Predevelopment Project Costs

As of October 18, 1996, estimated predevelopment costs had increased from about $55.2 million to about $55.8 million or by a net amount of about $617,000 (1 percent), since our last report. All land has been acquired for the arena site. However, the final cost for one of the parcels of land acquired will be determined by the outcome of legal proceedings. Construction of the Metrorail connection is about 25 percent complete as of October 18, 1996. All District employees have been relocated; however, office improvements on the new space have not been completed. Finally, the two old buildings have been demolished and relocating utilities and securing regulatory approvals are nearly complete as of October 18, 1996. The District’s Project Manager for the sports arena stated that based on the project’s current status and known estimates for predevelopment costs, as of September 30, 1996, the District does not expect to exhaust the $5 million capital reserve fund established to cover cost overruns. The District’s projections of Arena Tax revenues at the current level of $9 million annually appear sufficient to redeem the bonds by the year 2002.

	Financing Predevelopment Costs

In August 1995, the District secured a $53 million loan commitment from a syndicate of banks led by NationsBank and Crestar Bank to finance predevelopment costs for the arena project. The funds originally available to pay the arena’s predevelopment costs and establish a debt service reserve totaled $66.6 million. The make up of these funds consisted of (1) $57.4 million in net bond proceeds (after financing costs) from the sale of RLA Revenue Bonds in January 1996 and (2) $9.3million in 1995 tax collections from the dedicated Sports Arena Tax. Of the $66.6 million available, $11 million is held in reserve in two parts. In addition, a $6 million reserve was established for debt service. DCALP stated that the arena should open in late 1997.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the District of Columbia's sports arena project, focusing on the: (1) project's predevelopment costs, revenue collections, and financing; (2) interest rates received on the arena bonds; and (3) construction status.

What GAO Found

GAO found that: (1) as of October 18, 1996, while the estimated predevelopment costs for most cost categories for the arena had somewhat changed, overall estimated predevelopment costs increased by a net amount of $617,000 or approximately 1 percent, from about $55.2 million to about $55.8 million, since GAO's last report; (2) the District had $66.6 million available to fund its predevelopment activities and establish a debt service reserve for the arena project; (3) this amount consisted of $57.4 million in net bond proceeds (after financing costs) and $9.2 million in 1995 revenue tax collections from the dedicated Arena Tax; (4) of the $66.6 million, $11 million is held in reserve ($5 million for cost overruns and $6 million for debt service); (5) based on estimates as of October 18, 1996, the District had sufficient funds to pay predevelopment costs; (6) the bond trustee has made the 1996 debt service payment of about $5.9 million on arena bonds, and the District's projections of Arena Tax revenues of $9 million annually appear sufficient to redeem the bonds by the year 2002 as scheduled; (7) arena predevelopment activities are nearing completion; (8) all land has been acquired; however, the final cost of the parcel of land acquired through condemnation proceedings will be determined by the outcome of legal proceedings; (9) the buildings formerly on the arena site have been demolished and the relocation of utilities and the securing of regulatory approvals are nearly complete; (10) District employees have been relocated and office improvements are underway; (11) construction of the Metrorail connection is about 25 percent complete; and (12) arena construction began on February 18, 1996, and the arena should open in late 1997.