	Background

The District of Columbia government, acting through the Mayor, the District’s Redevelopment Land Agency (RLA), and the District of Columbia Arena, L.P. (DCALP)—a limited partnership formed by the owner of the Washington Wizards 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. To initially finance the predevelopment costs of the sports arena, $2.5 million was advanced by the District’s Sports Commission. Predevelopment Project Costs Have Increased

Since our last report, predevelopment costs have increased from $58.6 million to about $61.5 million, which is a net amount of $2.9 million (5 percent). The District has completed almost all of its predevelopment activities and has spent $60 million, about 98 percent, of the estimated total expenditures. Table 1 shows the District’s total predevelopment activities financed for the sports arena project. The District’s project manager for the sports arena is still including in the expenditures an estimated $700,000 for the removal of concrete structures below the surface and contaminated soil on a parcel of land transferred to WMATA. The District’s Office of Corporation Counsel is actively pursuing its legal options for recouping the District’s cost for soil remediation and other related costs for the arena site. Through April 30, 1998, the District had earned about $1.5 million in interest from the funds available to pay predevelopment costs. As of June 30, 1998, the funds had not yet been returned to the District’s General Fund. Dedicated Tax Revenue Collections Have Exceeded Projections

As of April 30, 1998, collections for the 1997 Arena Tax had totaled about $9.6 million, about the same as the 1995 and 1996 collections of $9.3 million and $9.6 million, respectively. These funds were sufficient to meet 1997 principal and interest payments (about $5.9 million annually) on the bonds issued to finance the predevelopment expenses. Taxes Collected Allow Early Redemption of Bonds

Our analysis shows that if the present level of Arena Tax collections continue into the future, 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 sports arena bonds could be paid off in 2002, well before the 2010 maturity date of the longest term bonds. Approximately $5.7 million had been paid in interest and $6 million of the serial bonds and $2.5 million of the term bonds had been redeemed. This scenario would save about $16.4 million in interest payments (see table 4). This missed opportunity to redeem term bonds prior to their maturity date could have caused the District to incur additional interest expense for that period.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the progress of the sports arena project in the District of Columbia, focusing on the project's predevelopment costs, revenue collections, and bond redemption status.

What GAO Found

GAO noted that: (1) the District has spent $60 million, about 98 percent of the estimated total cost of predevelopment activities, for the sports arena; (2) as of April 30, 1998, the District estimated total predevelopment costs to be about $61.5 million, a net increase of about $2.9 million over its October 7, 1997, estimate, as reported in GAO's November 1997 report; (3) the increase is largely due to the final agreed upon price the District paid for a parcel of land included in the arena site; (4) the only known expense not under contract or agreement is the District cost for soil remediation and the removal of concrete structures below the surface for a parcel of land transferred to the Washington Metropolitan Area Transit Authority; (5) the District's project manager for the sports arena has budgeted $700,000 for this activity, which is included in the total estimated cost; (6) the District's $5 million in remaining available funds for predevelopment costs for the sports arena appears to be sufficient to meet all estimated remaining expenditures; (7) as of April 30, 1998, the District had spent about $60 million and an additional $1.5 million was budgeted for the remaining predevelopment activities that will soon be completed, leaving approximately $3.5 million to pay unanticipated expenses or to redeem term bonds prior to their redemption dates; (8) collections from the dedicated arena tax have been more than sufficient to pay principal and interest of about $5.9 million annually on the bonds issued to finance the predevelopment expenses; (9) for each of the past 3 years, collections have exceeded the $9 million originally forecasted by the District, totalling about $1.6 million more than the District's forecast for the 3-year period; (10) as of April 30, 1998, the District had redeemed $6 million of the serial bonds and $2.5 million of the term bonds issued to finance the predevelopment expenses prior to their maturity date; (11) GAO's analysis shows that if the present level of collections are sustained, and revenues from the ground lease of the sports arena and the existing debt service reserve funds are used, all of the arena bonds would be paid by 2002, about 8 years before the 2010 maturity date; and (12) this redemption schedule would save the District about $16.4 million in interest costs, and allow about $7.7 million to be transferred to the District's General Fund.