To reconcile annual debt service liabilities and total bonds payable from audited financial statements as of December 31, 1993, to the Leigh Fisher Associates report issued by Denver for the September 1994 bond sale, we reviewed these two reports in detail; reviewed audit workpapers prepared by Deloitte & Touche to document the methods they used to compute annual debt service and bonds payable; interviewed officials at DIA’s finance office and obtained explanations of methods used in computing debt service amounts in the Leigh Fisher Associates report; held discussions with DIA’s financial consultant, Leigh Fisher Associates, and obtained and reviewed detailed supporting schedules prepared by them; and reviewed DIA’s Plan of Finance prepared by First Albany Corporation, DIA’s bond financing consultant. To address the issue of SEC jurisdiction over municipal bonds and the status and scope of the SEC investigation at DIA, we met with SEC officials at SEC Headquarters in Washington, D.C., and held discussions with SEC investigators at their Denver office. Construction costs grew from a May 1990 budget of $2.08 billion to a total at airport opening of $3.004 billion, resulting from several substantial scope changes in the project. In addition to growth in DIA construction costs, delays caused by problems with the automated baggage system cost an additional $300 million in capitalized interest. It is important to note that these two financial reports, while closely related, had different purposes and covered different time periods and scopes. Annual debt service amounts, $69 million to $118 million a year lower, were reported in the Leigh Fisher Associates report based on certain assumptions about future events including (1) successful refinancing of the 1984/85 bonds, (2) prepayment of certain bonds with the proceeds of FAA grants, and (3) lower than maximum interest rates on variable rate bonds. Another primary reason for lower annual debt service amounts in the Leigh Fisher Associates report was the assumption that estimated passenger facility charge (PFC) revenues would be used to reduce debt service amounts. Information in these financial reports differed because the financial statements included all debt of the Denver Airport System (including DIA and Stapleton debt), whereas the Leigh Fisher Associates report was using Exhibit B to present only those bonds that provided funds to cover DIA construction and capitalized interest costs. Figure 3 and its accompanying notes present details on the differences between the two financial reports. SEC Issues

While municipal securities are exempt from the registration requirements and civil liability provisions of the Securities Acts of 1933 and 1934, they are not exempt from the antifraud provisions of those acts. The SEC is currently investigating DIA’s disclosures of information related to baggage system issues, to include all Official Statements and supporting documentation covering the period 1990 to the present.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed selected financial issues relating to the Denver International Airport (DIA), focusing on: (1) DIA construction cost growth; (2) differences between the DIA financial consultant's report and audited financial statements relating to the Denver Airport System's bond debt; and (3) Securities and Exchange Commission (SEC) jurisdiction over municipal bonds and the status and scope of its DIA investigation.

What GAO Found

GAO found that: (1) DIA construction costs increased from an estimated $2.08 billion in May 1990 to $3.004 billion in February 1995; (2) the cost increases were due to changes in the scope of DIA and capitalized interest increased by $300 million due to the delay in DIA opening; (3) the two financial reports on DIA differed mainly due to their different purposes and the different time periods and scopes covered; (4) the financial statements covered both DIA and the Stapleton International Airport, while the consultant's report presented financial forecasts only for DIA based on certain assumptions about future events; (5) the differences in annual bond debt payments reflected the consultant's assumption that certain bonds would be refinanced in 1995, bond principal would be prepaid, lower interest rates would be paid on variable rate bonds, and passenger facility charges would be used to reduce annual debt service amounts; (6) the audited financial statements included all airport system debts while the consultant's report included only DIA construction bond debt; (7) municipal bonds are exempt from securities registration requirements and civil liability provisions, but they are subject to antifraud provisions; and (8) SEC is investigating DIA disclosures of its baggage system issues under its antifraud authority.