District of Columbia: Status of the New Convention Center Project
(Testimony, 07/15/98, GAO/T-AIMD/OCE-98-239).

Pursuant to a congressional request, GAO discussed the results of its
review of the Washington Convention Center Authority's (WCCA) efforts to
arrange for financing and constructing of a new convention center in the
District of Columbia, focusing on: (1) the estimated cost of this
project, including the guaranteed maximum price (GMP) for constructing
the new convention center, and the risk exposure for both the contractor
and the District; (2) the financing plan, including proposed changes to
the revenue base, history of dedicated tax collections, projections for
future revenues, and sufficiency to cover the GMP and other project
costs; and (3) information on the site selection process, including
WCCA's analysis of alternative sites, particularly the Northeast No. 1
site.

GAO noted that: (1) WCCA is proceeding with efforts to build a new
convention center at Mount Vernon Square at a cost WCCA officials
estimate to be $650 million; (2) GAO's latest review of the project
identified an additional $58 million in project costs which--because
WCCA expects these costs to be funded through federal grants or moved
into operating costs--are not included in WCCA's total project costs;
(3) these costs raise the project's cost estimate to $708 million,
excluding reserve requirements and financing costs of $138 million; (4)
while WCCA has maintained a $650 million budget, a number of changes
have been made among the budget components, with some components
increasing and some decreasing; (5) the majority of the estimated
project costs are covered in a $500.6 million GMP for construction; (6)
the GMP lays out 22 different cost components and sets limits on
financial risks to the construction manager; (7) areas of risk are not
included in the $500.6 million price; (8) the total contingency for the
project is down from $75.9 million to $40 million; (9) WCCA's financing
plan to cover predevelopment, construction, reserves, and operation of
the convention center calls for about $846 million; (10) 73 percent of
the funds needed to finance the project are expected to be derived from
revenue bonds supported by dedicated taxes; (11) WCCA received $44
million in dedicated taxes in 1997, and WCCA has projected collections
to increase at 1 percent a year over the next several years; (12) the
financing plan assumes a lower interest rate, an increase in the annual
dedicated tax revenues to support the bond financing, and an increase in
the terms of the bonds from 30 to 34 years; (13) these changes would
allow WCCA to borrow more money to finance the project; (14) risks
associated with the financing package could affect the rating of the
bonds and accordingly, the interest rate; (15) the site selection
process for the convention center has a long history and numerous
studies over the years have consistently identified Mount Vernon Square
as a preferred site; and (16) WCCA's most recent analysis of the
Northeast No. 1 site indicates that costs would be higher and would
likely result in opening the convention center at a much later date than
estimated for the Mount Vernon Square site.

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

 REPORTNUM:  T-AIMD/OCE-98-239
     TITLE:  District of Columbia: Status of the New Convention Center 
             Project
      DATE:  07/15/98
   SUBJECT:  Convention facilities
             Facility construction
             Financial analysis
             Cost analysis
             Future budget projections
             Municipal taxes
             Construction costs
             Municipal bonds
             Site selection
IDENTIFIER:  Washington (DC)
             
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Cover
================================================================ COVER


Before the Subcommittee on the District of Columbia, Committee on
Government Reform and Oversight, House of Representatives

For Release on Delivery
Expected at
11 a.m.
Wednesday,
July 15, 1998

DISTRICT OF COLUMBIA - STATUS OF
THE NEW CONVENTION CENTER PROJECT

Statement of Gloria L.  Jarmon
Director, Health, Education, and Human Services Accounting and
Financial Management Issues
Accounting and Information Management Division

GAO/T-AIMD/OCE-98-239

GAO/AIMD/OCE-98-239T


(916259)


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

  GMP -
  WCCA -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss the results of our review
of the Washington Convention Center Authority's (WCCA) efforts to
arrange for financing and constructing of a new convention center in
the District of Columbia.  My statement highlights the information we
obtained on the following two points that you requested: 

  -- The estimated cost of this project, including the Guaranteed
     Maximum Price (GMP) for constructing the new convention center,
     and the risk exposure for both the contractor and the District. 

  -- The Financing Plan, including proposed changes to the revenue
     base, history of dedicated tax collections, projections for
     future revenues, and sufficiency to cover the GMP and other
     project costs. 

You also asked us to provide background information on the site
selection process, including WCCA's analysis of alternative sites,
particularly the Northeast No.  1 site.  These issues are discussed
in greater detail in our report, which is being issued today to the
Subcommittee.\1


--------------------
\1 District of Columbia:  Status of the New Convention Center Project
(GAO/AIMD/OCE-98-238, July 15, 1998). 


   ESTIMATED PROJECT COSTS HAVE
   INCREASED
---------------------------------------------------------- Chapter 0:1

WCCA is proceeding with efforts to build a new convention center at
Mount Vernon Square at a cost WCCA officials estimate to be $650
million.  This estimate has not changed since we reported on this
project in September 1997.  However, our latest review of the project
identified an additional $58 million in project costs which--because
WCCA expects these costs to be funded through federal grants or moved
into operating costs--are not included in WCCA's total project costs. 
These costs raise the project's cost estimate to $708 million,
excluding reserve requirements and financing costs of $138 million. 

Table 1 compares current cost estimates with the estimates included
in our September 1997 report.  As of May 31, 1998, WCCA had spent
about $27 million, primarily for contractual services. 



                                Table 1
                
                   Total Estimated Costs for the New
                           Convention Center

                         (Dollars in thousands)

                               Estimate as   Estimate as
                                 of 05/31/     of 06/19/      Increase
Project component                     97\a          98\b    (decrease)
----------------------------  ------------  ------------  ------------
Building and site/GMP             $417,500      $500,600       $83,100

Other costs
----------------------------------------------------------------------
Total predevelopment costs          39,912        79,424        39,512
Fixtures/furnishings/               40,000        22,305      (17,695)
 equipment
Soil remediation and                11,000         5,000       (6,000)
 hazardous
 materials removal
Section 106 mitigation costs         7,600        12,671         5,071
Metro station upgrade               22,300             0      (22,300)
Other construction costs            35,814             0      (35,814)
Project contingency                 75,874        30,000      (45,874)
======================================================================
Subtotal WCCA project budget      $650,000      $650,000            $0

Additions to WCCA project budget
----------------------------------------------------------------------
Vendor provided equipment                         17,695        17,695
Portion of utilities                              10,000        10,000
 relocation not
 included in building and
 site
Metro station upgrade                             25,000        25,000
Project administrative costs                       5,000         5,000
======================================================================
Total additions to WCCA                          $57,695       $57,695
 budget
Estimated project costs           $650,000      $707,695       $57,695

Financing related costs
----------------------------------------------------------------------
Bond issuance                       12,200        11,827         (373)
Reserve funds                       75,100       126,399        51,299
======================================================================
Total financing related            $87,300      $138,226       $50,926
 costs
======================================================================
Total estimated project           $737,300      $845,921      $108,621
 costs
----------------------------------------------------------------------
\a District of Columbia:  Status of the Proposed New Convention
Center Project (GAO/AIMD-97-148, September 25, 1997). 

\b District of Columbia:  Status of the New Convention Center Project
(GAO/AIMD/OCE-98-238, July 15, 1998). 

Source:  WCCA. 

While WCCA has maintained a $650 million budget, a number of changes
have been made among the budget components, with some components
increasing and some decreasing.  The following estimated project
costs, when added to WCCA's $650 million budget, results in total
estimated project costs of $708 million: 

  -- Portion of utilities' relocation costs that are not included in
     the building and site costs for which WCCA anticipates $10
     million of federal funding. 

  -- Metro station upgrade for which WCCA anticipates $25 million of
     federal funding. 

  -- Anticipated vendor-provided equipment of about $17.7 million. 

  -- Project administrative costs of $5 million, which have not been
     shown in the budget. 

As part of the prospective financing arrangements, some of the
reserves have been increased and others established for a
strengthened financial arrangement for an overall increase of $51
million. 

Currently, the majority of the estimated project costs are covered in
a $500.6 million GMP for construction, which WCCA is in the process
of negotiating with the construction manager, Clark/Smoot, with the
goal of minimizing risks to WCCA and taxpayers.  The GMP, which is a
proposed amendment to the construction management contract, lays out
22 different cost components and sets limits on financial risks to
the construction manager.  Practically speaking, the GMP is only a
guaranteed maximum price if the underlying assumptions on which the
contractor bid the job do not change.  Further, areas of risk--such
as the removal of hazardous materials and remediation of any unknown
subsurface conditions--are not included in the $500.6 million price. 
An estimated $207 million in other project-related activities will be
or have been contracted for separately.  The total contingency for
the project is down from $75.9 million to $40 million, which is about
8 percent of the building and site costs. 

Table 2 shows the components of the GMP.  Site work, concrete, and
steel account for $233 million, which is 47 percent of the GMP. 
Mechanical and fire protection, electrical and security, and design
allowances\2 account for $117 million, which is 23 percent. 



                                Table 2
                
                     Proposed Components of the GMP

                         (Dollars in thousands)

Component                                                       Amount
------------------------------------------------------------  --------
General conditions/requirements                                $26,500
Utilities relocation                                             6,500
Site work                                                       50,500
Concrete                                                        50,500
Masonry                                                         16,500
Steel/metals                                                   132,000
Carpentry                                                        1,000
Moisture protection                                             17,000
Fenestrations                                                   17,000
Finishes                                                        29,000
Specialties                                                      4,000
Loading dock equipment                                              79
Window treatment                                                   400
Conveyances                                                      8,800
Mechanical and fire protection                                  45,000
Electrical work and security                                    36,700
Design allowances                                               35,113
Construction contingency                                        10,000
Insurance                                                          808
Performance and payment bonds                                    3,400
Pre-construction fee                                               300
Construction management fee                                      9,500
======================================================================
Total GMP                                                     $500,600
----------------------------------------------------------------------
Source:  WCCA. 


--------------------
\2 The design allowance covers a number of relatively small items,
such as light fixtures, site and street lighting, signage, various
finishes, etc. 


   NEW FINANCING PLAN SUPPORTS
   INCREASED DEBT
---------------------------------------------------------- Chapter 0:2

WCCA's current financing plan to cover predevelopment, construction,
reserves, and operation of the convention center calls for about $846
million.  Seventy-three percent of the funds needed to finance the
project are expected to be derived from revenue bonds supported by
dedicated taxes.  Changes from the previous financing plan include
increasing the term of the bonds as well as the dedicated taxes to
allow WCCA to borrow more money for the project. 

WCCA received $44 million in dedicated taxes in 1997, and WCCA has
projected collections to increase at 1 percent a year over the next
several years.  These projections are conservative relative to
estimates by management consultants and the District and to our
evaluation of trends in tax collections and the national and local
economic outlook.  These and other factors will be looked at by
WCCA's consultants, rating agencies, and bond insurers who will
evaluate the financing package and determine its ability to cover the
GMP and other project costs. 

Table 3 shows the May 1997\3 and the current (May 1998) financing
plans.  Since May 1997, WCCA has proposed several changes to its
financing plan.  As the table indicates, the current financing plan
assumes a lower interest rate, an increase\4 in the annual dedicated
tax revenues to support the bond financing, and an increase in the
term of the bonds from 30 to 34 years.  These changes would allow
WCCA to borrow more money to finance the project.  In addition, since
the amount of cash available from dedicated taxes and bond proceeds
has increased, the amount estimated for construction fund earnings
has also increased from the original plan.  Finally, the current
financing plan includes funding for financing costs and reserve
requirements. 



                                Table 3
                
                   Comparison of Financing Plans for
                     Proposed New Convention Center

                         (Dollars in millions)

                                                 Financing   Financing
                                                plan as of  plan as of
Funding sources                                       5/97        5/98
----------------------------------------------  ----------  ----------
Senior lien bonds                                     $343      $487.4
Junior/senior subordinate lien                         $80      $128.2
======================================================================
Subtotal                                              $423      $615.6
Cash for reserves                                      $30       $72.8
Construction fund earnings                             $51       $62.7
Cash for preconstruction activities                    $40     $37.2\a
Federal funds                                            0         $35
Vendor participation                                     0         $18
Funds for administrative costs                           0        $5\b
======================================================================
Subtotal                                              $544        $846
======================================================================
Total funding required                              $650\c        $846
Estimated shortfall                                 ($106)           0
Interest rate                                       6.3%\d      5.6%\e
Term of debt                                            30          34
Dedicated annual revenues to back bonds              $27.5         $44
Revenue growth assumption                               1%          1%
Avg. annual debt service                             $26.0       $42.6
----------------------------------------------------------------------
\a This money reflects dedicated tax collections available, of which
about $27 million had already been spent on predevelopment activities
as of May 31, 1998. 

\b WCCA reflects funds for administrative costs (salaries and wages)
of the proposed new convention center as part of the operating
subsidy it receives through dedicated tax collection for the existing
center. 

\c The $650 million did not include WCCA's preliminary estimate of
$87.3 million needed for financing costs and reserve requirements. 

\d The interest rate was based on prevailing interest rates as of May
21, 1997, and a projected bond issuance date of October 1997. 

\e The interest rate was based on prevailing interest rates as of May
6, 1998, and a projected bond issuance date of July 1, 1998. 

Source:  WCCA. 

Obviously, risks associated with the financing package could affect
the rating of the bonds and accordingly, the interest rate.  Among
the major unknowns at this juncture are a WCCA assumption that the
Congress will approve $35 million in federal funding to cover
relocating utilities and upgrading the Mount Vernon Square Metro
station.  In addition, although WCCA plans to address an $18 million
reduction in its construction budget by negotiating arrangements with
vendors to provide equipment and services, such as a heating and
cooling plant, and communications and food services equipment, to
date there are no executed contracts to cover these arrangements. 


--------------------
\3 This financing plan was developed in May 1997 and was discussed in
our 1997 report, District of Columbia:  Status of the Proposed New
Convention Center Project (GAO/AIMD-97-148, September 25, 1997). 

\4 Based on the Washington Convention Center Authority Act of 1998,
WCCA will now use the existing convention center's operating subsidy
($5.6 million) and the subsidy ($5.2 million) to the Washington
Convention and Visitors Association, the Mayor's Committee to Promote
Washington, and the D.C.  Chamber of Commerce to support the bond
financing. 


   SITE SELECTION PROCESS HAS LONG
   HISTORY
---------------------------------------------------------- Chapter 0:3

The site selection process for the convention center has a long
history and numerous studies over the years have consistently
identified Mount Vernon Square\5 as a preferred site.  WCCA and its
predecessors in the District government have repeatedly determined
that Mount Vernon Square is a more viable location for a convention
center than the other sites, including the Northeast No.  1 site.\6
WCCA's most recent analysis of the Northeast site indicates that
costs would be higher and would likely result in opening the
convention center at a much later date than estimated for the Mount
Vernon Square site. 


--------------------
\5 Located in the blocks between 7th and 9th Streets, N.W., and N
Street and Mount Vernon Place, N.W. 

\6 An area bordered by K Street, 1st Street, N.E., New York Avenue,
Florida Avenue, and the railroad tracks. 


-------------------------------------------------------- Chapter 0:3.1

Mr.  Chairman, this concludes my statement.  I will be happy to
answer any questions that you or Members of the Subcommittee may
have. 

*** End of document. ***