District of Columbia: Status of the New Convention Center Project (Letter
Report, 09/28/1999, GAO/AIMD-99-258).

Pursuant to a congressional request, GAO provided a status report on the
construction of the new Washington Convention Center, focusing on: (1)
the status of the project; (2) changes in the Washington Convention
Center Authority's (WCCA) estimated project costs and financing plan
since GAO's last report; and (3) actual expenditures and collection of
dedicated taxes.

GAO noted that: (1) in March 1999, work started on slurry wall
construction, site excavation, and removal of contaminated soil; (2)
based on information provided by WCCA officials as of June 1999, total
estimated project costs decreased $55 million from $846 million to $791
million; (3) this decrease was due to reduced financing-related costs,
which resulted primarily from the purchase of a surety bond covering
debt servicing instead of funding the initially planned for Debt Service
Reserve Fund; (4) WCCA estimated the total construction cost of the
project at $714 million--$6.3 million, or less than 1 percent, more than
the June 1998 estimate; (5) the $6.3 million increases to $24 million
the estimated value of equipment that WCCA anticipates being provided by
vendors at no initial cost to WCCA; (6) however, WCCA remains at risk
for the cost of the equipment until contracts are executed with vendors;
(7) within the $714 million construction cost estimate, WCCA made a
number of changes, increasing the estimated cost of some project
components and decreasing others to reflect more current data; (8)
proceeds from the September 1998 bond sale covered about 66 percent of
the $791 million June 1999 project cost estimate; (9) WCCA's financing
plan covered the remaining cost through dedicated taxes over the 4-year
construction period, anticipated interest earnings, anticipated federal
grants, and reliance on vendors to provide without cost, equipment that
WCCA estimates would cost $24 million--an amount for which WCCA is at
risk until such time that there are executed contracts to cover these
arrangements; (10) dedicated tax collections for the first 10 months of
fiscal year 1999 were $42.2 million--a little higher than the amount
assumed in the bond offering documents prorated for the same period;
(11) in addition to the amounts already collected, WCCA may receive some
portion of amounts in the lockbox exceptions account; (12) these amounts
cannot be determined until all collections held in the lockbox
exceptions account have been appropriately allocated by the District of
Columbia and appropriate amounts transferred to WCCA; and (13) WCCA's
share of interest earnings on amounts in the exceptions account cannot
be determined until the District determines the appropriate allocation.

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

 REPORTNUM:  AIMD-99-258
     TITLE:  District of Columbia: Status of the New Convention Center
	     Project
      DATE:  09/28/1999
   SUBJECT:  Convention facilities
	     Municipal taxes
	     Cost analysis
	     Facility construction
	     Construction costs
	     Funds management
	     Municipal bonds
	     Future budget projections
	     Budget outlays
IDENTIFIER:  D.C. Debt Service Reserve Fund
	     Community Development Block Grant

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ai99258 A Report to the Chairman, Subcommittee on the District of
Columbia, Committee on Government Reform, House of Representatives

September 1999 DISTRICT OF COLUMBIA

Status of the New Convention Center Project

GAO/AIMD-99-258

  GAO/AIMD-99-258

Accounting and Information Management Division

Let ter

B-280908 September 28, 1999 The Honorable Thomas M. Davis III
Chairman, Subcommittee on the District of Columbia Committee on
Government Reform House of Representatives

Dear Mr. Chairman: You requested that we provide periodic status
reports on the construction of the new Washington Convention
Center. When we last reported to you on July 15, 1998, 1 the
Washington Convention Center Authority (WCCA)

was working to obtain necessary approvals, negotiate a guaranteed
maximum price (GMP) construction contract, and obtain construction
financing. This report highlights the status of the convention
center project, changes in WCCA's estimated project costs and
financing plan since our last report, and actual expenditures and
collection of dedicated taxes.

Results in Brief Work at the new convention center site is
underway. In March 1999, work started on slurry wall construction,
2 site excavation, and removal of contaminated soil. Based on
information provided by WCCA officials as of June 1999, total
estimated project costs decreased $55 million (6.5 percent) from
$846 million to $791 million. This decrease was due to reduced
financing- related costs, which resulted primarily from the
purchase of a

surety bond covering debt servicing instead of funding the
initially planned for Debt Service Reserve Fund. WCCA estimated
the total construction cost of the project at $714 million-$ 6.3
million, or less than 1 percent, more than the June 1998 estimate.
The $6.3 million increases to $24 million the estimated value of
equipment that WCCA anticipates being provided by vendors at no
initial cost to WCCA. However, WCCA remains at risk for the cost
of the equipment until contracts are executed with vendors. 1
District of Columbia: Status of the New Convention Center Project
(GAO/ AIMD/ OCE- 98238, July 15, 1998). 2 The slurry wall is a
concrete wall around the construction site that extends below the
excavation and is a barrier to underground water flowing into the
site.

Within the $714 million construction cost estimate, WCCA made a
number of changes, increasing the estimated cost of some project
components and decreasing others to reflect more current data. For
example, because its current estimate of the volume of
contaminated soil requiring removal is about double the 150,000
tons anticipated, the cost estimate for this work increased $4
million to a total of $9 million. WCCA's estimates of construction
costs include changes to the $500.6 million GMP agreed to by the
construction manager (CM) and WCCA in August 1998. WCCA's

estimate of GMP costs as of June 30, 1999, was $510.7 million. As
noted in our last report, practically speaking, the GMP is only a
guaranteed maximum price if the underlying assumptions on which
the contractor bid do not change. Under the GMP agreement, WCCA
must negotiate any changes to the GMP amount with the CM. As of
June 30, 1999, several of the amounts included in WCCA's cost
estimate had yet to be negotiated, and the ultimate effect on the
budget is not certain. Also, the project

contingency absorbed $16 million of costs not offset by decreases
in other project components. Of the $30 million project
contingency in WCCA's estimate last year, $14 million remains to
cover unanticipated costs during the more than 3 years remaining
until scheduled project completion.

Proceeds from the September 1998 bond sale covered about 66
percent of the $791 million June 1999 project cost estimate.
WCCA's financing plan covered the remaining cost through dedicated
taxes over the 4- year construction period, anticipated interest
earnings, anticipated federal

grants, and reliance on vendors to provide without cost, equipment
that WCCA estimates would cost $24 million an amount for which
WCCA is at risk until such time that there are executed contracts
to cover these arrangements. About $73.2 million had been
disbursed on the project as of June 1999. Dedicated tax
collections for the first 10 months of fiscal year 1999 were $42.2
million a little higher than the amount assumed in the bond
offering documents prorated for the same period. In addition to
the amounts already collected, WCCA may receive some portion of
amounts in the lockbox exceptions account. These amounts cannot be
determined until all collections held in the lockbox exceptions
account have been appropriately allocated by the District and
appropriate amounts

transferred to WCCA. Similarly, WCCA's share of interest earnings
on amounts in the exceptions account cannot be determined until
the District determines the appropriate allocation.

WCCA, in general, agreed with the report's contents, and District
officials said that they are addressing the report recommendations
for improving the operations of the exceptions account. However,
District officials did not commit to monthly transfers to WCCA and
the District of interest earned in the exceptions account. We
reaffirmed the need for prompt

transfers in the District's Comments and Our Evaluation section of
this report. Background The Washington Convention Center Authority
Act of 1994 authorizes WCCA to construct, maintain, and operate
the new convention center as well as to maintain and operate the
existing convention center. 3 Since our last report, WCCA and the
CM signed the $500.6 million GMP contract for

construction, and WCCA received $519.5 million from bond financing
supported by new dedicated taxes. Construction of the new
convention center is now underway at Mount Vernon Square. 4

The new convention center will have a total of 2.3 million gross
square feet, including about 730,000 square feet of prime exhibit
space. This compares with 800,000 gross square feet for the
existing convention center, including 381,000 square feet of prime
exhibit space. Based on the square feet of prime exhibit space,
the new convention center is projected to rank sixth in the United
States when completed. Its size is expected to make it highly
marketable far into the 21st century. The 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 is small compared to the convention
centers of other

cities, such as Atlanta, New York, Chicago, and Philadelphia. 3
WCCA was created by the Washington Convention Center Authority Act
of 1994, D. C. Law 10- 188, Sept. 28, 1994, 41 D. C. Reg. 5333,
6823, D. C. Code Ann. secs. 9- 801 through 9- 833, (1981, 1999
Supp.). 4 Located in the blocks between 7th and 9th Streets, N.
W., and N Street and Mount Vernon Place, N. W.

Scope and To determine the status of the new convention center
project and its Methodology

estimated costs and financing plan, we  held discussions with and
obtained information from various officials of WCCA and its
representatives and the CM,  reviewed WCCA's and the CM's progress
reports,  visited the construction site,  compared WCCA's June 30,
1999, unaudited cost estimates for the project with the June 19,
1998, estimates that were included in our

July 1998 report to the Subcommittee, and  reviewed budget
documents and held discussions with WCCA officials

to obtain reasons for variations from the previous estimates. To
review the dedicated tax collection procedures and the proper
amounts calculated and transferred, we

 reviewed financial records and lockbox agreements,  held
discussions with officials of WCCA, the District, and the lockbox

bank,  compared the projections of dedicated taxes for the period
from October 1998 through June 1999 with actual collections for
the same

period, and  reviewed the Washington Convention Center auditors' 5
workpapers of

the reported taxes collected and deposited for the convention
center project for fiscal year 1998.

To determine that expenditures for the new convention center
project were valid, complete, and properly valued, we reviewed the
WCCA auditors' workpapers for fiscal year 1998 and examined
statistically selected expenditures incurred for the period from
October 1, 1998, through

April 30, 1999. We conducted our work from August 1998 through
July 1999 in accordance with generally accepted government
auditing standards and considered the results of our previous
work, which were reported to you last year. We requested comments
on a draft of this report from the Mayor of the District

of Columbia and the General Manager of WCCA, or their designees.
The Chief Financial Officer of the District government and the
Chief Financial

5 Mitchell & Titus, LLP, audited WCCA's financial statements for
fiscal year 1998.

Officer and Managing Director/ Development of WCCA provided us
with written comments. These comments are discussed in the
District's Comments and Our Evaluation section and are reprinted
in appendixes I and II, respectively.

Construction of New Since we last reported, WCCA received
necessary approvals to build the Convention Center Has new
convention center at Mount Vernon Square, with Clark/ Smoot, A
Joint Venture, serving as CM. Ground was broken in October 1998,
and Begun excavation of the site began in March 1999. As of June
1999, $64 million in construction contracts had been let, and WCCA
was preparing to obtain bids on structural steel and foundation
concrete, which it estimated at about $150 million. WCCA officials
provided the following information, as of June 1999, on the status
of the site work:

 Relocation of utilities, which started in July 1998, was 85
percent complete and was expected to continue through calendar
year 1999.  Construction of the slurry wall, which started in
March 1999, was about 60 percent complete and was expected to be
completed in September

1999.  Excavation of the site was about 32 percent complete with
375,000 cubic

yards of soil removed. Excavation work was expected to continue
until about August 2000.  About 175,000 tons of contaminated soil
had been removed from the

site. The total estimate of contaminated soil requiring removal
has now grown from 150,000 tons to between 250,000 and 300,000
tons. Contaminated soil removal is scheduled to be completed in
January 2000. The on- schedule completion of site excavation is
contingent upon the timely removal of the contaminated soil.
According to WCCA officials, the amount of water encountered at
the construction site was less than originally expected. WCCA
officials stated that the construction of the slurry wall had
progressed more rapidly than they anticipated, and this had
reduced the amount of water that was present.

The Washington Metropolitan Area Transportation Authority (WMATA)
is overseeing the Metro station upgrade work at the construction
site using $25 million appropriated by the Congress for that
purpose. Agreements between WCCA and WMATA covering the
construction and their operating relationship after completion of
the convention center were approved by the D. C. Financial
Responsibility and Management Assistance Authority in

late July 1999. The construction agreement specifies that WCCA is
responsible for any costs in excess of the amount appropriated.
WCCA would have to offset any excess costs by reducing the cost of
other project components, including the project contingency, or
find other sources of funding.

WCCA's June 28, 1999, status report stated that the most
significant schedule risks were the removal of the contaminated
material from the site and the preparation of the design bid
packages when needed. The CM identified a potential 22- day delay
in the construction schedule relating to the start of the
foundation work. According to WCCA officials, they will work with
the CM to overcome any potential delays by using alternate

sequences and methods. Estimated Project Since we last reported,
the estimated costs for building the new convention Costs Have
Changed center have increased, but financing costs were less than
estimated. Estimated construction costs increased $6. 3 million,
from $707.7 million to $714 million. The $6.3 million consists of
an increase in the value of equipment that WCCA anticipates being
provided by vendors without cost to WCCA. As a result of modified
reserve requirements, financing- related costs decreased $61.1
million, from $138.2 million to $77.1 million. These

changed estimates reduced the total funds required by $54.8
million, from $845.9 million to $791.1 million. Of the total
estimated cost, $73.2 million had been disbursed as of June 30,
1999: $24.1 million for GMP costs and $49.1 million for other
costs. Table 1 compares WCCA's cost estimates as of June 1999 with
its estimates in our July 1998 report. To the extent that costs
increase or anticipated funds do not become available, WCCA must
offset the costs against other project components or find other
sources of funding. As shown in the last column of table 1, WCCA
decreased the estimated cost for some project

components and increased the estimated cost of others within the
overall total estimated project cost of $791 million. It should be
noted that some of the increases and decreases affect the GMP
amount and have yet to be negotiated with the CM. WCCA's
explanations of these estimates and of other increases and
decreases in the estimated cost of project components follow the
table.

Table 1: Comparison of WCCA's Unaudited Estimated Costs for the
New Convention Center as of June 1998 and June 1999

Dollars in thousands

Estimate as of Estimate as of

Increase Project component 6/ 19/ 98 a 6/ 30/ 99 (decrease)

Building and site (initial GMP) $500,600 $500,600 $0 Changes to
GMP amount

Change order 1 (Reserve for hazardous materials removal) 5,000 b
9,000 4, 000 Other change orders 0 473 473

Subtotal changes to GMP amount $5, 000 $9,473 $4, 473 Subtotal GMP
contract status $505,600 $510,073 $4, 473 WCCA estimate of changes
to be negotiated with CM

Pending change orders 123 123 WCCA estimate of cost increases 0
16,013 16, 013 WCCA estimate of cost decreases 0 (15,558) (15,558)

Subtotal WCCA estimate of changes pending negotiation $0 $578 $578
Total WCCA estimated building and site (GMP amount) $505,600
$510,651 $5, 051 Other costs

Land cost 4,692 c 5,488 796 Program management 16,632 c 14,232 (2,
400) Consulting and inspections 4,510 c 10,255 5, 745 Permits and
fees 400 c 1,799 1, 399 Environmental impact 1, 550 c 1,550 0
Legal 2,900 c 5,177 2, 277 Insurance 19,000 c 13,100 (5, 900)
Design fees 29,240 c 39,748 10, 508 Site development 0 200 200
Fixtures/ furnishings/ equipment 22, 305 22,305 0 Other project
costs 12,671 d 14,497 1, 826 Portion of utilities relocation not
included in building and site 10,000 e 10, 000 f 0 Community
outreach 500 c 0 (500) Metro station upgrade 25,000 e 21,972 (3,
028) g Project contingency 30,000 14,026 (15,974)

Subtotal other costs $179,400 $174,349 ($ 5,051) Total WCCA
project budget $685,000 $685,000 $0

(continued)

Dollars in thousands

Estimate as of Estimate as of

Increase Project component 6/ 19/ 98 a 6/ 30/ 99 (decrease)

Additions to WCCA project budget

Project administrative costs 5, 000 5,000 h 0 Vendor- provided
equipment i 17, 695 24,000 6, 305

Total additions to WCCA budget $22, 695 $29,000 $6, 305 Total
estimated construction costs $707,695 $714,000 $6, 305 Financing-
related costs

Bond issuance 11, 827 11,486 (341) Reserve funds 126, 399 65,633
(60,766)

Subtotal financing- related costs $138,226 $77,119 ($ 61,107)
Total estimated project costs $845,921 $791,119 ($ 54,802)

a Reported in GAO/ AIMD/ OCE- 98- 238, July 15, 1998. b In our
prior report, this reserve was listed under other costs. c In our
prior report, these costs were consolidated in total
predevelopment costs. d In our prior report, these costs were
listed as section 106 mitigation costs. National Historic
Preservation Act, section 106 mitigation requirements for this
project were established in a September 12, 1997, memorandum of
agreement among the National Capital Planning Commission, the D.
C.

State Historic Preservation Officer, the Advisory Council on
Historic Preservation, WCCA, the Mayor, and the D. C. Council. The
agreement requires WCCA to take a number of actions to improve the
community and to mitigate adverse effects of the convention center
on the community. e In our prior report, these costs were listed
as additions to the WCCA project budget. f Committed costs are
$10. 7 million. g The WCCA estimated cost of the Metro station is
$25 million. Part of the cost has been allocated to GMP estimated
increases and to design fees for work relating to the Metro
station upgrade.

h WCCA officials did not provide an estimate of administrative
costs for the project. They estimated that $3. 3 million had been
expended as of May 31, 1999. As stated in our last report, WCCA
does not include administrative costs as part of its project
costs. It stated that these costs would continue to be paid from
the current center's operating budget. i WCCA anticipates that
vendors will provide this equipment without cost to WCCA. Source:
WCCA officials.

Changes to GMP Some of the estimated cost increases and decreases
involved construction change orders or other costs that affect
GMP. As noted in our previous report, GMP is only a guaranteed
maximum price if the assumptions upon which it is based do not
change. 6

6 GAO/ AIMD/ OCE- 98- 238, July 15, 1998.

Change order number 1 covers the removal of additional
contaminated soil from the site. The estimate for hazardous
materials removal increased by $4 million due to encountering
higher amounts of contaminated material on the site than
anticipated. These costs are based on unit rates, thus, the

ultimate cost is determined by the quantities removed. The other
change orders ($ 473,000) represent changes to utility relocation
work caused by unexpected site conditions. Estimated cost
increases ($ 16 million) is a new line item that represents WCCA's
estimate of GMP cost increases for identified design and
construction- related issues. Potential cost decreases

($ 15.6 million) is also a new line item that represents WCCA's
estimate of GMP cost decreases as a result of design changes and
alternative insurance arrangements. The net effect of these
changes is to increase WCCA's estimated GMP costs to $510.7
million. In contrast, a CM representative told us on July 2, 1999,
that the CM's estimate of GMP costs was about

$523 million. The CM's estimate does not include any GMP cost
decreases, such as those identified by WCCA. The actual amount of
any increase or decrease to the GMP depends on the outcome of
negotiations between WCCA and the CM. Changes to Other Costs WCCA
also made a number of changes within the estimated costs of

$280.4 million 7 that are not covered by GMP. The $796,000
increase in the estimate for land cost is due to an increase in
relocation costs for former owners, rental of temporary parking
lots not included in the original budget, easements on adjoining
property, and increased security costs. Estimated program
management costs decreased due to an amendment of the program
manager's contract. Certain services, such as accounting, were
obtained from other contractors. Consulting and inspections

increases were largely due to reimbursing the District's
Department of Consumer and Regulatory Affairs for the cost of
inspectors and related staff ($ 1. 4 million) and hiring KPMG to
provide a project accounting system and services ($ 2.3 million).
Neither of these items were included in the original budget.

Permits and fees increases were due primarily to the District's
Water and Sewer Authority's declining to waive its fees ($
700,000) as assumed in the budget, and the District's Department
of Health's requesting reimbursement for its staff costs
associated with hazardous materials 7 In table 1, total estimated
project costs of $791.1 million minus total WCCA estimated
construction costs of $510.7 million.

monitoring ($ 300,000). Estimated legal costs increased with the
decision to have legal services provided throughout the
construction phase. Estimated insurance costs decreased as a
result of WCCA's obtaining insurance covering its contractors and
subcontractors (owner- controlled insurance program) rather than
having each obtain necessary coverage individually.

The estimate for design fees increased by $10.5 million because
the complexity and scope of services required of the architect and
engineering (A& E) team have been greater than anticipated.
Multiple (15 to 20) bid packages will be required, rather than the
4 to 5 originally predicted. Increases are also attributable to
the more complex nature of the final

design and the A& E team's participation in value engineering and
subcontractor purchasing. Also, design costs of $1.3 million
relating to the Metro station upgrade have been reallocated to the
design fees component.

Other project cost changes resulted from reclassifying various
items. Site development costs is a new line item related to costs
for fencing, site cleanup, and rodent abatement. Community
outreach costs have been reclassified and are now included in
other project costs. The utilities relocation costs not covered in
GMP increased because field conditions differed from what was
expected. Metro station upgrade costs of $3 million were
reclassified to building and site/ GMP costs and design fees.

The estimate for vendor- provided equipment increased by $6.3
million. WCCA anticipates that a central heating and cooling plant
and telecommunications, food service, and audiovisual equipment
will be provided by vendors without cost. WCCA officials indicate
that arrangements whereby vendors provide such equipment have been
used at convention centers in other cities. WCCA is considering
the technical aspects of several proposals by vendors to provide a
central plant. As the project progresses, WCCA anticipates
soliciting proposals from vendors to provide telecommunications,
food service, and audiovisual equipment. As we noted in our prior
report, WCCA is at risk for these costs until contracts

have been executed with vendors and for any costs that may be
necessary in connection with installation of the vendors'
equipment.

Contingency to Cover In addition to the cost increases that were
offset by decreases in the Project Risks program management and
insurance line items, WCCA offset $16 million of cost increases by
reducing the project contingency. This offset reduced the project
contingency amount from $30 million to $14 million 4 months into

the 4- year construction schedule. Currently, several unknowns put
additional pressure on the remaining contingency funds:

 The uncertain outcome of negotiations with the CM on changes to
the GMP amount.  The risk that additional costs for hazardous
materials removal and other work will be incurred in the more than
3 years remaining until

estimated project completion.  The risk that vendors do not fund
all or part of the $24 million in equipment costs as anticipated
by WCCA or that WCCA has to incur additional costs to accommodate
the installation of vendors' equipment.

Changes to FinancingRelated A modified arrangement for meeting
reserve requirements for bond

Costs financing significantly reduced the financing- related costs
and the total required funds from prior estimates. An anticipated
Debt Service Reserve

Fund of $44.4 million was not required due to the purchase of a
surety bond for $633,000 to cover debt servicing. Also, the
Operations and Marketing Reserve fund required $10 million less
and the Renewal and Replacement fund required $7 million less than
anticipated.

WCCA's Financing On September 29, 1998, WCCA issued bonds with
considerably better terms Plan Covers Estimated than it
anticipated at the time of our last report. Specifically, no
subordinate bonds were issued, the term was 30 years instead of
34, the Costs But Contains interest rate was 5.2 percent instead
of 5.6 percent, and financing and Some Uncertainties

reserve costs were $77.1 million instead of $138.2 million. As of
June 1999, the bond proceeds provided about 66 percent of the $791
million estimated project costs. However, the financing plan
covering the remaining 34 percent of estimated project costs
contains some uncertainties, including the equipment anticipated
to be provided by vendors without initial cost and the federal
grants being provided through the District government. These
uncertainties are discussed after table 2, which compares the
current financing plan with the plan in our prior report. 8

8 GAO/ AIMD/ OCE- 98- 238, July 15, 1998.

Table 2: Comparison of WCCA's May 1998 and June 1999 Unaudited
Financing Plans

Dollars in millions

Funding sources Financing plan as of 5/ 98 a Financing plan as of
6/ 99

Senior lien bonds $487.4 $519.5 Junior/ senior subordinate lien
128.2 0. 0

Subtotal $615.6 $519.5

Dedicated tax collections for pre- construction activities (at
bond issuance) 37.2 37.2 Dedicated tax collections for reserves or
construction (at bond issuance) 72.8 77.3 Estimated construction
fund earnings 62.7 53.1 Projected excess dedicated tax collections
through 2002 0.0 40.0 Anticipated federal funds 35.0 55.0
Anticipated vendor participation 17.7 24.0 b Funds for
administrative costs 5.0 5. 0 c

Subtotal $230.4 $291.6 Total funding sources $846.0 $811.1

Interest rate (percent) 5.6 5. 2 Term of debt (years) 34 30
Dedicated annual taxes to back bonds $44 $50.3 Dedicated taxes
growth assumption (percent) 1 3.6- 4.5 d Average annual debt
service $42.6 $34.9

a Reported in GAO/ AIMD/ OCE- 98- 238, July 15, 1998. b We
adjusted this amount from $25 million to $24 million to agree with
WCCA's cost estimate in table 1. c WCCA reflects funds for the
administrative cost (salaries and wages) of the proposed new
convention center as part of the operating subsidy it receives
through dedicated tax collections for the existing center.

d PriceWaterhouseCoopers in the Final Pricing Information report
dated Sept. 29, 1998, projected dedicated tax growth between 1999
and 2007 to range between 3.6 percent and 4.5 percent. Source:
WCCA officials.

The major differences in funding sources between the two plans are
a $96 million decrease in bond proceeds, a $9 million decrease in
interest earnings, the use of $40 million of dedicated tax
receipts for construction during the 4- year construction period,
and a $20 million increase in anticipated federal funds. The
anticipated federal funds in the June 1999

financing plan were a $25 million appropriation for the Metro
station upgrade, which the Congress appropriated since our last
report, a $10 million grant for utilities relocation from
Community Development

Block Grants (CDBG) funds made available to the District by the U.
S. Department of Housing and Urban Development, and a $20 million
grant in federal highway funds. Although the District informed
WCCA with a letter dated April 19, 1999, that the $10 million CDBG
grant would not be provided, WCCA continues to carry the grant in
its financing plan. The District informed WCCA with a letter dated
July 2, 1999, that at this time it would provide $8.5 million of
the anticipated $20 million in federal highway funds from the
District's Federal- Aid Highway program to help fund the road work
at the convention center. The District has indicated that
additional highway funds may be available for specified aspects of
the road work during future years of the project. While additional
highway funds may be forthcoming at some time

in the future, WCCA is at risk until they become available. If the
remaining anticipated federal funds of $21.5 million 9 do not
materialize, total estimated funding sources would decrease from
$811.1 million to $789.6 million, which is $1.5 million less than
the current $791.1 million estimated project cost.

Collections of Certain District sales and use taxes (dedicated
taxes) are to be transferred Dedicated Taxes to WCCA to construct
and operate the convention center and redeem the

bonds. These taxes consist of a 4.45 percent hotel sales tax and a
1 percent restaurant tax. 10 These taxes, along with several other
District sales and use taxes that are reported on the same tax
form, are collected through what is referred to as a lockbox
arrangement. Under this arrangement, the relevant District
businesses file their tax returns along with their tax payments
directly with a designated local bank (lockbox bank). Any such
payments

received by the District are forwarded directly to the lockbox
bank without further processing. The bank then makes appropriate
distribution of the tax payments.

9 The $21.5 million consists of the $10 million CDBG grant and the
remaining $11.5 million in highway funds. 10 The taxes identified
for WCCA make up a portion of the District's 14.5 percent hotel
sales and use tax and 10 percent tax on restaurant meals,
alcoholic beverages consumed on premises, and rental vehicle
charges.

The purpose of the lockbox is to provide bond holders with
assurance that dedicated taxes for the convention center are
provided to WCCA for use as specified in the bond agreements. The
lockbox arrangement for collecting dedicated taxes for WCCA, as
well as other taxes for the District, operates pursuant to the
provisions of a number of agreements among the parties involved.
The agreements include

 a master trust agreement between WCCA and a trustee bank that is
the depository for the bond proceeds and the dedicated tax
collections,  a memorandum of understanding between WCCA and the
District,  a collections agreement among WCCA, the trustee bank,
the District,

and the lockbox bank, and  a lockbox agreement between the
District and the lockbox bank. In general, the lockbox bank uses
four bank accounts for collecting District sales and use taxes and
making appropriate transfers to the District and WCCA. If the tax
payment agrees with the amount shown on the tax return, the
receipts are deposited in a transfer account. Where there is not
agreement, tax receipts are deposited in an exceptions account.
Funds in the transfer account are transferred to a WCCA- dedicated
account and a

District account in the appropriate amounts through the use of a
computerized program that calculates the amount of the transfers.

Funds in the WCCA- dedicated account are transferred daily to the
trustee bank for use by WCCA as specified in the master trust
agreement. Funds in the exceptions account are held by the lockbox
bank until the District's tax office determines their proper
disposition and provides the lockbox bank with instructions on
appropriate distribution of the funds.

Lockbox Collections in Line Pricing information for the bond
issuance assumed dedicated tax With Projections

collections of $50.3 million annually in depicting debt service
ratios. 11 Tax receipts deposited in WCCA's dedicated account for
the first 10 months of fiscal year 1999 totaled $42.2 million.
This amount is a little higher than the $41.9 million estimate
prorated for the first 10 months of 1999. It is $6.1 million (17
percent) higher than comparable deposits for the first 10 months
of fiscal year 1998.

11 Final Pricing Information, $524, 460, 000 Washington Convention
Center Authority Senior Lien Dedicated Tax Revenue Bonds, Series
1998, September 29, 1998, PaineWebber Incorporated.

Operations of the When the collections agreement covering
dedicated taxes for WCCA

Exceptions Account Have became effective on October 1, 1998, the
District continued to use an Been Problematic

exceptions account that it had been using since early 1997 during
preconstruction on the convention center. At September 30, 1998,
the account had a balance of $55.3 million in exceptions that
needed to be resolved. Amounts continued to accumulate in the
account, and in December 1998, the unresolved balance reached
$70.1 million. The District is responsible for resolving the
problems with tax receipts recorded in the exceptions account and
initiating monthly transfers of the amounts to the District and
WCCA accounts as appropriate. The records indicate that the

accumulation of funds in the account was due to delays in (1)
resolving the exceptions and (2) making transfers out of the
account after the exceptions have been resolved.

Transfers to the District on the To gain access to funds in the
account, beginning in December 1998, the Basis of Estimates

District made estimates of its share of tax receipts in the
account and initiated several transfers to the District account
based on those estimates. From October 1998 through June 1999,
transfers from the exceptions

account to the District were $98.8 million and transfers from the
exceptions account to WCCA were $2.9 million. Of the amounts
transferred to the District, $95.5 million was based on estimates
of the amounts that were due the District. None of the transfers
to WCCA were based on estimates. At June 30, 1999, the balance in
the exceptions account was $14.1 million. As of August 1999, the
District had not reconciled the $95.5 million in transfers made on
the basis of its estimates with actual amounts due and made
appropriate adjustments. A District official told us that the
District

was in the process of reconciling the estimated amounts with
actual amounts due and that additional transfers on the basis of
estimates would not be made.

The collections agreement specifies that the District shall not
have access to amounts in the exceptions account until they are
transferred to the District account. The agreement further
specifies that the District will resolve the amounts in the
exceptions account and initiate transfers out of

the account no less often than monthly. In addition, the District
is to resolve amounts in the exceptions account before any monies
are allocated to either WCCA or the District, according to a
description of the lockbox arrangement in the bond's Final Pricing
Information.

Transfers to WCCA and the The exceptions account should contain
only the unresolved amounts from District Have Not Kept Pace With
prior months plus the current month's exceptions, which average
about

Resolved Exceptions $6 million a month. Summary information on the
exceptions account as of June 1999, prepared by the District's
Office of Tax and Revenue, showed that while the exceptions
account had a balance of $14. 1 million, all but about $1 million
of the funds in the exceptions account had been resolved. Of the
$1 million, about 62 percent dated back to 1997 and 38 percent
back to 1998. District officials told us that they are having
difficulty locating the

documents necessary to allocate the remaining amounts. District
and WCCA officials stated that if these amounts are not resolved
in the near future, they will agree on an appropriate
distribution. District officials indicated that they are now
resolving the exceptions on what is essentially a month- to- month
basis. This means that at June 30, 1999, the exceptions account
included $13.1 million that had been resolved and should have been
distributed to the District and WCCA, as appropriate. A District
official attributed the backlog in making transfers after
exceptions have been resolved to several factors, including the
time required to prepare the necessary paperwork for the
adjustments, obtaining the necessary approvals, and the District's
conversion to a new accounting system.

Interest Earnings on Amounts in At the end of each day, the amount
in the exceptions account is transferred the Exceptions Account
Not into an interest- bearing investment account, and at the
beginning of the Recognized orTransferred

next day, a lump- sum amount including earned interest is
transferred back into the exceptions account. Based on the amounts
transferred out of the exceptions account each afternoon and the
increased amount transferred back into the account the following
morning, we computed that over $1.2 million in interest had been
earned from October 1998 through June 1999. Additional amounts may
have been earned from origination of the account to September
1998. The collections agreement and the memorandum of
understanding between the District and WCCA is silent on the
disposition of such interest. As of June 1999, the District had
not determined the amount of interest

earnings on the exceptions account and transferred appropriate
amounts to WCCA and the District. WCCA and District officials
stated that they would resolve disposition of the interest.

Conclusions Except for an increase in the estimated value of
equipment that WCCA anticipates will be provided by vendors, WCCA
estimates show that the construction cost has remained unchanged
overall. WCCA indicates that

the project is within budget. Financing- related costs have
decreased substantially, resulting in an overall $55 million (6.5
percent) decrease in total estimated project costs. WCCA has made
numerous changes to the estimated costs of the various project
components within the overall estimate by increasing the estimated
cost of some components and decreasing the estimated cost of other
components. Only 4 months into the 4- year construction project,
WCCA offset $16 million in costs against the project contingency,
reducing the contingency for covering unexpected costs to $14
million. As discussed in the report, there are currently several
uncertainties regarding the cost estimates, such as the pending
increases and decreases in GMP.

Dedicated tax receipts under the lockbox arrangement for the first
10 months of fiscal year 1999 were a little higher than the
estimates supporting the bond issuance. These receipts did not
include WCCA's share of taxes in the exceptions account, which has
not been resolved promptly and appropriate amounts transferred to
WCCA. These receipts also do not

include WCCA's share of interest earnings in the account, which
cannot be determined until the District resolves the differences
in the account. Recommendations We recommend that the District's
Chief Financial Officer

 restrict further transfers out of the exceptions account on the
basis of estimates,  determine actual amounts due to the District
and make appropriate adjustments to the estimated amounts
transferred from the exceptions account,

 resolve the remaining older amounts in the exceptions account and
make appropriate transfers to the District and WCCA,  establish
and enforce procedures for clearing the exceptions account

and transferring funds to the appropriate accounts monthly, and
determine interest income on the exceptions account to be
allocated to the District and WCCA, make appropriate transfers of
the interest previously earned, and make future transfers of
interest no less often

than monthly.

District's Comments The District agreed with all five
recommendations with the exception of and Our Evaluation the
timing of transfers of interest earnings on the exceptions account
to the District and WCCA. We reaffirm our recommendation that from
a business perspective, it would be prudent to transfer such
amounts at least monthly. The underlying premise of an exceptions
account is that it is a temporary

account and that amounts resolved and accrued interest should be
transferred promptly. The timely transfer of these amounts would
provide access to these funds for the District which is due the
vast majority as well as WCCA. WCCA, in general, agreed with the
report's contents and provided additional information on some
matters discussed in the report. We are sending copies of this
report to Senator Robert Byrd, Senator Richard J. Durbin, Senator
Kay Bailey Hutchison, Senator Joseph I. Lieberman, Senator Ted
Stevens, Senator Fred Thompson, and Senator George V. Voinovich
and to Representative Dan Burton, Representative Ernest Jim Istook
Jr., Representative James P. Moran, Delegate Eleanor Holmes
Norton, Representative David R. Obey, Representative Henry

Waxman, and Representative C. W. (Bill) Young in their capacities
as Chair or Ranking Minority Member of Senate and House Committees
and Subcommittees. Copies will be made available to others upon
request. If you have any questions regarding this report, please
contact me at (202) 512- 4476. Key contributors to this assignment
were Arkelga Braxton, Steven Haughton, and Roy Hutchens.

Sincerely yours, Gloria L. Jarmon Director, Health, Education, and
Human Services Accounting and Financial Management Issues

Appendi I x Comments From the District of Columbia

Comments From the Washington Convention Appendi I I x Center
Authority

(916262) Let t er

GAO United States General Accounting Office

Page 1 GAO/AIMD-99-258 Status of New Convention Center Project
United States General Accounting Office

Washington, D. C. 20548

B-280908 Page 2 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 3 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 4 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 5 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 6 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 7 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 8 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 9 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 10 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 11 GAO/AIMD-99-258 Status of New Convention Center
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B-280908 Page 12 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 13 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 14 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 15 GAO/AIMD-99-258 Status of New Convention Center
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B-280908 Page 16 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 17 GAO/AIMD-99-258 Status of New Convention Center
Project

B-280908 Page 18 GAO/AIMD-99-258 Status of New Convention Center
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Page 19 GAO/AIMD-99-258 Status of New Convention Center Project

Page 20 GAO/AIMD-99-258 Status of New Convention Center Project

Appendix I

Appendix I Comments From the District of Columbia

Page 21 GAO/AIMD-99-258 Status of New Convention Center Project

Page 22 GAO/AIMD-99-258 Status of New Convention Center Project

Appendix II

Appendix II Comments From the Washington Convention Center
Authority

Page 23 GAO/AIMD-99-258 Status of New Convention Center Project

Appendix II Comments From the Washington Convention Center
Authority

Page 24 GAO/AIMD-99-258 Status of New Convention Center Project

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