	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. Predevelopment Project Costs

Since our last report, predevelopment cost estimates have increased from $55.8 million to about $58.5 million, or by a net amount of $2.7 million (4.8 percent). 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. 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. 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. According to DCALP, subcontractors had to pay additional premium labor rates to get back on schedule, and additional materials were also required. 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. Dedicated Tax Revenue Collections and Other Revenues

As of September 30, 1997, collections for the 1997 Arena Tax had totaled about $9 million and were sufficient to meet 1997 principal and interest payments (about $5.9 million annually) on the bonds issued to finance the predevelopment expenses. 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 District’s lead underwriter on the Sports Arena Special Tax Revenue Bonds has performed an analysis 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. 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.
Why GAO Did This Study

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

What GAO Found

GAO noted that: (1) as of October 7, 1997, the District of Columbia estimated total predevelopment expenditures to be about $58.5 million, a net increase of about $2.7 million over its October 18, 1996, estimate; (2) the increase is largely attributed to the extended time frames for soil remediation efforts, which in turn compressed construction schedules; (3) 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; (4) the District's $61.9 million in available funds for predevelopment costs for the sports arena appears to be sufficient to meet estimated expenditures; (5) as of October 7, 1997, almost all 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; (6) the only known potential risk to the sports arena budget is the price for property taken in a condemnation action, which is to be settled through court action scheduled for December 1997; (7) 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; (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 two years, collections have exceeded $9 million, and it appears that 1997 collections will also exceed $9 million; (10) 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 reserves funds were used, the bonds could be paid off by 2002, well before the last scheduled maturity date in 2010; (11) the analysis also revealed that the District would save about $15.6 million in interest costs if the bonds were redeemed in 2002; and (12) 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.