United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on the District of Columbia, Committee

on Government Reform and Oversight,

House of Representatives

July 1998 DISTRICT OF

COLUMBIA

Final Status on the

Sports Arena

GAO/AIMD-98-223

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-279333 

July 27, 1998

The Honorable Thomas M. Davis, III

Chairman, Subcommittee on the

 District of Columbia

Committee on Government Reform

 and Oversight

House of Representatives

Dear Mr. Chairman:

You requested that we monitor and periodically report on the progress of

the sports arena1

 project in the District of Columbia. This report, our

seventh2

 and final product on this issue, discusses the project’s

predevelopment costs, revenue collections, and bond redemption status.

Results in Brief The District has spent $60 million, about 98 percent of the estimated total

cost of predevelopment activities, for the sports arena. 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 our November 1997 report. The increase is largely

due to the final agreed upon price the District paid for a parcel of land

included in the arena site. 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 (WMATA). The

District’s project manager for the sports arena has budgeted $700,000 for

this activity, which is included in the total estimated cost.

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. 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

1

The sports arena project was subsequently named the MCI Center.

2

District of Columbia: Status of Sports Arena Project (GAO/AIMD-94-192, September 15, 1994); District

of Columbia: Status of Sports Arena and Convention Center Projects (GAO/T-AIMD-95-189, July 12,

1995); District of Columbia: Sports Arena (GAO/AIMD-95-209R, July 26, 1995); District of Columbia:

Sports Arena (GAO/AIMD-96-43R, February 21, 1996); District of Columbia: Status of the Sports Arena

(GAO/AIMD-97-19, December 31, 1996); and District of Columbia: Status of the Sports Arena

(GAO/AIMD-98-26, November 14, 1997).

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approximately $3.5 million to pay unanticipated expenses or to redeem

term bonds prior to their redemption dates.

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. For each of the past 3

years, collections have exceeded the $9 million originally forecasted by the

District, totaling about $1.6 million more than the District’s forecast for the

3-year period. 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. Our 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. 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.

Background The District of Columbia government, acting through the Mayor, the

District’s Redevelopment Land Agency (RLA),3

 and the District of Columbia

Arena, L.P. (DCALP)—a limited partnership formed by the owner of the

Washington Wizards4

 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.

The District agreed to be responsible for the predevelopment costs of:

• acquiring land, including the purchase of property not then owned by the

District;5

• connecting the Gallery Place Metrorail station to the sports arena;

• relocating District employees from two buildings on the site to other

locations; and

3

The District of Columbia Redevelopment Land Agency was created and established as an

instrumentality of the District of Columbia government pursuant to the District of Columbia

Redevelopment Land Act, 60 Stat. 793, August 2, 1946 (D.C. Code Ann. sec. 5-801 et seq.), as amended

(the RLA Act). The purpose of RLA is to protect and promote the welfare of residents of the District

through the acquisition and assembly of real property and the lease of such property for

redevelopment.

4

Formerly known as the Washington Bullets.

5

The District acquired two properties needed for the arena site.

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• demolishing buildings, remediating soil,6 relocating utilities, and securing

all regulatory approvals necessary for construction of the sports arena.

The Omnibus Budget Support Act of 1994 (Arena Tax Act),7

 as amended,

provides for a Public Safety Fee (Arena Tax) to be levied on businesses

located in the District based upon the annual gross receipts of such

businesses. The Arena Tax is due on or before June 15 of each year. The

Arena Tax Act requires the Mayor to raise the Arena Tax rates to provide

for annual revenues of $9 million if the Arena Tax revenues are estimated

to be less than $9 million. The Arena Tax Act also authorized RLA to pledge

the Arena Tax as security to repay loans to finance predevelopment

activities. The Arena Tax was first levied in fiscal year 1995 and mostly

used to fund predevelopment activities. In subsequent years, the Arena

Tax was used to pay principal and interest (debt service) on the bonds as

required by the bond resolution.8

To initially finance the predevelopment costs of the sports arena,

$2.5 million was advanced by the District’s Sports Commission.9

 The funds

were provided with the understanding that they would be repaid from the

proceeds of a loan the District would secure. In August 1995, the District

received a $53 million loan commitment (line of credit) from a consortium

of banks. In January 1996, RLA issued about $60 million in revenue bonds

backed by the Arena Tax and paid off the $36.6 million portion of the line

of credit used.

The funds originally available to pay the arena’s net predevelopment

costs10 and to establish a debt service reserve totaled $66.6 million. These

funds consisted of (1) $57.4 million11 in net bond proceeds from the sale of

RLA Revenue Bonds in January 1996 and (2) about $9.2 million in 1995 net

6

Remediating the soil encompasses any and all corrective action taken to clean up a site in order to

meet District or federal standards for soil quality.

7

D.C. Code Ann. secs. 47-2751 through 47-2753 (1996 Supp.).

8

The bond resolution authorizes the issuance of bonds to pay for the predevelopment costs of the

arena project. It sets forth the terms, rights, and obligations of the RLA, bondholders, and trustees.

9

The Sports Commission is a business enterprise fund established by the District to promote sports

activities within the District of Columbia.

10The District’s share of the Arena predevelopment costs are net of reimbursable Metrorail

construction costs. The reimbursable costs include a DCALP contribution ($2 million), a WMATA

contribution ($2 million), and a Department of Transportation Capital Assistance Grant of $12 million,

which required $3 million of matching funds from the District (a total of $15 million).

11Of the approximately $60 million in bond proceeds, $0.8 million was used to cover various fees

associated with the bond sale and a $1.8 million issue discount was offered when the bonds were sold.

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tax collections from the dedicated Arena Tax. Of the $66.6 million then

available, $11 million was placed in two reserves. A mandatory $5 million

capital reserve, which was required by the bond resolution, was

established to pay for any insufficiency in the project fund. A reserve of

about $6 million was established for debt service.

Objectives, Scope,

and Methodology

Our objectives were to determine the status of the sports arena project’s

(1) predevelopment costs, (2) revenue collections, and (3) bond

redemption status.

To determine the status of expenditures for predevelopment activities for

the sports arena, we interviewed District officials on the Arena Task

Force, the District’s Sports Commission and Corporation Counsel, and the

D.C. Office of Treasury. We also held discussions with trustees for the

bonds. We discussed the construction costs of the arena and Metrorail

connection with officials from DCALP and WMATA.

We reviewed all expenditures made since the period covered by our last

report, from October 8, 1997, to April 30, 1998. Payments were made from

the funds obtained from the net proceeds of the bond sale. The universe of

payments included 10 expenditure items, which, at the time of our audit,

represented 100 percent of the total funds spent in the review period. We

reviewed each expenditure item to determine whether it was made within

the terms of the contract or invoice amounts, it had been approved for

payment by a District official, and the funds had actually been disbursed.

We did not audit the reported taxes collected and deposited for the sports

arena project. Therefore, we did not determine if the District government

accurately identified the universe of taxpayers or reported all dedicated

taxes12 for this project. However, we reviewed monthly statements

provided by the lockbox trustee to determine the amount of taxes

collected and placed in escrow. In addition, we confirmed that all

payments due to the District from the ground lease had been made. This

review provides an update on the previous work we performed.13 Our

procedures were performed between March 1998 and June 1998 in

accordance with generally accepted government auditing standards.

12The District does not perform a separate audit of the sports arena tax. This tax is audited as part of

the District’s comprehensive annual financial statements audit.

13See footnote 1 of this report.

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Predevelopment

Project Costs Have

Increased

Since our last report,14 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’s predevelopment activities consisted of acquiring

land, constructing the Metrorail connection, relocating District employees,

demolishing two buildings, remediating soil, relocating utilities, and using

consultants to secure regulatory approvals. 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.

14District of Columbia: Status of the Sports Arena (GAO/AIMD-98-26, November 14, 1997), which

reported predevelopment cost estimates as of October 7, 1997.

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Table 1: The District of Columbia’s Predevelopment Activities Financed for the Sports Arena Project

Dollars in thousands

Predevelopment activities

Budget

October 18, 1996

Expendituresa

October 7, 1997

Expendituresb

April 30, 1998

Increase (decrease)

since October 7,

1997

Land acquisition

Appraisal/purchase price $34,268 $34,268 $37,207 $2,939

Appraisal fee 50 0 0 0

Total $34,318 $34,268 $37,207 $2,939

Metrorail connection

Construction costsc $19,360 $19,000 $19,000 $0

Less: Capital Assistance Grant (after 

$3 million District cost) (12,000) (12,000) (12,000) 0

Less: WMATA contribution (2,360) (2,000) (2,000) 0

Less: DCALP contribution (2,000) (2,000) (2,000) 0

Total $3,000 $3,000 $3,000 $0

Relocation of District employees

Lease commitments $1,922 $1,868 $1,868 $0

Lease appraisals and space consultants 70 2 2 0

Leasehold improvements 1,344 1,006 961 (45)

Furniture and equipment move 638 546 540 (6)

Telecommunication equipment move 875 623 623 0

Total $4,849 $4,045 $3,994 $(51)

Building demolition, soil remediation,

relocation: legal, environmental, and

consultant fees

Building demolition $1,000 $916 $916 $0

Soil remediation 3,521 8,266 8,266 0

Less: Far East Trade Center Associates,

L.P. contribution for soil remediation (569) (569) (569) 0

Utility relocation 2,770 3,379 3,530 151

Business relocation 25 0 0 0

Legal, environmental, and consultant

fees 2,533 2,693 2,591 (102)

D.C. Sports Commission reimbursement 302 324 324 0

Total $9,582 $15,009 $15,058 $49

Total bank fees $1,315 $1,922 $1,919 $(3)

Total bond issuance costs $0 $307 $314 $7

Reserves for unanticipated increases $2,750 $0 $0 $0

Total costs financed by the District $55,814 $58,551 $61,492 $2,941

(Table notes on next page)

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a$56.7 million of actual cash disbursements and $1.8 million budgeted for activities to be

completed.

b$60 million of actual cash disbursements and $1.5 million budgeted for activities to be

completed.

cRepresents the total funds budgeted for the Metrorail connection that are managed by WMATA,

of which $18 million are obligated. Of the remaining $1 million unobligated amount, only $285,000

is not budgeted.

Increase in Land

Acquisition Costs Funded

by HUD Grant

As shown in table 1, land acquisition represents the largest increase in

predevelopment expenditures. In order to assemble the arena site, the

District acquired two pieces of property. At the time of our last report,

November 1997, the price for one of the pieces of property had not been

determined. On April 29, 1998, the District reached an out of court

settlement with the owners to pay $8.2 million for the land. The price of

the land was $2.9 million more than the $5.25 million the District had

originally deposited with the D.C. Superior Court in invoking its power of

eminent domain.

To pay the additional $2.9 million, the District used funds from a grant

made by the Department of Housing and Urban Development (HUD). Under

HUD’s Community Development Block Grant (CDBG) program, the

acquisition of property is a permitted use of grant funds. As of March 6,

1998, the District received permission from HUD to use CDBG funds to

acquire the property.

Metrorail Connection

Completed Under Budget

The Metrorail connection to the sports arena has been completed. As of

April 21, 1998, $16.7 million and $18 million of the $19 million budget had

been approved for expenditure and had been obligated, respectively.

WMATA officials informed us that they expect the project to be closed out

(all bills reviewed and approved for payment) by September 1998. It is

their expectation that after the project is closed out, there will be about a

$285,000 residual from the funds associated with the Department of

Transportation (DOT) Capital Assistance Grant. According to WMATA

officials, any residual balance must be used on a transportation related

project. One District official told us that he expects the District to use

these funds to defray the cost of design work on a Metrorail connection to

the proposed new convention center.

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Utility Relocation Costs

Have Increased

As shown in table 1, expenditures for the relocation of utilities have

increased from the projected $3.4 million reported in our November 1997

report to about $3.5 million. The increase is attributable to a negotiated

settlement between the District and the developer—DCALP—over the cost

of infrastructure improvements to the site. In a letter dated October 6,

1997, DCALP cited seven infrastructure improvements it had made to the

site, at a cost of $403,000, which it claimed under the terms of the

Exclusive Development Rights Agreement (EDRA), that the District was

responsible for. As part of its March 10, 1998, settlement, the District has

obtained a legal agreement, intended to preclude the developer from

prevailing in any future claims regarding the seven infrastructure

improvements.

Soil Remediation and

Related Activities Are

Continuing

All activities associated with soil remediation efforts have not been fully

completed. 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

land15 transferred to WMATA. District officials told us that they have

budgeted sufficient funds to remove the concrete structures and cover the

cost of remediation.16 They stated that based on tests done at the site, only

limited amounts of the soil are contaminated. The project manager of the

arena task force stated that the District has not contracted for the removal

of the concrete because WMATA has not made a decision regarding the

land’s use.

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. This office has obtained the assistance of a

private law firm and a environmental study firm—both on a pro bono

basis—to assist the city in its efforts to recover the District’s costs. The

two firms have identified approximately 50 potential sources of the

contaminants. The Corporation Counsel is currently assessing each firm’s

potential liability and the ability of each firm to make restitution.

Sources of Revenues for

Predevelopment Costs

Table 2 shows total receipts of about $65 million available as of April 30,

1998, to fund predevelopment costs. Revenues have increased from our

15This parcel of land is 8,080 square feet and is adjacent to the arena site, which is 218,435 square feet.

16Based on the land disposition agreement between the District, WMATA, and Far East Trade Center

Associates, L.P., the District is solely responsible for the payment of all work related to the demolition,

removal, and environmental clean-up, if required, of the land transferred to WMATA.

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November 1997 report mostly as a result of allocating a portion

($2.9 million) of the District’s CDBG grant funds received from HUD to pay

for the increased price of the land the District acquired. Through April 30,

1998, the District had earned about $1.5 million in interest from the funds

available to pay predevelopment costs.

In our last report, we stated that all of the leasehold improvement costs

associated with the relocated employees should have been paid from the

District’s sports arena project fund rather than from the District’s

appropriated funds because this activity was an allowable cost for the

sports arena project. The project manager of the arena task force contends

that $371,530 should be borne by the District since it was not factored into

the original predevelopment activities budget. However, we have excluded

the $371,530 District reimbursement since the cost should be borne by the

sports arena project because these expenses were precipitated by the

relocation action to allow arena construction. We had informed the

District’s former Chief Financial Officer of this matter, and he had agreed

to recoup the money from the sports arena project fund. As of June 30,

1998, the funds had not yet been returned to the District’s General Fund.

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Table 2: Predevelopment Funds for the

Sports Arena Project Sources of receipts April 30, 1998

Net proceeds from bond salea $57,436,001

Less: Mandatory debt service reserve (5,995,000)

1995 Dedicated Arena Tax collectionsb 9,149,036

Community Development Block Grant 2,939,326

Total funds for predevelopment expenses $63,529,363

Interest earned on funds held in trust:

Interest earned on bank loan fundsc 376,265

Interest earned on project fundsd 529,446

Interest earned on capital reserve fundse 457,279

Interest earned on Metrorail fundsf 94,389

Total interest earned 1,457,379

Funds Received from D.C. Department of

Administrative Services 371,530

Less: Allowable project expenses to be refunded to

the District’s General Fund (371,530)

Total predevelopment funds available $64,986,742

Less: Expendituresg as of 4/30/98 (see table 1) (61,492,000)

Total predevelopment funds still available $3,494,742

aIncludes $5 million of mandatory capital reserve funds.

bRepresents the 1995 collections of approximately $9.3 million, net of $119,000 used for debt

service.

cRepresents interest earned on borrowing from the August 1995 loan RLA secured from a

consortium of banks to pay for predevelopment expenses.

dRepresents interest earned on funds held by FMB Trust (bond trustee) and dedicated for project

expenses.

eRepresents interest earned on the $5 million of bond proceeds reserved for cost overruns.

f

Represents interest earned on the District’s contribution ($3 million) to the capital assistance

grant awarded for the Metrorail connection.

gExpenditures are net of the reimbursable Metrorail connection costs from the DOT (federal share

[80 percent] of the Capital Assistance Grant), a WMATA contribution, and a DCALP contribution.

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. The District

forecasts Arena Tax collections of $9 million for each year that the bonds

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are outstanding. Since 1995, the trustees for the lockbox have reported

that a total of $28.6 million has been collected exceeding the forecast of

$27 million by $1.6 million.

As was done in previous years, taxpayers were instructed to send their

payments to a lockbox under the control of bank trustees. We verified that

these funds were transferred to the trustee for the bonds and placed in

accounts for principal and interest payments.

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.

The combined total of $19.3 million in dedicated tax revenues collected for

1996 and 1997 is being used to pay principal and interest on the bonds. The

District’s Sports Arena Special Tax Revenue Bonds include about

$15.4 million in serial bonds, which have maturity dates from 1996 to 2000,

and $44.5 million of term bonds with a stated maturity date of 2010 and

mandatory sinking fund redemptions in the years 2001 through 2009. As of

April 30, 1998, the bond trustees had paid out $14.2 million in principal and

interest payments. 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. The remaining $5.1 million of Arena Tax collections was

held in the debt service reserve funds (see next section). The bond

resolution requires that any additional tax collected over the amount

needed to pay debt service on bonds be placed in a super sinker fund17 and

be used to redeem term bonds earlier than their due dates.18 The serial

bonds cannot be redeemed earlier than their stated maturity dates.

17The type of fund that permits early redemption of term bonds is commonly referred to as a super

sinker fund.

18Based on Section 603, Special Mandatory Redemption, of the bond resolution, the bonds maturing on

November 1, 2010, are subject to special mandatory redemption at a price of par, plus accrued interest

to the redemption date, in part, by lot, prior to their stated maturity on (1) any principal installment

date or interest payment date on and after November 1, 1996, from excess revenues on deposit in the

redemption account of the debt service fund, (2) November 1, 1997, from moneys in excess of 

$l million on deposit, if any, in the Mandatory Capital Reserve Fund as of September 1, 1997,

(3) November 1, 1998, from moneys on deposit, if any, in the Mandatory Capital Reserve Fund as of

September 1, 1998, and (4) November 1, 1997, from moneys, if any, remaining in the Project Fund as of

September 1, 1997. The bond resolution was modified in August 1997 so that money in the project fund

could be used for predevelopment expenditures.

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Table 3 shows our analysis of when the Arena Tax bonds can be fully paid

off. Our analysis, which assumes similar future collections of dedicated

tax revenues, annual ground lease revenue from DCALP, use of outstanding

debt service reserve funds (plus interest), and no recession or cyclical

downturns of the local economy, shows that the bonds could be paid off in

the year 2002, or 8 years before the last scheduled maturity date. Upon

redemption of all bonds in 2002, excess funds of $7.7 million would be

transferred to the District General Fund. This scenario would save about

$16.4 million in interest payments (see table 4). Once the arena tax bonds

are repaid, the authorizing legislation calls for the dedicated taxes to be

eliminated.19

19D.C. Code Ann. secs. 47-2752 (a-1)(1) states that each feepayer shall remit a special public safety fee

each year until the requirements of paragraph (3) have been met (collected fees to be used to finance

the reimbursement of borne costs, building demolition, relocation and housing of District employees

from the buildings, acquisition of real property, and any other District costs that relate to the

development of the sports arena).

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Table 3: GAO Analysis of Projected Early Redemption of the Sports Arena Special Tax Revenue Bonds

Fiscal year

Original

outstanding

principal balancea

Projected grossb

receipts

Required serial

bond debt service

payments

Projected netc

early bond

redemptions

Projected

outstanding

principal balanced

Amount $59,950,000 $15,450,000 $44,500,000

1996 $56,750,000 $9,985,966 $3,826,581 $4,142,979 $40,357,021

1997 53,900,000 12,079,130 3,483,826 6,325,222 34,031,799

1998 50,950,000 11,475,530 3,445,600 6,115,641 27,916,158

1999 47,800,000 10,223,730 3,495,150 5,158,296 22,757,862

2000 44,500,000 10,223,730 3,478,200 5,465,400 17,292,462

2001 41,050,000 10,223,730 0 9,251,029 8,041,433

2002 37,400,000 16,218,730 0 15,766,399 (7,724,967)

2003 33,550,000 0 0 0 0

2004 29,450,000 0 0 0 0

2005 25,200,000 0 0 0 0

2006 20,700,000 0 0 0 0

2007 15,950,000 0 0 0 0

2008 10,900,000 0 0 0 0

2009 5,600,000 0 0 0 0

2010 0 0 0 0 0

Totals $80,430,546 $17,729,357 $52,224,966

aRepresents Bond Value reduced by scheduled serial and term bond principal payments.

bIncludes sports arena tax collections, ground lease payments, excess reserve funds, and

interest on reserve accounts.

cRepresents excess funds less recalculated interest on term bonds.

dRepresents the value of the term bonds ($44,500,000) less funds available for early redemption.

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Table 4: GAO Analysis of Interest

Savings From Early Redemption of the

Sports Arena Special Tax Revenue

Bonds

Fiscal year

Serial and term bond

debt service interesta

Projected early bond

redemption interestb

Projected interest

savings

1996 $2,642,987 $2,642,987 $0

1997 3,136,952 2,903,908 233,044

1998 2,998,726 2,409,889 588,837

1999 2,848,276 1,915,434 932,842

2000 2,681,326 1,458,330 1,222,996

2001 2,503,126 972,701 1,530,425

2002 2,309,062 452,331 1,856,731

2003 2,103,750 0 2,103,750

2004 1,887,188 0 1,887,188

2005 1,656,562 0 1,656,562

2006 1,417,500 0 1,417,500

2007 1,164,376 0 1,164,376

2008 897,188 0 897,188

2009 613,126 0 613,126

2010 315,000 0 315,000

Totals $29,175,145 $12,755,580 $16,419,565

aRepresents interest calculated on original bond repayment schedule.

bRepresents interest calculated by GAO based on revenue projections.

Missed Opportunity

Could Have Caused

Additional Interest

Expense

The bond resolution requires that early redemption of term bonds occurs

on a interest payment date—either May 1 or November 1 of each

year—from excess revenues on deposit in the Redemption Account of the

Debt Service Fund. On the interest payment date of November 1, 1997, no

term bonds were redeemed even though $2.8 million was available in bond

redemption account. We questioned the bond trustee as to why additional

term bonds were not redeemed on November 1, 1997. Her response was

that because of a change in personnel, the early redemption of term bonds

had been overlooked. 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. However, the excess funds were

deposited in an interest earning account and the interest earned on the

funds available for bond redemption was substantially the same as the

average interest rate on the bonds that would have been redeemed and,

accordingly, the District did not incur any losses.

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Operating Arena

Generates First

Ground Lease

Payment

On April 3, 1998, the District received its first20 quarterly payment of

$76,644 under the yearly ground lease for the arena site. These funds, as

stipulated in the bond resolution, were placed in an account established to

redeem bonds prior to their maturity date. The ground lease payments

along with any excess funds in the project, capital reserve accounts, and

debt reserve accounts are to be used for early bond redemption.

District’s Comments

and Our Evaluation

We requested comments on a draft of this letter from the Mayor of the

District of Columbia. The Mayor concurred with the information presented

(see appendix I) and also provided, under separate cover, some technical

suggestions that we have incorporated as appropriate to clarify the report.

We are sending copies of this report to the Ranking Minority Member of

your Subcommittee and to the Chairmen and Ranking Minority Members

of the Senate and House Committees on Appropriations and their

Subcommittees on the District of Columbia and the Subcommittee on

Oversight of Government Management, Restructuring and the District of

Columbia, Senate Committee on Governmental Affairs. Major contributors

to this report are listed in appendix II. If you or your staff need further

information, please contact me at (202) 512-4476.

Sincerely yours,

Gloria L. Jarmon

Director, Health, Education, and Human Services

 Accounting and Financial Management Issues

20Under Article VI 6.1 and 6.2 of the Land Disposition Agreement - Ground Lease, RLA received an

initial payment of $200,000 on the effective date of the lease.

Page 15 GAO/AIMD-98-223 Sports Arena
Appendix I 

Comments From the District of Columbia

Page 16 GAO/AIMD-98-223 Sports Arena
Appendix II 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

Hodge Herry, Assistant Director

Steven Haughton, Audit Manager

Lou Fernheimer, Senior Evaluator

Office of the General

Counsel

Richard T. Cambosos, Senior Attorney

(916244) Page 17 GAO/AIMD-98-223 Sports Arena
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