Sections 302 and 303 of the 1994 Act amended the District of Columbia Sales Tax Act and the District of Columbia Compensating Use Tax Act, respectively (1) to decrease the tax rate from 11 percent to 10.5 percent on hotel gross receipts and to add an additional tax of 2.5 percent on hotel gross receipts and (2) to add an additional tax of 1 percent to the 9 percent tax on the gross receipts from the sales of food or drink (including alcohol) to be consumed on the premises and from the rental of vehicles and trailers. Next, WCCA would have to adopt a resolution to issue the revenue bonds (subject to the City Council review). When we last reported in December 1996, WCCA estimated that the project would be completed by December 31, 1999. The estimated completion date is now December 31, 2000. WCCA must obtain NCPC’s and the City Council’s approvals before the project can move forward. Estimated Project Costs

The estimated total predevelopment and construction costs, including contingencies, of the proposed new convention center have increased by a net of $100 million to approximately $650 million from the $550 million that was last reported. Table 2 highlights the total estimated project costs for the new convention center. As of July 31, 1997, WCCA had received about $97 million in dedicated tax revenues. Financing Plans

WCCA plans to issue revenue bonds backed by dedicated taxes to finance the construction cost of the project. Assuming that WCCA receives authority to use the revenues attributable to sections 301-304 of the 1994 Act for constructing the project and that the City Council does not disapprove the bond issuance, current projections of future dedicated tax revenues are not sufficient to support debt service costs for the full amount of the estimated construction cost. WCCA already has sufficient funds from dedicated taxes for predevelopment activities. However, the funding for the construction cost is uncertain at this time. We have projected the estimated shortfall to be about $114 million since WCCA will need an additional $8 million to satisfy a $30 million operation and maintenance reserve, which is required by the rating agencies before WCCA can enter the bond market. The foundation of WCCA’s financing plan is to generate the maximum amount of revenue bond funding for the construction cost of the new convention center project, which, according to the financial advisors, could be accomplished by using a senior lien and junior lien bond structure. Construction Fund Earnings. The bond proceeds would be deposited in a construction fund. As of July 31, 1997, WCCA has on hand approximately $72.9 million in dedicated tax revenues, with $24.4 million earmarked for the remaining predevelopment costs, and about $2.5 million budgeted for additional operating subsidy of the existing convention center for the remainder of fiscal year 1997, leaving $46 million. Thus, assuming currently estimated costs are substantially accurate, WCCA needs about $114 million ($106 million plus an additional $8 million for O&M reserve) if it were to enter the market in October, as originally planned, to obtain bond financing. However, it is uncertain at this time as to the outcome of these options.
Why GAO Did This Study

Pursuant to a congressional request, GAO reported on the progress of the proposed new convention center project for Washington, D.C., focusing on the project's: (1) approval process; (2) building design; (3) estimated costs; (4) dedicated revenues; and (5) financing plans.

What GAO Found

GAO found that: (1) the Washington Convention Center Authority (WCCA) is faced with the challenge of obtaining sufficient financing for the construction of the new convention center project; (2) the total cost--predevelopment and construction, including contingencies--is now estimated to be about $650 million, excluding $87 million of borrowing costs and certain reserve requirements; (3) WCCA already has sufficient funds from dedicated taxes for the $40 million in projected predevelopment costs of which a reported $15.6 million was expended as of July 31, 1997; (4) however, funding for the entire estimated $610 million in construction costs is uncertain; (5) WCCA plans to issue revenue bonds backed by dedicated taxes to finance a portion of the construction cost of the project; (6) however, WCCA would need to have its authority to use the taxes currently dedicated to the project expanded to include using them for construction and would have to adopt and submit for City Council review a resolution authorizing the issuance of revenue bonds; (7) the current stream of existing annual dedicated tax revenues is not sufficient to support the debt required to fund the project's estimated construction cost; (8) the current earmarked tax collections are estimated to support a revenue bond issuance of $423 million; (9) WCCA estimated that if $51 million of interest earnings from bond proceeds as well as $30 million of cash on hand from dedicated taxes as of July 31, 1997 are added to the estimated $423 million, total estimated revenues would amount to $504 million; (10) however, this would leave a shortfall of approximately $106 million; (11) assuming estimated costs are accurate, WCCA would need about $114 million ($106 million plus an estimated $8 million to satisfy an operation and maintenance reserve) if it were to enter the market in October 1997, as originally contemplated, to obtain bond financing; (12) WCCA, with the assistance of financial advisors, has been exploring options such as additional funds from the District, federal funding, and sale of the existing convention center to supplement the dedicated tax revenues; (13) also, before the project can move forward, the National Capital Planning Commission (NCPC), the central agency for conducting planning and development activities for federal lands and facilities in the National Capital Region, including the District of Columbia, must approve the concept design as well as address community concerns regarding the project; and (14) since GAO's December 1996 report, WCCA's estimated completion date has slipped 1 year to December 31, 2000, and based on the delays and approvals required, this date is uncertain.