reserve,
which was required by the bond resolution, was established to pay for
any insufficiency in the project fund.  A reserve of about $6 million
was established for debt service. 


--------------------
\3 The District of Columbia Redevelopment Land Agency was created and
established as an instrumentality of the District of Columbia
government pursuant to the District of Columbia Redevelopment Land
Act, 60 Stat.  793, August 2, 1946 (D.C.  Code Ann.  sec.  5-801 et
seq.), as amended (the RLA Act).  The purpose of RLA is to protect
and promote the welfare of residents of the District through the
acquisition and assembly of real property and the lease of such
property for redevelopment. 

\4 Formerly known as the Washington Bullets. 

\5 The District acquired two properties needed for the arena site. 

\6 Remediating the soil encompasses any and all corrective action
taken to clean up a site in order to meet District or federal
standards for soil quality. 

\7 D.C.  Code Ann.  secs.  47-2751 through 47-2753 (1996 Supp.). 

\8 The bond resolution authorizes the issuance of bonds to pay for
the predevelopment costs of the arena project.  It sets forth the
terms, rights, and obligations of the RLA, bondholders, and trustees. 

\9 The Sports Commission is a business enterprise fund established by
the District to promote sports activities within the District of
Columbia. 

\10 The District's share of the Arena predevelopment costs are net of
reimbursable Metrorail construction costs.  The reimbursable costs
include a DCALP contribution ($2 million), a WMATA contribution ($2
million), and a Department of Transportation Capital Assistance Grant
of $12 million, which required $3 million of matching funds from the
District (a total of $15 million). 

\11 Of the approximately $60 million in bond proceeds, $0.8 million
was used to cover various fees associated with the bond sale and a
$1.8 million issue discount was offered when the bonds were sold. 


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

Our objectives were to determine the status of the sports arena
project's (1) predevelopment costs, (2) revenue collections, and (3)
bond redemption status. 

To determine the status of expenditures for predevelopment activities
for the sports arena, we interviewed District officials on the Arena
Task Force, the District's Sports Commission and Corporation Counsel,
and the D.C.  Office of Treasury.  We also held discussions with
trustees for the bonds.  We discussed the construction costs of the
arena and Metrorail connection with officials from DCALP and WMATA. 

We reviewed all expenditures made since the period covered by our
last report, from October 8, 1997, to April 30, 1998.  Payments were
made from the funds obtained from the net proceeds of the bond sale. 
The universe of payments included 10 expenditure items, which, at the
time of our audit, represented 100 percent of the total funds spent
in the review period.  We reviewed each expenditure item to determine
whether it was made within the terms of the contract or invoice
amounts, it had been approved for payment by a District official, and
the funds had actually been disbursed. 

We did not audit the reported taxes collected and deposited for the
sports arena project.  Therefore, we did not determine if the
District government accurately identified the universe of taxpayers
or reported all dedicated taxes\12 for this project.  However, we
reviewed monthly statements provided by the lockbox trustee to
determine the amount of taxes collected and placed in escrow.  In
addition, we confirmed that all payments due to the District from the
ground lease had been made.  This review provides an update on the
previous work we performed.\13 Our procedures were performed between
March 1998 and June 1998 in accordance with generally accepted
government auditing standards. 


--------------------
\12 The District does not perform a separate audit of the sports
arena tax.  This tax is audited as part of the District's
comprehensive annual financial statements audit. 

\13 See footnote 1 of this report. 


   PREDEVELOPMENT PROJECT COSTS
   HAVE INCREASED
------------------------------------------------------------ Letter :4

Since our last report,\14 predevelopment costs have increased from
$58.6 million to about $61.5 million, which is a net amount of $2.9
million (5 percent).  The District's predevelopment activities
consisted of acquiring land, constructing the Metrorail connection,
relocating District employees, demolishing two buildings, remediating
soil, relocating utilities, and using consultants to secure
regulatory approvals.  The District has completed almost all of its
predevelopment activities and has spent $60 million, about 98
percent, of the estimated total expenditures.  Table 1 shows the
District's total predevelopment activities financed for the sports
arena project. 



                                     Table 1
                     
                            The District of Columbia's
                      Predevelopment Activities Financed for
                             the Sports Arena Project

                              (Dollars in thousands)

                                                                        Increase
                          Budget  Expenditures\a                      (decrease)
Predevelopment       October 18,      October 7,  Expenditures\b   since October
activities                  1996            1997  April 30, 1998         7, 1997
----------------  --------------  --------------  --------------  --------------
Land acquisition
Appraisal/               $34,268         $34,268         $37,207          $2,939
 purchase price
Appraisal fee                 50               0               0               0
================================================================================
Total                    $34,318         $34,268         $37,207          $2,939
Metrorail
 connection
Construction             $19,360         $19,000         $19,000              $0
 costs\c
Less: Capital           (12,000)        (12,000)        (12,000)               0
 Assistance
 Grant (after
 $3 million
 District cost)
Less: WMATA              (2,360)         (2,000)         (2,000)               0
 contribution
Less: DCALP              (2,000)         (2,000)         (2,000)               0
 contribution
================================================================================
Total                     $3,000          $3,000          $3,000              $0
Relocation of
 District
 employees
Lease                     $1,922          $1,868          $1,868              $0
 commitments
Lease appraisals              70               2               2               0
 and space
 consultants
Leasehold                  1,344           1,006             961            (45)
 improvements
Furniture and                638             546             540             (6)
 equipment move
Telecommunicatio             875             623             623               0
 n equipment
 move
================================================================================
Total                     $4,849          $4,045          $3,994           $(51)
Building
 demolition,
 soil
 remediation,
 relocation:
 legal,
 environmental,
 and consultant
 fees
Building                  $1,000            $916            $916              $0
 demolition
Soil remediation           3,521           8,266           8,266               0
Less: Far East             (569)           (569)           (569)               0
 Trade Center
 Associates,
 L.P.
 contribution
 for soil
 remediation
Utility                    2,770           3,379           3,530             151
 relocation
Business                      25               0               0               0
 relocation
Legal,                     2,533           2,693           2,591           (102)
 environmental,
 and consultant
 fees
D.C. Sports                  302             324             324               0
 Commission
 reimbursement
================================================================================
Total                     $9,582         $15,009         $15,058             $49
================================================================================
Total bank fees           $1,315          $1,922          $1,919            $(3)
Total bond                    $0            $307            $314              $7
 issuance costs
Reserves for              $2,750              $0              $0              $0
 unanticipated
 increases
================================================================================
Total costs              $55,814         $58,551         $61,492          $2,941
 financed by the
 District
--------------------------------------------------------------------------------
\a $56.7 million of actual cash disbursements and $1.8 million
budgeted for activities to be completed. 

\b $60 million of actual cash disbursements and $1.5 million budgeted
for activities to be completed. 

\c Represents the total funds budgeted for the Metrorail connection
that are managed by WMATA, of which $18 million are obligated.  Of
the remaining $1 million unobligated amount, only $285,000 is not
budgeted. 


--------------------
\14 District of Columbia:  Status of the Sports Arena
(GAO/AIMD-98-26, November 14, 1997), which reported predevelopment
cost estimates as of October 7, 1997. 


      INCREASE IN LAND ACQUISITION
      COSTS FUNDED BY HUD GRANT
---------------------------------------------------------- Letter :4.1

As shown in table 1, land acquisition represents the largest increase
in predevelopment expenditures.  In order to assemble the arena site,
the District acquired two pieces of property.  At the time of our
last report, November 1997, the price for one of the pieces of
property had not been determined.  On April 29, 1998, the District
reached an out of court settlement with the owners to pay $8.2
million for the land.  The price of the land was $2.9 million more
than the $5.25 million the District had originally deposited with the
D.C.  Superior Court in invoking its power of eminent domain. 

To pay the additional $2.9 million, the District used funds from a
grant made by the Department of Housing and Urban Development (HUD). 
Under HUD's Community Development Block Grant (CDBG) program, the
acquisition of property is a permitted use of grant funds.  As of
March 6, 1998, the District received permission from HUD to use CDBG
funds to acquire the property. 


      METRORAIL CONNECTION
      COMPLETED UNDER BUDGET
---------------------------------------------------------- Letter :4.2

The Metrorail connection to the sports arena has been completed.  As
of April 21, 1998, $16.7 million and $18 million of the $19 million
budget had been approved for expenditure and had been obligated,
respectively.  WMATA officials informed us that they expect the
project to be closed out (all bills reviewed and approved for
payment) by September 1998.  It is their expectation that after the
project is closed out, there will be about a $285,000 residual from
the funds associated with the Department of Transportation (DOT)
Capital Assistance Grant.  According to WMATA officials, any residual
balance must be used on a transportation related project.  One
District official told us that he expects the District to use these
funds to defray the cost of design work on a Metrorail connection to
the proposed new convention center. 


      UTILITY RELOCATION COSTS
      HAVE INCREASED
---------------------------------------------------------- Letter :4.3

As shown in table 1, expenditures for the relocation of utilities
have increased from the projected $3.4 million reported in our
November 1997 report to about $3.5 million.  The increase is
attributable to a negotiated settlement between the District and the
developer--DCALP--over the cost of infrastructure improvements to the
site.  In a letter dated October 6, 1997, DCALP cited seven
infrastructure improvements it had made to the site, at a cost of
$403,000, which it claimed under the terms of the Exclusive
Development Rights Agreement (EDRA), that the District was
responsible for.  As part of its March 10, 1998, settlement, the
District has obtained a legal agreement, intended to preclude the
developer from prevailing in any future claims regarding the seven
infrastructure improvements. 


      SOIL REMEDIATION AND RELATED
      ACTIVITIES ARE CONTINUING
---------------------------------------------------------- Letter :4.4

All activities associated with soil remediation efforts have not been
fully completed.  The District's project manager for the sports arena
is still including in the expenditures an estimated $700,000 for the
removal of concrete structures below the surface and contaminated
soil on a parcel of land\15 transferred to WMATA.  District officials
told us that they have budgeted sufficient funds to remove the
concrete structures and cover the cost of remediation.\16 They stated
that based on tests done at the site, only limited amounts of the
soil are contaminated.  The project manager of the arena task force
stated that the District has not contracted for the removal of the
concrete because WMATA has not made a decision regarding the land's
use. 

The District's Office of Corporation Counsel is actively pursuing its
legal options for recouping the District's cost for soil remediation
and other related costs for the arena site.  This office has obtained
the assistance of a private law firm and a environmental study
firm--both on a pro bono basis--to assist the city in its efforts to
recover the District's costs.  The two firms have identified
approximately 50 potential sources of the contaminants.  The
Corporation Counsel is currently assessing each firm's potential
liability and the ability of each firm to make restitution. 


--------------------
\15 This parcel of land is 8,080 square feet and is adjacent to the
arena site, which is 218,435 square feet. 

\16 Based on the land disposition agreement between the District,
WMATA, and Far East Trade Center Associates, L.P., the District is
solely responsible for the payment of all work related to the
demolition, removal, and environmental clean-up, if required, of the
land transferred to WMATA. 


      SOURCES OF REVENUES FOR
      PREDEVELOPMENT COSTS
---------------------------------------------------------- Letter :4.5

Table 2 shows total receipts of about $65 million available as of
April 30, 1998, to fund predevelopment costs.  Revenues have
increased from our November 1997 report mostly as a result of
allocating a portion ($2.9 million) of the District's CDBG grant
funds received from HUD to pay for the increased price of the land
the District acquired.  Through April 30, 1998, the District had
earned about $1.5 million in interest from the funds available to pay
predevelopment costs. 

In our last report, we stated that all of the leasehold improvement
costs associated with the relocated employees should have been paid
from the District's sports arena project fund rather than from the
District's appropriated funds because this activity was an allowable
cost for the sports arena project.  The project manager of the arena
task force contends that $371,530 should be borne by the District
since it was not factored into the original predevelopment activities
budget.  However, we have excluded the $371,530 District
reimbursement since the cost should be borne by the sports arena
project because these expenses were precipitated by the relocation
action to allow arena construction.  We had informed the District's
former Chief Financial Officer of this matter, and he had agreed to
recoup the money from the sports arena project fund.  As of June 30,
1998, the funds had not yet been returned to the District's General
Fund. 



                                Table 2
                
                  Predevelopment Funds for the Sports
                             Arena Project

                                                             April 30,
Sources of receipts                                               1998
----------------------------------------------  ----------  ----------
Net proceeds from bond sale\a                   $57,436,00
                                                         1
Less: Mandatory debt service reserve            (5,995,000
                                                         )
1995 Dedicated Arena Tax collections\b           9,149,036
Community Development Block Grant                2,939,326
Total funds for predevelopment expenses                     $63,529,36
                                                                     3
Interest earned on funds held in trust:
Interest earned on bank loan funds\c               376,265
Interest earned on project funds\d                 529,446
Interest earned on capital reserve funds\e         457,279
Interest earned on Metrorail funds\f                94,389
Total interest earned                                        1,457,379
Funds Received from D.C. Department of                         371,530
 Administrative Services
Less: Allowable project expenses to be                       (371,530)
 refunded to the District's General Fund
======================================================================
Total predevelopment funds available                        $64,986,74
                                                                     2
Less: Expenditures\g as of 4/30/98 (see table               (61,492,00
 1)                                                                 0)
======================================================================
Total predevelopment funds still available                  $3,494,742
----------------------------------------------------------------------
\a Includes $5 million of mandatory capital reserve funds. 

\b Represents the 1995 collections of approximately $9.3 million, net
of $119,000 used for debt service. 

\c Represents interest earned on borrowing from the August 1995 loan
RLA secured from a consortium of banks to pay for predevelopment
expenses. 

\d Represents interest earned on funds held by FMB Trust (bond
trustee) and dedicated for project expenses. 

\e Represents interest earned on the $5 million of bond proceeds
reserved for cost overruns. 

\f Represents interest earned on the District's contribution ($3
million) to the capital assistance grant awarded for the Metrorail
connection. 

\g Expenditures are net of the reimbursable Metrorail connection
costs from the DOT (federal share [80 percent] of the Capital
Assistance Grant), a WMATA contribution, and a DCALP contribution. 


   DEDICATED TAX REVENUE
   COLLECTIONS HAVE EXCEEDED
   PROJECTIONS
------------------------------------------------------------ Letter :5

As of April 30, 1998, collections for the 1997 Arena Tax had totaled
about $9.6 million, about the same as the 1995 and 1996 collections
of $9.3 million and $9.6 million, respectively.  These funds were
sufficient to meet 1997 principal and interest payments (about $5.9
million annually) on the bonds issued to finance the predevelopment
expenses.  The District forecasts Arena Tax collections of $9 million
for each year that the bonds are outstanding.  Since 1995, the
trustees for the lockbox have reported that a total of $28.6 million
has been collected exceeding the forecast of $27 million by $1.6
million. 

As was done in previous years, taxpayers were instructed to send
their payments to a lockbox under the control of bank trustees.  We
verified that these funds were transferred to the trustee for the
bonds and placed in accounts for principal and interest payments. 


   TAXES COLLECTED ALLOW EARLY
   REDEMPTION OF BONDS
------------------------------------------------------------ Letter :6

Our analysis shows that if the present level of Arena Tax collections
continue into the future, and if revenues from the ground lease of
the arena and the $6 million in the debt service reserve, including
interest earnings, are used, the sports arena bonds could be paid off
in 2002, well before the 2010 maturity date of the longest term
bonds. 

The combined total of $19.3 million in dedicated tax revenues
collected for 1996 and 1997 is being used to pay principal and
interest on the bonds.  The District's Sports Arena Special Tax
Revenue Bonds include about $15.4 million in serial bonds, which have
maturity dates from 1996 to 2000, and $44.5 million of term bonds
with a stated maturity date of 2010 and mandatory sinking fund
redemptions in the years 2001 through 2009.  As of April 30, 1998,
the bond trustees had paid out $14.2 million in principal and
interest payments.  Approximately $5.7 million had been paid in
interest and $6 million of the serial bonds and $2.5 million of the
term bonds had been redeemed.  The remaining $5.1 million of Arena
Tax collections was held in the debt service reserve funds (see next
section).  The bond resolution requires that any additional tax
collected over the amount needed to pay debt service on bonds be
placed in a super sinker fund\17 and be used to redeem term bonds
earlier than their due dates.\18 The serial bonds cannot be redeemed
earlier than their stated maturity dates. 

Table 3 shows our analysis of when the Arena Tax bonds can be fully
paid off.  Our analysis, which assumes similar future collections of
dedicated tax revenues, annual ground lease revenue from DCALP, use
of outstanding debt service reserve funds (plus interest), and no
recession or cyclical downturns of the local economy, shows that the
bonds could be paid off in the year 2002, or 8 years before the last
scheduled maturity date.  Upon redemption of all bonds in 2002,
excess funds of $7.7 million would be transferred to the District
General Fund.  This scenario would save about $16.4 million in
interest payments (see table 4).  Once the arena tax bonds are
repaid, the authorizing legislation calls for the dedicated taxes to
be eliminated.\19



                                     Table 3
                     
                         GAO Analysis of Projected Early
                      Redemption of the Sports Arena Special
                                Tax Revenue Bonds

                Original                    Required     Projected     Projected
             outstanding     Projected   serial bond   net\c early   outstanding
Fiscal         principal       gross\b  debt service          bond     principal
year           balance\a      receipts      payments   redemptions     balance\d
----------  ------------  ------------  ------------  ------------  ------------
================================================================================
Amount       $59,950,000                 $15,450,000                 $44,500,000
1996         $56,750,000    $9,985,966    $3,826,581    $4,142,979   $40,357,021
1997          53,900,000    12,079,130     3,483,826     6,325,222    34,031,799
1998          50,950,000    11,475,530     3,445,600     6,115,641    27,916,158
1999          47,800,000    10,223,730     3,495,150     5,158,296    22,757,862
2000          44,500,000    10,223,730     3,478,200     5,465,400    17,292,462
2001          41,050,000    10,223,730             0     9,251,029     8,041,433
2002          37,400,000    16,218,730             0    15,766,399   (7,724,967)
2003          33,550,000             0             0             0             0
2004          29,450,000             0             0             0             0
2005          25,200,000             0             0             0             0
2006          20,700,000             0             0             0             0
2007          15,950,000             0             0             0             0
2008          10,900,000             0             0             0             0
2009           5,600,000             0             0             0             0
2010                   0             0             0             0             0
================================================================================
Totals                     $80,430,546   $17,729,357   $52,224,966
--------------------------------------------------------------------------------
\a Represents Bond Value reduced by scheduled serial and term bond
principal payments. 

\b Includes sports arena tax collections, ground lease payments,
excess reserve funds, and interest on reserve accounts. 

\c Represents excess funds less recalculated interest on term bonds. 

\d Represents the value of the term bonds ($44,500,000) less funds
available for early redemption. 



                                Table 4
                
                 GAO Analysis of Interest Savings from
                  Early Redemption of the Sports Arena
                       Special Tax Revenue Bonds

                            Serial and       Projected
                        term bond debt      early bond       Projected
                               service      redemption        interest
Fiscal year                 interest\a      interest\b         savings
----------------------  --------------  --------------  --------------
1996                        $2,642,987      $2,642,987              $0
1997                         3,136,952       2,903,908         233,044
1998                         2,998,726       2,409,889         588,837
1999                         2,848,276       1,915,434         932,842
2000                         2,681,326       1,458,330       1,222,996
2001                         2,503,126         972,701       1,530,425
2002                         2,309,062         452,331       1,856,731
2003                         2,103,750               0       2,103,750
2004                         1,887,188               0       1,887,188
2005                         1,656,562               0       1,656,562
2006                         1,417,500               0       1,417,500
2007                         1,164,376               0       1,164,376
2008                           897,188               0         897,188
2009                           613,126               0         613,126
2010                           315,000               0         315,000
======================================================================
Totals                     $29,175,145     $12,755,580     $16,419,565
----------------------------------------------------------------------
\a Represents interest calculated on original bond repayment
schedule. 

\b Represents interest calculated by GAO based on revenue
projections. 


--------------------
\17 The type of fund that permits early redemption of term bonds is
commonly referred to as a super sinker fund. 

\18 Based on Section 603, Special Mandatory Redemption, of the bond
resolution, the bonds maturing on November 1, 2010, are subject to
special mandatory redemption at a price of par, plus accrued interest
to the redemption date, in part, by lot, prior to their stated
maturity on (1) any principal installment date or interest payment
date on and after November 1, 1996, from excess revenues on deposit
in the redemption account of the debt service fund, (2) November 1,
1997, from moneys in excess of
$l million on deposit, if any, in the Mandatory Capital Reserve Fund
as of September 1, 1997, (3) November 1, 1998, from moneys on
deposit, if any, in the Mandatory Capital Reserve Fund as of
September 1, 1998, and (4) November 1, 1997, from moneys, if any,
remaining in the Project Fund as of September 1, 1997.  The bond
resolution was modified in August 1997 so that money in the project
fund could be used for predevelopment expenditures. 

\19 D.C.  Code Ann.  secs.  47-2752 (a-1)(1) states that each
feepayer shall remit a special public safety fee each year until the
requirements of paragraph (3) have been met (collected fees to be
used to finance the reimbursement of borne costs, building
demolition, relocation and housing of District employees from the
buildings, acquisition of real property, and any other District costs
that relate to the development of the sports arena). 


   MISSED OPPORTUNITY COULD HAVE
   CAUSED ADDITIONAL INTEREST
   EXPENSE
------------------------------------------------------------ Letter :7

The bond resolution requires that early redemption of term bonds
occurs on a interest payment date--either May 1 or November 1 of each
year--from excess revenues on deposit in the Redemption Account of
the Debt Service Fund.  On the interest payment date of November 1,
1997, no term bonds were redeemed even though $2.8 million was
available in bond redemption account.  We questioned the bond trustee
as to why additional term bonds were not redeemed on November 1,
1997.  Her response was that because of a change in personnel, the
early redemption of term bonds had been overlooked.  This missed
opportunity to redeem term bonds prior to their maturity date could
have caused the District to incur additional interest expense for
that period.  However, the excess funds were deposited in an interest
earning account and the interest earned on the funds available for
bond redemption was substantially the same as the average interest
rate on the bonds that would have been redeemed and, accordingly, the
District did not incur any losses. 


   OPERATING ARENA GENERATES FIRST
   GROUND LEASE PAYMENT
------------------------------------------------------------ Letter :8

On April 3, 1998, the District received its first\20 quarterly
payment of $76,644 under the yearly ground lease for the arena site. 
These funds, as stipulated in the bond resolution, were placed in an
account established to redeem bonds prior to their maturity date. 
The ground lease payments along with any excess funds in the project,
capital reserve accounts, and debt reserve accounts are to be used
for early bond redemption. 


--------------------
\20 Under Article VI 6.1 and 6.2 of the Land Disposition Agreement -
Ground Lease, RLA received an initial payment of $200,000 on the
effective date of the lease. 


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

We requested comments on a draft of this letter from the Mayor of the
District of Columbia.  The Mayor concurred with the information
presented (see appendix I) and also provided, under separate cover,
some technical suggestions that we have incorporated as appropriate
to clarify the report. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Ranking Minority Member
of your Subcommittee and 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 Subcommittee on
Oversight of Government Management, Restructuring and the District of
Columbia, Senate Committee on Governmental Affairs.  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, Health, Education, and Human Services
 Accounting and Financial Management Issues




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


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


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

Hodge Herry, Assistant Director
Steven Haughton, Audit Manager
Lou Fernheimer, Senior Evaluator


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

Richard T.  Cambosos, Senior Attorney


*** End of document. ***