District of Columbia: Status of the Sports Arena (Letter Report,
11/14/97, GAO/AIMD-98-26).
Pursuant to a congressional request, GAO discussed the progress of the
sports arena project in the District of Columbia, focusing on the
project's predevelopment costs, revenue collections, and construction
status.
GAO noted that: (1) as of October 7, 1997, the District of Columbia
estimated total predevelopment expenditures to be about $58.5 million, a
net increase of about $2.7 million over its October 18, 1996, estimate;
(2) the increase is largely attributed to the extended time frames for
soil remediation efforts, which in turn compressed construction
schedules; (3) the subsequent negotiated settlement with the sports
arena contractor on behalf of the subcontractors was to compensate them
for premium labor rates to get back on construction schedule and to
cover additional material costs; (4) the District's $61.9 million in
available funds for predevelopment costs for the sports arena appears to
be sufficient to meet estimated expenditures; (5) as of October 7, 1997,
almost all the predevelopment activities had been completed, and the
District had spent about $56.7 million, with an additional $1.8 million
budgeted for activities that will soon be completed, leaving
approximately $3.3 million to pay unanticipated expenses or to redeem
term bonds prior to their redemption dates; (6) the only known potential
risk to the sports arena budget is the price for property taken in a
condemnation action, which is to be settled through court action
scheduled for December 1997; (7) the difference between the funds on
deposit with the courts to pay for the property and the owner's most
recent asking price is $3.35 million; (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 two years, collections
have exceeded $9 million, and it appears that 1997 collections will also
exceed $9 million; (10) an analysis performed by the District's lead
underwriter of the sports arena special tax revenue bonds shows that if
future year dedicated tax collections remain in the $9 million range,
and if revenues from the ground lease of the sports arena and existing
debt service reserves funds were used, the bonds could be paid off by
2002, well before the last scheduled maturity date in 2010; (11) the
analysis also revealed that the District would save about $15.6 million
in interest costs if the bonds were redeemed in 2002; and (12) the
sports arena is expected to be completed and available for use on
December 2, 1997, 3 months behind the originally scheduled date of
September 1, 1997.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-98-26
TITLE: District of Columbia: Status of the Sports Arena
DATE: 11/14/97
SUBJECT: Municipal taxes
Sports
Facility construction
Construction costs
Waste treatment
Real property acquisition
IDENTIFIER: District of Columbia
Metrorail System (DC)
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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
November 1997
DISTRICT OF COLUMBIA - STATUS OF
THE SPORTS ARENA
GAO/AIMD-98-26
Sports Arena
(901735)
Abbreviations
=============================================================== ABBREV
DCALP - District of Columbia Arena, L.P.
RLA - Redevelopment Land Agency
WMATA - Washington Metropolitan Area Transit Authority
Letter
=============================================================== LETTER
B-275392
November 14, 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 sports arena project in the District of Columbia. This
report, our sixth\1 on this issue, discusses the project's
predevelopment costs, revenue collections, and construction status.
--------------------
\1 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); Sports Arena (GAO/AIMD-95-209R, July 26, 1995);
Sports Arena (GAO/AIMD-96-43R, February 21, 1996); and Status of the
Sports Arena (GAO/AIMD-97-19, December 31, 1996).
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
As of October 7, 1997, the District estimated total predevelopment
expenditures to be about $58.5 million, a net increase of about $2.7
million over its October 18, 1996, estimate, as reported in our
December 1996 report. The increase is largely attributed to the
extended time frames for soil remediation efforts, which in turn
compressed construction schedules. The subsequent negotiated
settlement with the sports arena contractor on behalf of the
subcontractors was to compensate them for premium labor rates to get
back on construction schedule and to cover additional material costs.
The District's $61.9 million in available funds for predevelopment
costs for the sports arena appears to be sufficient to meet estimated
expenditures. As of October 7, 1997, almost all of the
predevelopment activities had been completed, and the District had
spent about $56.7 million, with an additional $1.8 million budgeted
for activities that will soon be completed, leaving approximately
$3.3 million to pay unanticipated expenses or to redeem term bonds
prior to their redemption dates. The only known potential risk to
the District's sports arena budget is the price for property taken in
a condemnation action, which is to be settled through court action
scheduled for December 1, 1997. The difference between the funds on
deposit with the courts to pay for the property and the owner's most
recent asking price is $3.35 million.
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 2 years, collections have exceeded $9 million,
and it appears that 1997 collections will also exceed $9 million. An
analysis performed by the District's lead underwriter of the Sports
Arena Special Tax Revenue Bonds shows that if future year dedicated
tax collections remain in the $9 million range, and if revenues from
the ground lease of the sports arena and existing debt service
reserve funds were used, the bonds could be paid off in 2002, well
before the last scheduled maturity date in 2010. The analysis also
revealed that the District would save about $15.6 million in interest
costs if the bonds were redeemed in 2002.
The sports arena is expected to be completed and available for use on
December 2, 1997, 3 months behind the originally scheduled date of
September 1, 1997.
BACKGROUND
------------------------------------------------------------ Letter :2
The District of Columbia government, acting through the Mayor, the
District's Redevelopment Land Agency (RLA),\2 and the District of
Columbia Arena, L.P. (DCALP)--a limited partnership formed by the
owner of the Washington Wizards\3
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 following
predevelopment costs:
-- acquiring land, including the purchase of property not then
owned by the District;\4
-- 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,\5 relocating utilities,
and securing all regulatory approvals necessary for construction
of the sports arena.
The Omnibus Budget Support Act of 1994 (Arena Tax Act),\6 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 provides that if on or before
December 1 of each year, the Mayor estimates that the Arena Tax
revenue is less than $9 million, the Mayor is required to raise the
Arena Tax rates to provide for an estimated revenue of not greater
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.\7
To initially finance the predevelopment costs of the sports arena,
$2.5 million was advanced by the District's Sports Commission.\8 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 predevelopment
costs and to establish a debt service reserve totaled $66.6 million.
These funds consisted of (1) $57.4 million\9 in net bond proceeds
(after financing costs) from the sale of RLA Revenue Bonds in January
1996 and (2) about $9.1 million in 1995 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.
--------------------
\2 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.
\3 Formerly known as the Washington Bullets.
\4 The District has acquired two properties needed for the arena, and
one was acquired through condemnation proceedings. However,
according to the District's Project Manager for the sports arena, the
purchase price of the property acquired in condemnation will be
determined by pending legal proceedings scheduled for December 1,
1997.
\5 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.
\6 D.C. Code Ann. secs. 47-2751 through 47-2753 (1996 Supp.).
\7 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.
\8 The Sports Commission is a business enterprise fund established by
the District to promote sports activities within the District of
Columbia.
\9 Of the approximately $60 million in bond proceeds, $2.6 million
was used to cover various fees associated with the bond sale.
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)
construction 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,
the Office of the D.C. Treasurer, and the Office of Tax and Revenue.
We also met with trustees for the bonds and lockbox (into which
dedicated taxes are deposited). In addition, we discussed the
construction progress of the arena and Metrorail connection with
officials from DCALP and the Washington Metropolitan Area Transit
Authority (WMATA).
We statistically selected a sample of expenditures for review. Our
sample was drawn from payments made from the funds provided by the
District's Sports Commission, the loan from the consortium of banks,
the 1995 Arena Tax collections, and the net proceeds from the sale of
the bonds. The sample was comprised of 56 expenditure items, which,
at the time of our audit, represented 92 percent of the total funds
spent. We reviewed each sampled 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\10 for this project. However, we
reviewed the lockbox procedures that were established to collect the
dedicated taxes, and we also reviewed monthly statements provided by
the lockbox trustee to determine the amount of taxes collected and
placed in escrow. In addition, we reviewed the District's lead
underwriter's assumptions pertaining to the early redemption of the
term bonds. Our review was built on previous work,\11 and we
conducted our review from February 1997 through October 1997 in
accordance with generally accepted government auditing standards.
--------------------
\10 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.
\11 See footnote 1 of this report.
PREDEVELOPMENT PROJECT COSTS
------------------------------------------------------------ Letter :4
Since our last report,\12 predevelopment cost estimates have
increased from $55.8 million to about $58.5 million, or by a net
amount of $2.7 million (4.8 percent). The District's predevelopment
activities consist of four major categories: (1) acquiring land, (2)
demolishing two buildings, remediating soil, relocating utilities,
and using consultants to secure regulatory approvals, (3) relocating
District employees, and (4) constructing the Metrorail connection.
The District has completed almost all of its predevelopment
activities and has spent $56.7 million, or about 97 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
(decrease)
Expenditures\a since
Budget as of as of October 18,
Predevelopment activities October 18, 1996 October 7, 1997 1996, budget
-------------------------- ---------------- ---------------- ----------------
Land acquisition
Appraisal/purchase price $34,268 $34,268\b $0
Appraisal fee 50 0 (50)
================================================================================
Total $34,318 $34,268 ($50)
Metrorail connection
Construction costs $19,360 $19,000 ($360)
Less: Capital Assistance (12,000) (12,000) 0
Grant (after $3 million
District cost)
Less: WMATA contribution (2,360) (2,000) 360
Less: DCALP contribution (2,000) (2,000) 0
================================================================================
Total $3,000 $3,000 0
Relocation of District
Employees
Lease commitments $1,922 $1,868 ($54)
Lease appraisals and space 70 2 (68)
consultants
Leasehold improvements 1,344 1,006 (338)
Furniture and equipment 638 546 (92)
move
Telecommunication 875 623 (252)
equipment move
================================================================================
Total $4,849 $4,045 ($804)
Building demolition, soil
remediation, relocation:
legal, environmental, and
consultant fees
Building demolition $1,000 $916 ($84)
Soil remediation 3,521 8,266 4,745\c
Less: Far East Trade (569) (569) 0
Center Associates, L.P.
contribution for soil
remediation
Utility relocation 2,770 3,379 609
Business relocation 25 0 (25)
Legal, environmental, and 2,533 2,693 160
consultant fees
D.C. Sports Commission 302 324 22
reimbursement
================================================================================
Total $9,582 $15,009 $5,427
Bank costs
Bank fees $1,315 $1,922 $607
================================================================================
Total $1,315 $1,922 $607
Bond issuance costs $0 $307 $307
================================================================================
Total $0 $307 $307
Reserves for unanticipated $2,750 0 ($2,750)
increases
================================================================================
Total costs financed by $55,814 $58,551 $2,737
the District
--------------------------------------------------------------------------------
\a Includes $56.7 million of actual cash disbursements and $1.8
million budgeted for activities that will soon be completed.
\b Includes the $5.25 million that was deposited in escrow with the
Superior Court of the District of Columbia.
\c Represents $4 million in negotiated settlement with the developer
and about $700,000 for removal of concrete abutments, etc.
--------------------
\12 Status of the Sports Arena (GAO/AIMD-97-19, December 31, 1996),
which reported predevelopment cost estimates as of October 18, 1996.
LAND ACQUISITION
---------------------------------------------------------- Letter :4.1
As shown in table 1, land acquisition has represented over half of
total predevelopment costs and remains the only known potential risk
to the District's predevelopment budget for the arena project. While
the District acquired two pieces of property for the sports arena
site, the price of one piece of property has not yet been determined.
The District had two appraisals performed on the land in question.
The first appraisal reflects a value of $5.25 million, and the second
appraisal a value of $6.56 million. The owner has an appraisal
showing a value of $10.6 million, and the owner's last requested
price was $8.6 million. The District invoked its powers of eminent
domain to secure title to the property and deposited $5.25 million
with the D.C. Superior Court, which is $3.35 million less than the
owner's last requested price. According to the District's project
manager, a trial to determine the value of the land is scheduled for
December 1, 1997.
METRORAIL CONNECTION
---------------------------------------------------------- Letter :4.2
The Metrorail connection to the sports arena is almost complete.
According to WMATA officials, the Metro station will be ready for an
unofficial opening on November 15, 1997. During the period between
the unofficial opening and the official opening on December 2, 1997,
WMATA will be finalizing its work, such as installing permanent
lights and handrails at the Metrorail station. In addition,
according to WMATA officials, the work on the Metrorail connection is
currently within the budget of $19 million, of which the District has
contributed $3 million. WMATA officials do not foresee any
additional needs that would require additional funding by the
District.
SOIL REMEDIATION AND RELATED
ACTIVITIES
---------------------------------------------------------- Letter :4.3
As shown in table 1, expenditures for building demolition, soil
remediation, and relocation of utilities have increased from the
projected $9.6 million reported in our December 1996 report to about
$15 million, an increase of $5.4 million, or about 56 percent. The
significant increase in expenditures in this category is primarily a
result of a negotiated settlement related to delays in construction
activities due to extended time frames for soil remediation efforts.
The actual cost for soil remediation ($3.5 million) has not increased
since our last report.
The majority of the increase in spending ($4 million) was paid to
DCALP--the developer. DCALP, on behalf of its subcontractors, had
claimed losses arising from construction delays. According to DCALP,
subcontractors had to pay additional premium labor rates to get back
on schedule, and additional materials were also required. DCALP
claimed that under the terms of the ground lease, the District was
responsible for these costs. As part of its settlement, the District
has obtained a legal agreement, intended to preclude the developer
from prevailing in any further claims for losses arising from soil
remediation efforts. In our last report,\13 we had mentioned that
the District's Deputy Corporation Counsel stated that the District
would take legal action against the alleged source of the
contaminants if it does not receive compensation. However, as of
October 21, 1997, the District had not determined the amount or
presented a claim to the alleged source of the contaminants.
The $4 million was paid out of the project fund following a transfer
of that amount from the Mandatory Capital Reserve Fund. The
Mandatory Capital Reserve Fund was initially established with $5
million, as required by the bond resolution, to cover any
insufficiency in the project fund. The Mandatory Capital Reserve
Fund currently has a balance of about $1 million. The bond
resolution requires that any funds in excess of $1 million in the
Mandatory Capital Reserve Fund as of September 1, 1997, that are not
required to be used to finance any portion of the project be
transferred to the Redemption Fund and be used to redeem term bonds
on November 1, 1997. In addition, any balance remaining in the
Mandatory Capital Reserve Fund on September 1, 1998, should be
transferred to the Redemption Fund and be used to redeem bonds on
November 1, 1998.
In addition, the District requested and RLA modified the original
bond resolution in August 1997 to maintain funding in the project
fund to be used for predevelopment expenses after September 1, 1997.
All activities associated with soil remediation efforts have not been
fully completed. The District's project manager for the sports arena
has recently included in the expenditure estimates an additional
$700,000 for the removal of concrete structures below the surface and
remediation of the soil, if necessary, on a parcel of land\14
transferred to WMATA. The District believes that it has budgeted
sufficient funds to remove the concrete structures.\15 The District
stated that based on preliminary work, the soil is not contaminated.
The project manager of the sports arena fund stated that the District
is hiring a contractor to perform further examination of this parcel
of land.
--------------------
\13 See footnote 1 of this report.
\14 This parcel of land is 8,080 square feet and is adjacent to the
arena site, which is 218,435 square feet.
\15 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 cleanup, if required, of the
land transferred to WMATA.
RELOCATION OF DISTRICT
EMPLOYEES
---------------------------------------------------------- Letter :4.4
The activities related to the relocation of District employees are
almost complete. As shown in table 1, as of October 7, 1997, total
expenditures for these activities is expected to be about $4 million,
which is $804,000 less than what was estimated about a year ago.
According to the project manager of the sports arena fund, leasehold
improvements relating to installing computer workstations will soon
be completed and will cost $338,000 less than the amount anticipated.
In addition, spending on the telecommunication equipment move will
cost $252,000 less than originally anticipated since it was
determined that the cost was not solely associated with the employees
affected by the move but with work that was performed on other
District buildings.
SOURCES OF REVENUES FOR
PREDEVELOPMENT COSTS
---------------------------------------------------------- Letter :4.5
Table 2 shows total receipts of about $61.9 million available as of
September 30, 1997, to fund predevelopment costs. Through that date,
the District had earned about $1.3 million in interest from the bond
proceeds. However, we have excluded $371,000 in funds that we
believe the sports arena project fund should not have received from
the District's General Fund for sports arena 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. We had informed the District's
Chief Financial Officer of this matter, and he had agreed to recoup
the money from the sports arena project fund. However, as of October
7, 1997, the funds had not yet been returned to the District's
General Fund. The project manager of the arena project fund contends
that this amount should be borne by the District since it was not
factored into the original predevelopment activities budget. We
disagree. These costs were precipitated by the relocation action to
allow arena construction and, accordingly, were an allowable cost of
the sports arena project.
Table 2
Predevelopment Funds for the Sports
Arena Project as of September 30, 1997
Sources of Receipts
-------------------------------------- -------------- --------------
Net proceeds from bond sale\a $57,436,001
Less: Mandatory debt service reserve (5,995,000)
1995 Dedicated Arena Tax collections\b 9,149,036
Total funds for predevelopment $60,590,037
expenses
Interest earned on funds held in trust
Interest earned on bank loan funds\c 376,265
Interest earned on project funds\d 400,905
Interest earned on capital reserve 424,842
funds\e
Interest earned on Metrorail funds\f 91,606
Total interest earned $1,293,618
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 funds available for $61,883,655
predevelopment expenses
Less: Expenditures as of 10/7/97 (see (58,551,000)
table 1)
======================================================================
Total predevelopment funds still $3,332,655
available
----------------------------------------------------------------------
\a Includes $5 million of mandatory capital reserve funds.
\b Total 1995 collection was about $9.3 million, and $119,000 was
used for debt service.
\c Represents interest earned on borrowings 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 to cover any insufficiency in the project fund.
\f Represents interest earned on the District's contribution ($3
million) to the capital assistance grant awarded for the Metrorail
connection.
DEDICATED TAX REVENUE
COLLECTIONS AND OTHER REVENUES
------------------------------------------------------------ Letter :5
As of September 30, 1997, collections for the 1997 Arena Tax had
totaled about $9 million and 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. For 1995 and 1996, the trustees for the
lockbox collected Arena Tax revenues of about $9.3 million and $9.6
million, respectively. Based on an analysis performed by the
District's lead underwriter for the Sports Arena Special Tax Revenue
Bonds, if future Arena Tax collections remain in the $9 million
range, 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 bonds could be paid off in 2002, well before the 2010
maturity date of the longest term bonds.
The approximately $9 million in dedicated tax revenues collected as
of September 30, 1997, compares favorably with 1995 and 1996
collections; therefore, it is likely that collections will also
exceed $9 million in 1997. 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.
The combined total of $18.6 million in dedicated tax revenues
collected for 1996 and 1997 is being used to pay principal and
interest on the sports arena bonds. The District's Sports Arena
Special Tax Revenue Bonds are comprised of about $15.4 million in
serial bonds, which have stated maturity dates from 1996 to 2000, and
$44.5 million of term bonds with stated maturity dates from 2001 to
2010. As of November 30, 1996, the District had paid principal and
interest of $5.8 million on its serial bonds. 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\16 and be
used to redeem term bonds earlier than their due dates.\17 The serial
bonds cannot be redeemed earlier than their stated maturity dates.
According to the bond trustees, on May 1, 1997, about $2.5 million of
term bonds had been redeemed, and interest of about $1.6 million had
been paid. Of the $18.6 million collected in dedicated tax revenues
as of September 30, 1997, the District has used about $9.9 million
for debt service, leaving about $8.7 million in the debt service
fund. In addition, according to the bond trustee, as of September
30, 1997, the District had approximately $6.5 million, including
about $500,000 in interest earnings, in the debt service reserve
fund.
The District will soon begin to generate additional revenue from the
lease of the sports arena land, which will also be used to pay debt
service on the bonds. Pursuant to the terms of a ground lease dated
December 29, 1995, the District and the RLA have agreed to lease to
DCALP, the land upon which the arena is constructed for 30 years with
the option to extend the lease for two 10-year periods. DCALP will
make annual payments in quarterly installments to RLA, upon issuance
of a certificate of occupancy. Based on the terms of the ground
lease, for the next 6 years, the District will receive $300,000
annually and is expected to receive a total of about $24 million for
the 30-year lease period.
The District's lead underwriter on the Sports Arena Special Tax
Revenue Bonds has performed an analysis\18 that shows that if future
collections of dedicated tax revenues remain about the same as past
collections, and if revenues from the ground lease of the arena and
from the debt service reserve fund were used, the bonds could be paid
off in the year 2002, 8 years before the last scheduled maturity
date. In addition, the analysis revealed that the District would
save about $15.6 million in interest costs from early redemption of
the term bonds at their par value.
--------------------
\16 The type of fund that permits early redemption of term bonds is
commonly referred to as a super sinker fund.
\17 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. As stated
previously, the bond resolution was modified in August 1997 so that
money in the project fund could be used for predevelopment
expenditures.
\18 "District of Columbia Redevelopment Land Agency Sports Arena
Special Tax Revenue Bonds Summary Transaction," prepared by Merrill
Lynch on January 9, 1996.
CONSTRUCTION STATUS
------------------------------------------------------------ Letter :6
According to the Chief Operating Officer of DCALP, the arena is
scheduled for an unofficial opening on November 15, 1997 and the
majority of the work will be completed at that time. The arena is
expected to be completed and available for its intended use on
December 2, 1997, about 3 months later than the originally scheduled
date of September 1, 1997.
DISTRICT'S COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :7
We requested comments on a draft of this letter from the Mayor of the
District of Columbia. The Mayor provided us with comments that are
reprinted in appendix I. With regard to the District presenting a
claim to the alleged source of the contaminants, the Mayor stated
that the Office of the Corporation Counsel is in the process of
determining how to proceed with legal action.
---------------------------------------------------------- Letter :7.1
We are sending copies of this report to the Ranking Minority Member
of your Subcommittee and to the 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, Civil Audits
(See figure in printed edition.)Appendix I
COMMENTS FROM THE DISTRICT OF
COLUMBIA
============================================================== Letter
The following is GAO's comment on the letter from the Mayor of the
District of Columbia dated November 7, 1997.
GAO COMMENT
1. The Mayor's assumption is correct. Table 1 contains both budget
obligation and expenditure amounts.
MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I
ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C.
Hodge Herry, Assistant Director
Barbara Shields, Audit Manager
Lou Fernheimer, Senior Evaluator
OFFICE OF GENERAL COUNSEL
Richard T. Cambosos, Senior Attorney
*** End of document. ***