The Washington Convention Center Authority Act of 1994 (1994 Act) authorizes WCCA to construct, maintain, and operate the new convention center, as well as maintain and operate the existing convention center. The current master plan calls for constructing a new convention center at Mount Vernon Square, the legislatively preferred site, located at Ninth Street and Mount Vernon Place, Northwest. We also identified project cost components not included in the GMP and who would be responsible for those costs. We reviewed historical information on studies performed on alternative site consideration by the District and independent consultants and WCCA’s comparative analysis of costs to construct the new convention center at the Mount Vernon Square site and the alternative Northeast No. We requested comments on a draft of this report from WCCA and the District of Columbia Government. Table 1 compares current cost estimates with the estimates included in our September 1997 report. Project costs increased $58 million, from $650 million to $708 million, and nonconstruction reserves have increased the financing-related costs by about $51 million, from $87 million to $138 million for a current total funding requirement of $846 million. Risks External to the GMP

In addition to the potential for incurring building and site costs in excess of the GMP amount, WCCA is responsible for the remaining project costs that are not covered by the GMP, which are noted in table 1. WCCA has reduced the project costs for the fixtures, furnishings, and equipment component by about $17.7 million in anticipation of negotiating arrangements with vendors to provide certain equipment and services, such as a heating and cooling plant, communications, and food services equipment. According to WCCA officials, this arrangement has been done at other convention centers. Contingency to Cover Project Risks

The project budget includes two contingency amounts: (1) a $10 million construction contingency contained in the GMP earmarked for cost increases that are the responsibility of the construction manager and (2) a $30 million project contingency earmarked for cost increases both inside and outside the GMP for which WCCA is responsible. About $616 million, or 73 percent, is expected to be derived from revenue bonds supported by dedicated taxes. Assuming the estimated project costs are substantially accurate, the financing plan projections, including the projected growth in dedicated tax revenues, seem reasonable; however, until the federal funding is approved in an adopted 1999 budget, and until WCCA signs contracts with vendors, there is a risk to the financing plan of about $53 million. Since May 1997, WCCA has proposed several changes to its financing plan. These changes would allow WCCA to borrow more money to finance the project. Framework for Evaluating Dedicated Tax Financing

Since the majority (73 percent) of the funds to finance the project are expected to come from bonds supported by dedicated taxes, our review of the financing plan considers some of the key factors rating agencies use to rate dedicated tax financing for convention center projects: (1) breadth of the tax base, (2) historical performance of the revenue stream, (3) the underlying strength of the economy, and (4) the absence of legislative risk. This contrasts with a decline of an average annual rate of over 2 percent per year during the previous 3 years. If these grants are not received, WCCA’s $30 million project contingency outside of the GMP would not be sufficient to cover these estimated costs. WCCA’s financing plan includes $110 million from dedicated tax collections. The bond proceeds would be deposited in a construction fund. Reserve Requirements. Copies will be made available to others upon request.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Washington Convention Center Authority's (WCCA) efforts to arrange for financing and constructing a new convention center in the District of Columbia, focusing on the: (1) 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; and (2) 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.

What GAO Found

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) this estimate has not changed since GAO reported on this project in September 1997; (3) however, GAO's latest review of the project identified an additional $58 million in project costs which--because WCCA expects them to be funded through federal grants or moved into future operating costs--are not included in WCCA's total project costs; (4) these costs raise the project's cost estimate to $708 million, excluding reserve requirements and financing costs of $138 million; (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, Clark/Smoot; (7) areas of risk are not included in the $500.6-million price; (8) an estimated $207 million in other project-related activities will be or have been contracted for separately; (9) WCCA's current financing plan to cover predevelopment, construction, reserves and operation of the convention center calls for about $846 million; (10) seventy-three percent of the funds needed to finance the project are expected to be derived from revenue bonds supported by dedicated taxes; (11) 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; (12) WCCA received $44 million in dedicated taxes in 1997, and WCCA has projected collections to increase at 1 percent per year over the next several years; (13) 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; (14) risks associated with the financing package could affect the rating of the bonds and accordingly, the interest rate; (15) although WCCA plans to address an $18-million reduction in its construction budget by negotiating arrangements with vendors to provide equipment and services, to date there are no executed contracts to cover these arrangements; and (16) the site selection process for the convention center has a long history and numerous studies have consistently identified Mount Vernon Square a preferred site.