oversight

District of Columbia: Status of the Sports Arena

Published by the Government Accountability Office on 1997-11-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              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
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Accounting and Information
                   Management Division

                   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 sixth1
                   on this issue, discusses the project’s predevelopment costs, revenue
                   collections, and construction status.


                   As of October 7, 1997, the District estimated total predevelopment
Results in Brief   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.

                   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).



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                 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.


                 The District of Columbia government, acting through the Mayor, the
Background       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 Wizards3 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;


                 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.



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•   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 million9 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

    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.



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                     $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.


                     Our objectives were to determine the status of the sports arena project’s
Objectives, Scope,   (1) predevelopment costs, (2) revenue collections, and (3) construction
and Methodology      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
                     taxes10 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


                     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.



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                 and we conducted our review from February 1997 through October 1997 in
                 accordance with generally accepted government auditing standards.


                 Since our last report,12 predevelopment cost estimates have increased
Predevelopment   from $55.8 million to about $58.5 million, or by a net amount of
Project Costs    $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.




                 12
                    Status of the Sports Arena (GAO/AIMD-97-19, December 31, 1996), which reported predevelopment
                 cost estimates as of October 18, 1996.



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Table 1: The District of Columbia’s Predevelopment Activities Financed for the Sports Arena Project
(Dollars in thousands)
                                                                                                          Increase (decrease)
                                                                                                                        since
                                                               Budget as of       Expendituresa as of       October 18, 1996,
Predevelopment activities                                   October 18, 1996         October 7, 1997                  budget
Land acquisition
Appraisal/purchase price                                            $34,268                  $34,268b                     $0
Appraisal fee                                                             50                          0                   (50)
  Total                                                             $34,318                  $34,268                    ($50)
Metrorail connection
Construction costs                                                  $19,360                  $19,000                   ($360)
Less: Capital Assistance Grant (after $3 million District
cost)                                                                (12,000)                 (12,000)                      0
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 consultants                                    70                          2                   (68)
Leasehold improvements                                                 1,344                    1,006                   (338)
Furniture and equipment move                                            638                      546                      (92)
Telecommunication equipment move                                        875                      623                    (252)
  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                  4,745c
Less: Far East Trade Center Associates, L.P.
contribution for soil remediation                                       (569)                    (569)                      0
Utility relocation                                                     2,770                    3,379                    609
Business relocation                                                       25                          0                   (25)
Legal, environmental, and consultant fees                              2,533                    2,693                    160
D.C. Sports Commission reimbursement                                    302                      324                      22
  Total                                                               $9,582                 $15,009                  $5,427
                                                                                                                  (continued)




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(Dollars in thousands)
                                                                                                                      Increase (decrease)
                                                                                                                                    since
                                                              Budget as of             Expendituresa as of              October 18, 1996,
Predevelopment activities                                  October 18, 1996               October 7, 1997                         budget
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 increases                                    $2,750                                0                       ($2,750)
Total costs financed by the District                                   $55,814                        $58,551                         $2,737

                                       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.




Land Acquisition                       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                   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



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                       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   As shown in table 1, expenditures for building demolition, soil
Related Activities     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

                       13
                         See footnote 1 of this report.



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                          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 land14 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.


Relocation of District    The activities related to the relocation of District employees are almost
Employees                 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   Table 2 shows total receipts of about $61.9 million available as of
Predevelopment Costs      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

                          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.



                          Page 9                                                                  GAO/AIMD-98-26 Sports Arena
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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.




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Table 2: Predevelopment Funds for the
Sports Arena Project as of              Sources of Receipts
September 30, 1997                      Net proceeds from bond salea                                                                $57,436,001
                                        Less: Mandatory debt service reserve                                                         (5,995,000)
                                        1995 Dedicated Arena Tax collectionsb                                                         9,149,036
                                             Total funds for predevelopment
                                             expenses                                                                               $60,590,037
                                        Interest earned on funds held in trust
                                             Interest earned on bank loan fundsc                           376,265
                                                                                 d
                                             Interest earned on project funds                              400,905
                                             Interest earned on capital reserve
                                             fundse                                                        424,842
                                             Interest earned on Metrorail fundsf                             91,606
                                        Total interest earned                                                                        $1,293,618
                                        Funds Received from D.C. Department of
                                        Administrative Services                                                                         371,530
                                        Less: Allowable project expenses to be
                                        refunded to the District’s General Fund                                                        (371,530)
                                        Total funds available for
                                        predevelopment expenses                                                                     $61,883,655
                                        Less: Expenditures as of 10/7/97 (see
                                        table 1)                                                                                    (58,551,000)
                                        Total predevelopment funds still
                                        available                                                                                    $3,332,655
                                        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.




                                        As of September 30, 1997, collections for the 1997 Arena Tax had totaled
Dedicated Tax                           about $9 million and were sufficient to meet 1997 principal and interest
Revenue Collections                     payments (about $5.9 million annually) on the bonds issued to finance the
and Other Revenues                      predevelopment expenses. The District forecasts Arena Tax collections of
                                        $9 million for each year that the bonds are outstanding. For 1995 and 1996,



                                        Page 11                                                               GAO/AIMD-98-26 Sports Arena
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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
fund16 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

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.



Page 12                                                              GAO/AIMD-98-26 Sports Arena
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                      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 analysis18 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.


                      According to the Chief Operating Officer of DCALP, the arena is scheduled
Construction Status   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.


                      We requested comments on a draft of this letter from the Mayor of the
District’s Comments   District of Columbia. The Mayor provided us with comments that are
and Our Evaluation    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.

                      18
                       “District of Columbia Redevelopment Land Agency Sports Arena Special Tax Revenue Bonds
                      Summary Transaction,” prepared by Merrill Lynch on January 9, 1996.



                      Page 13                                                        GAO/AIMD-98-26 Sports Arena
B-275392




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




Page 14                                           GAO/AIMD-98-26 Sports Arena
Page 15   GAO/AIMD-98-26 Sports Arena
Appendix I

Comments From the District of Columbia


Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




See comment 1.




                             Page 16   GAO/AIMD-98-26 Sports Arena
              Appendix I
              Comments From the District of Columbia




              The following is GAO’s comment on the letter from the Mayor of the
              District of Columbia dated November 7, 1997.


              1. The Mayor’s assumption is correct. Table 1 contains both budget
GAO Comment   obligation and expenditure amounts.




              Page 17                                          GAO/AIMD-98-26 Sports Arena
Appendix I

Major Contributors to This Report


                       Hodge Herry, Assistant Director
Accounting and         Barbara Shields, Audit Manager
Information            Lou Fernheimer, Senior Evaluator
Management Division,
Washington, D.C.
                       Richard T. Cambosos, Senior Attorney
Office of General
Counsel




(901735)               Page 18                                GAO/AIMD-98-26 Sports Arena
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