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

Status of the New

Convention Center

Project

GAO/AIMD/OCE-98-238

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-279554 

July 15, 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:

On May 18, 1998, you requested that we review the Washington

Convention Center Authority’s (WCCA) efforts to arrange for financing and

constructing a new convention center in the District of Columbia. You

specifically requested that we provide the status of WCCA’s progress in the

following two areas:

• The estimated cost of this project, including the Guaranteed Maximum

Price (GMP) for constructing the new convention center, and the risk

exposure for both the contractor and the District.

• The Financing Plan, including proposed changes to the revenue base,

history of dedicated tax collections, projections for future revenues, and

sufficiency to cover the GMP and other project costs.

You also asked us to provide background information on the site selection,

including the WCCA’s analysis of alternative sites, particularly the Northeast

No. 1 site.

Results in Brief The Washington Convention Center Authority is proceeding with efforts to

build a new convention center at Mount Vernon Square at a cost WCCA

officials estimate to be $650 million. This estimate has not changed since

we reported on this project in September 1997. However, our latest review

of the project identified an additional $58 million in project costs

which—because WCCA expects them to be funded through federal grants or

moved into future operating costs—are not included in WCCA’s total project

costs. These costs raise the project’s cost estimate to $708 million,

excluding reserve requirements and financing costs of $138 million.

Currently, the majority of the estimated project costs are covered in a

$500.6 million GMP for construction, which WCCA is in the process of

negotiating with the construction manager, Clark/Smoot, with the goal of

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B-279554 

minimizing risks to WCCA and taxpayers. The GMP, which is a proposed

amendment to the construction management contract, lays out 22 different

cost components and sets limits on financial risks to the construction

manager. Practically speaking, the GMP is only a guaranteed maximum

price if the underlying assumptions on which the contractor bid the job do

not change. Further, areas of risk—such as the removal of hazardous

materials and remediation of any unknown subsurface conditions—are

not included in the $500.6 million price. An estimated $207 million in other

project-related activities will be or have been contracted for separately.

WCCA’s current financing plan to cover predevelopment, construction,

reserves and operation of the convention center calls for about

$846 million. Seventy-three percent of the funds needed to finance the

project are expected to be derived from revenue bonds supported by

dedicated taxes. Changes from the previous financing plan include

increasing the term of the bonds as well as the dedicated taxes to allow

WCCA to borrow more money for the project. WCCA received $44 million in

dedicated taxes in 1997, and WCCA has projected collections to increase at

1 percent a year over the next several years, a conservative stance relative

to estimates by management consultants and the District, and to our

evaluation of trends in tax collections and the national and local economic

outlook. These and other factors will be looked at by WCCA’s consultants,

rating agencies, and bond insurers who will evaluate the financing package

and determine its ability to cover the GMP and other project costs.

Obviously, risks associated with the financing package could affect the

rating of the bonds and accordingly, the interest rate. Among the major

unknowns at this juncture are a WCCA assumption that the Congress will

approve $35 million in federal funding to cover relocating utilities and

upgrading the Mount Vernon Square Metro station. In addition, although

WCCA plans to address an $18 million reduction in its construction budget

by negotiating arrangements with vendors to provide equipment and

services, such as a heating and cooling plant, communications and food

services equipment, to date there are no executed contracts to cover these

arrangements.

The site selection process for the convention center has a long history, and

numerous studies over the years have consistently identified Mount

Vernon Square1

 as a preferred site. WCCA and its predecessors in the

District government have repeatedly determined that Mount Vernon

Square is a more viable location for a convention center than the other

1

Located in the blocks between 7th and 9th Streets, N.W., and N Street and Mount Vernon Place, N.W.

Page 2 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
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sites, including the Northeast No. 1 site.2 WCCA’s most recent analysis of

the Northeast site indicates that costs would be higher and would likely

result in opening the convention center at a much later date than

estimated for the Mount Vernon Square site.

Background Plans for the new convention center were initiated in 1993 by the District’s

Hotel and Restaurant Associations, the Convention and Visitors

Association, and the District of Columbia government. The Washington

Convention Center Authority Act of 19943

 (1994 Act) authorizes WCCA to

construct, maintain, and operate the new convention center, as well as

maintain and operate the existing convention center. The current design

calls for a total of 2.1 million gross square feet, which includes

approximately 730,000 square feet of prime exhibit space compared to the

existing convention center which has a total of 800,000 gross square feet,

including 381,000 gross square feet of prime exhibit space. The proposed

new convention center is projected to rank sixth, based on the gross

square feet of prime exhibit space, in the United States when completed,

and the size of the proposed new convention center should remain highly

marketable into the 21st century.

According to WCCA officials, the proposed new convention center is

intended to allow the District to compete for larger conventions and trade

shows. A 1993 feasibility study by Deloitte & Touche, commissioned by the

local hospitality industry, stated that even though the District is viewed as

a desirable location, the existing convention center is small compared to

the convention centers of other cities, such as Atlanta, New York, Chicago,

and Philadelphia.

The current master plan calls for constructing a new convention center at

Mount Vernon Square, the legislatively4

 preferred site, located at Ninth

Street and Mount Vernon Place, Northwest. In the 1993 feasibility study,

eight potential sites were identified and evaluated against certain criteria

such as physical and location characteristics, historic preservation,

parking, and cost, including land acquisition and construction. As a result

of this analysis, the Mount Vernon Square site was determined to be the

preferred site due to its close proximity to the District’s downtown

2

An area bordered by K Street, 1st Street, N.E., New York Avenue, Florida Avenue, and the railroad

tracks.

3

WCCA was created by the Washington Convention Center Authority Act of 1994, D.C. Law 10-188,

September 28, 1994, 41 DC 5333, 6823, D.C. Code Ann. secs. 9-801 through 9-819.

4

Sec. 101(12) of the 1994 Act, D.C. Code Ann. sec 9-801(12) (1981).

Page 3 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

businesses and because the District owns the majority of the land, thus

minimizing the cost of land acquisition.

On September 25, 1997, WCCA obtained site approval and preliminary

building design approval from the National Capital Planning Commission

(NCPC). NCPC approved Mount Vernon Square as the site for the new

convention center, which is about two blocks north of the current center.

However, NCPC did not grant final approval of the building design but

instead made several recommendations to improve the aesthetics of the

building. WCCA anticipates that final design approval will be obtained from

NCPC by early September 1998.

Objectives, Scope,

and Methodology

To determine the new convention center project’s estimated costs,

proposed financing arrangements, and site selection process, we held

discussions with and obtained information from various D.C. Council

members and officials of the District government, WCCA and its consultants

and advisors, NCPC, U.S. General Services Administration, the Washington

Metropolitan Area Transit Authority (WMATA), the Committee of 100,5

 the

Hotel Association of Washington, D.C., the Washington D.C. Convention

and Visitors Association, the Restaurant Association of Metropolitan

Washington, Moody’s Investors Service, Standards and Poor’s, and

Coopers & Lybrand LLP.6

We compared the cost estimates for the project as of June 19, 1998, with

the estimates in our September 1997 report to the Subcommittee.7

 We

reviewed budget documents and held discussions with WCCA officials to

obtain reasons for variations from the previous estimates. We also

identified project cost components not included in the GMP and who would

be responsible for those costs. As you requested, we asked the General

Services Administration to review the proposed GMP amendment to the

construction management services agreement8

 for the convention center

project.

5

The Committee of 100 is a citizens planning and advocacy group, which was founded in 1923 in

Washington, D.C.

6

Coopers & Lybrand LLP was hired by Mesirow Financial Holdings, Inc.—the primary contractor—to

perform management consultant services for the Washington Convention Center Authority. As a result

of a merger, Coopers & Lybrand LLP is now part of PricewaterhouseCoopers.

7

District of Columbia: Status of the Proposed New Convention Center Project (GAO/AIMD-97-148,

September 25, 1997).

8

Construction Management Services Agreement for the Washington Convention Center Project by and

between the Washington Convention Center Authority and Clark/Smoot, A Joint Venture, March 16,

1998.

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B-279554 

We reviewed financial records and current balances to determine the

amount of dedicated taxes reported as collected and transferred to WCCA.

We reviewed the legislation for the proposed new tax structure for the

convention center and obtained forecasts from the District government of

future collections under the proposed new tax structure. We interviewed

officials of WCCA, the District government, and the lockbox trustee vendor

regarding operation of the lockbox since its inception. We obtained

information on WCCA’s financing plan for the new convention center

project, and we reviewed the assumptions to determine whether they are

reasonable. To evaluate the reasonableness of the dedicated tax revenue

forecast, we reviewed the District’s and Coopers & Lybrand’s methodology

and assumptions for the dedicated taxes.

In addition, we reviewed the auditor’s9

 workpapers of the reported taxes

collected and deposited for the convention center project to determine

whether the District government properly calculated and transferred

dedicated taxes to WCCA.

To determine how the site selection process was conducted, we reviewed

the environmental impact study that was prepared for NCPC approval by a

consultant hired by WCCA. We reviewed historical information on studies

performed on alternative site consideration by the District and

independent consultants and WCCA’s comparative analysis of costs to

construct the new convention center at the Mount Vernon Square site and

the alternative Northeast No. 1 site.

We conducted our review from May through mid-July 1998 in accordance

with generally accepted government auditing standards and considered

the results of previous work.10 We requested comments on a draft of this

report from WCCA and the District of Columbia Government.

Estimated Project

Costs Have Increased

Since we last reported to this Subcommittee, the estimated costs for

building the new convention center have increased. Table 1 compares

current cost estimates with the estimates included in our September 1997

report. Project costs increased $58 million, from $650 million to

$708 million, and nonconstruction reserves have increased the

9

KPMG Peat Marwick LLP audited WCCA’s financial statements for fiscal year 1997.

10Convention Centers’ Economic Benefits (GAO/GGD/AIMD/OCE-98-71R, February 27, 1998), District

of Columbia: Status of the Proposed New Convention Center Project (GAO/AIMD-97-148,

September 25, 1997), and District of Columbia: Status of the New Convention Center Project

(GAO/AIMD-97-17, December 20, 1996).

Page 5 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

financing-related costs by about $51 million, from $87 million to

$138 million for a current total funding requirement of $846 million. As of

May 31, 1998, WCCA had spent about $27 million, primarily for contractual

services ($22 million), such as for the program manager and design fees,

acquiring the additional land at the Mount Vernon site ($2 million), and

administrative expenses ($2 million).

Table 1: Total Estimated Costs for the

New Convention Center (Dollars in thousands)

Project component

Estimate as

of 05/31/97a

Estimate as

of 06/19/98

Increase

(decrease)

Building and site/GMP $417,500 $500,600b $83,100

Other costs:

Total predevelopment costsc, f 39,912 79,424 39,512

Fixtures/furnishings/equipment 40,000 22,305 (17,695)

Soil remediation and hazardous 

materials removal 11,000 5,000d (6,000)

Section 106 mitigation costse 7,600 12,671 5,071

Metro station upgrade 22,300 0 (22,300)

Other construction costs 35,814 0f (35,814)f

Project contingency 75,874 30,000g (45,874)

Subtotal WCCA project budget $650,000 $650,000 $0

Additions to WCCA project budget:

Vendor provided equipment 17,695 17,695

Portion of utilities relocation not

included in building and site h 10,000h 10,000

Metro station upgrade 25,000 25,000

Project administrative costs 5,000i 5,000

Total additions to WCCA budget $57,695 $57,695

Estimated project costs $650,000 $707,695 $57,695

Financing related costs:

Bond issuance 12,200 11,827 (373)

Reserve funds 75,100 126,399j 51,299

Total financing related costs $87,300 $138,226 $50,926

Total estimated project costs $737,300 $845,921 $108,621

(Table notes on next page)

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aGAO report, District of Columbia: Status of the Proposed New Convention Center Project

(GAO/AIMD-97-148, September 25, 1997).

bThis amount is represented in the GMP proposal submitted by the construction manager,

Clark/Smoot, Joint Venture, May 22, 1998.

cThe 1997 amount includes $5.4 million for land acquisition, and the 1998 amount includes

$4.7 million. In 1997, the District owned 87 percent of the land at the site. The market value of the

land owned by the District, according to WCCA, is about $74 million, which is not included in the

project costs.

dWCCA did not identify soil remediation and hazardous materials removal as a separate cost

component in its May 22, 1998, budget. In that budget, costs incurred for this purpose were to be

paid from the project contingency.

eSection 106 of the National Historic Preservation Act mitigation requirements were established in

a September 12, 1997, memorandum of agreement among the National Capital Planning

Commission, the D.C. State Historic Preservation Officer, the Advisory Council on Historic

Preservation, WCCA, the Mayor, and the D.C. Council. Mitigation requirements in the 1998

estimate include: art program, marshaling yard program, historic preservation survey, retail study,

landscaping adjacent streets, restoration of Carnegie Library, future truck access study,

transportation improvements, and community development. The art program, truck access study,

transportation improvements, and community development were not included in the 1997

estimate.

f

In the 1998 estimate, the category, “other construction costs,” has been shifted to

predevelopment costs.

gIn addition to this contingency, the GMP contains a $10 million construction contingency for use

by the construction manager.

hThe 1997 building and site estimate reflects the total estimated cost of utilities relocation,

including this $10 million.

i

WCCA has not shown administrative costs in its project budget. It had incurred about $2 million

in administrative costs as of May 31, 1998, and estimates that an additional $3 million may be

incurred through project completion.

j

Reserves include: Debt Service Reserve Funds ($44.4 million), Operations and Marketing

Reserve Fund ($50 million), Renewal and Replacement Fund ($22 million), and Revenue

Stabilization Account ($10 million). This includes an additional $27.7 million for Debt Service

Reserve, $3.8 million for Operating and Marketing Reserve, $9.8 million for Renewal and

Replacement Fund, and $10 million for Revenue Stabilization Account than had been indicated in

our September 1997 report.

Source: WCCA.

While WCCA has maintained a $650 million budget, a number of changes

have been made among the budget components, with some components

increasing and some decreasing. A few project components have been

taken out of the budget. The following changes have been made within the

$650 million budget:

• Building and site estimated costs have increased by $83.1 million based on

a proposed GMP amendment.

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• Predevelopment costs increased by $39.5 million largely as a result of

shifting “Other Construction Costs,” estimated to cost $35.8 million, to the

predevelopment cost category.

• Fixtures/furnishings/equipment decreased by $17.7 million in anticipation

of negotiating arrangements with vendors to provide such equipment.

• Soil remediation and hazardous materials removal costs decreased by

$6 million as a result of refined estimates.

• Section 106 mitigation cost increases of $5 million reflect some additional

requirements not included in previous estimates.

• The Metro station upgrade, previously estimated to cost $22.3 million, has

been taken out of the budget in anticipation of federal funding.

• The project contingency decreased by $45.9 million. Considering the

$10 million contingency in the GMP, the decrease is $35.9 million.

The following estimated project costs, when added to WCCA’s $650 million

budget, result in total estimated project costs of $708 million:

• Portion of utilities relocation costs that are not included in the building

and site costs for which WCCA anticipates $10 million of federal funding.

• Metro station upgrade for which WCCA anticipates $25 million of federal

funding.

• Anticipated vendor provided equipment of about $17.7 million.

• Project administrative costs of $5 million, which have not been shown in

the budget.

As part of the prospective financing arrangements, some of the reserves

have been increased and others established for a strengthened financial

arrangement for an overall increase of $51 million.

Guaranteed Maximum

Price Is Largest Cost

Component

Making up the largest portion of the 1998 estimated project costs are the

costs associated with the GMP (building and site). The $500.6 million GMP is

71 percent of the $708 million estimated project cost. Under the terms of

the construction management services agreement between WCCA and the

construction manager, the construction manager submitted a GMP proposal

to WCCA.

11 The proposal provides the basis for WCCA and the construction

manager to negotiate the final price. Once the price and its basis (the

terms, conditions, assumptions, and related drawings and plans) are

approved by WCCA, these will be set forth in the GMP amendment to the

agreement. To become final, the amendment must be approved by the D.C.

11The construction manager submitted a GMP proposal on May 22, 1998, totaling $500.6 million for

building and site. The proposal is valid until August 22, 1998.

Page 8 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

Financial Responsibility and Management Assistance Authority

(Authority).

Under the GMP proposal, the contractor is to perform all necessary work to

construct the project so that it is complete and a fully functioning,

first-class convention center. The construction management services

agreement and the GMP amendment will allocate the costs for the project

between WCCA and the construction manager. Any increases in the cost of

items allocated to the construction manager will be the responsibility of

the construction manager. Any increases in the costs of items allocated to

WCCA (or an increase in cost items allocated to the construction manager

resulting from a change order issued by WCCA) are the responsibility of

WCCA. The contract and proposed amendment also provide an incentive for

the construction manager to complete the project for less than the GMP by

giving the construction manager 25 percent of cost savings up to

$9.5 million. The percentage is adjusted up or down depending on the

construction manager’s success in meeting the established goals for using

local, small, or disadvantaged business enterprises. There is a penalty of

$50,000 a day for failure to meet the completion date.

The GMP proposal (building and site costs in table 1) is $83.1 million

greater, or about 20 percent more than the 1997 estimate of $417.5 million.

A WCCA official attributed the higher cost to a 175,000 increase in square

footage to accommodate support and public space, retail, and parking

areas, design changes, inflation, and the $10 million construction

contingency.

Table 2 shows the components of the GMP. Site work, concrete, and steel

account for $233 million or 47 percent of the GMP. Mechanical and fire

protection, electrical work and security, and design allowances12 account

for $117 million or 23 percent.

12The design allowance covers a number of relatively small items, such as light fixtures, site and street

lighting, signage, various finishes, etc.

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Table 2: Proposed Components of the

GMP (Dollars in thousands)

Component Amount

General conditions/requirements $26,500

Utilities relocation 6,500

Site work 50,500

Concrete 50,500

Masonry 16,500

Steel/metals 132,000

Carpentry 1,000

Moisture protection 17,000

Fenestrations 17,000

Finishes 29,000

Specialties 4,000

Loading dock equipment 79

Window treatment 400

Conveyances 8,800

Mechanical and fire protection 45,000

Electrical work and security 36,700

Design allowances 35,113

Construction contingency 10,000

Insurance 808

Performance and payment bonds 3,400

Preconstruction fee 300

Construction management fee 9,500

Total GMP $500,600

Source: WCCA.

Possible Building and Site

Costs in Excess of the

GMP

The GMP proposal specifies that WCCA is responsible for the following costs:

• WCCA is responsible for costs associated with soil remediation and

hazardous materials removal. WCCA officials told us that it could assume

the liability for soil remediation and hazardous materials removal at less

cost than including it in the GMP because the construction manager would

require a significant contingency amount for this line item. Since the time

of our last review, WCCA has had testing performed at the Mount Vernon

Square site. Based on the results to date, WCCA officials expressed

confidence that soil remediation and hazardous materials removal costs

Page 10 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

will not significantly exceed their estimates. WCCA has decreased the 1997

estimate of such costs from $11 million to $5 million. They have informed

us that the $11 million estimate was an attempt to make an adequate

estimate before the site tests were completed. If costs exceed the

budgeted $5 million, WCCA plans to offset this increase with funds from the

project contingency.

• WCCA is responsible for the additional costs incurred if the construction

manager encounters subsurface or soil conditions that materially differ

from those indicated in information provided by WCCA.

• The GMP proposal is based on certain lump sum allowances and quantity

and unit price assumptions. WCCA is responsible for the additional costs

that may be incurred if actual costs exceed the allowances and

assumptions specified in the proposal. For example, the proposal contains

24 design allowances, including light fixtures, street lighting, signage, and

various finishes, totaling $35.1 million. The GMP amount will be adjusted

upward if actual costs exceed the allowances.

• WCCA is responsible for additional costs resulting from any change orders

to the contract.

Risks External to the GMP In addition to the potential for incurring building and site costs in excess

of the GMP amount, WCCA is responsible for the remaining project costs that

are not covered by the GMP, which are noted in table 1. The $207 million

estimated costs for these components decreased $25 million from the 1997

estimates, offsetting some of the increased 1998 estimate of the building

and site costs.

• WCCA has omitted from its project budget estimated costs of $25 million for

the Mount Vernon Square-UDC Metro station upgrade and $10 million for

the utilities relocation work in anticipation of these costs being paid from

federal grants. In the case of the Metro upgrade, the President’s fiscal year

1999 budget to the Congress includes $25 million to be paid directly to the

Washington Metropolitan Area Transit Authority, which would be

responsible for the work. The utility relocation work would be financed

with Community Development Block Grants (CDBG) funds made available

to the District by the U.S. Department of Housing and Urban Development

(HUD).13 Until these initiatives are approved, there is a financial risk to the

project budget.

13WCCA has provided us with a copy of a draft grant agreement between WCCA and the District’s

Department of Housing and Community Development. According to WCCA’s Managing Director of

Development, this is not a new CDBG federal allocation but is inclusive in the District of Columbia

HUD/CDBG annual allocation.

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• WCCA has reduced the project costs for the fixtures, furnishings, and

equipment component by about $17.7 million in anticipation of negotiating

arrangements with vendors to provide certain equipment and services,

such as a heating and cooling plant, communications, and food services

equipment. This arrangement technically takes the costs out of the budget

without reducing project costs. According to WCCA officials, this

arrangement has been done at other convention centers. WCCA is at risk for

these costs until contracts have been executed with vendors.

Contingency to Cover

Project Risks

The project budget includes two contingency amounts: (1) a $10 million

construction contingency contained in the GMP earmarked for cost

increases that are the responsibility of the construction manager and (2) a

$30 million project contingency earmarked for cost increases both inside

and outside the GMP for which WCCA is responsible.14 The $40 million

contingency is a decrease of $35.9 million from the $75.9 million in the

1997 budget although it now covers a larger project cost. According to

WCCA’s Managing Director of Development, given that WCCA has

successfully negotiated a GMP with the contract manager and has

completed many preconstruction activities, an 8 percent ($40 million)15

contingency is considered reasonable.

WCCA’s Proposed

Financing Plan

WCCA’s current financing plan for the project calls for total funds of about

$846 million. About $616 million, or 73 percent, is expected to be derived

from revenue bonds supported by dedicated taxes. In addition, WCCA

anticipates using $110 million from dedicated tax revenue collections

through July 1, 1998; about $62.7 million from interest earned on the bond

proceeds; $35 million from the federal government to fund the Metro

upgrade and utility relocation; $18 million from vendors to fund furniture,

fixtures and equipment; and $5 million from the operating subsidy to cover

administrative costs. Assuming the estimated project costs are

substantially accurate, the financing plan projections, including the

projected growth in dedicated tax revenues, seem reasonable; however,

until the federal funding is approved in an adopted 1999 budget, and until

WCCA signs contracts with vendors, there is a risk to the financing plan of

about $53 million. WCCA’s CFO stated that any additional funding needs

would require a reevaluation of the budget and financing plan

14For example, approved change orders, soil remediation, and hazardous materials removal.

15WCCA computes the 8 percent by using the $10 million contingency in the GMP plus the $30 million

project contingency to the GMP amount of $500.6 million. If WCCA were to apply the $40 million

against the total project cost of $708 million, the contingency amount would be about 6 percent.

Page 12 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

assumptions. If WCCA were to seek additional funding from the District, it

would require approval by the District’s City Council, the Mayor, and the

Authority.

New Financing Plan

Supports Increased Debt

Table 3 shows the May 199716 and the current (May 1998) financing plans.

Since May 1997, WCCA has proposed several changes to its financing plan.

As the table indicates, the current financing plan assumes a lower interest

rate, an increase17 in the annual dedicated tax revenues to support the

bond financing, and an increase in the term of the bonds from 30 to 34

years. These changes would allow WCCA to borrow more money to finance

the project. In addition, since the amount of cash available from dedicated

taxes and bond proceeds has increased, the amount estimated for

construction fund earnings has also increased from the original plan.

Finally, the current financing plan includes funding for financing costs and

reserve requirements.

16This financing plan was developed in May 1997 and was discussed in our September 1997 report,

GAO/AIMD-97-148, District of Columbia: Status of the Proposed New Convention Center Project.

17Based on the Washington Convention Center Authority Financing Amendment Act of 1998, WCCA

will now use the existing convention center’s operating subsidy ($5.6 million) and the subsidy

($5.2 million) to the Washington Convention and Visitors Association, the Mayor’s Committee to

Promote Washington, and the D.C. Chamber of Commerce to support the bond financing.

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Table 3: Comparison of Financing

Plans for Proposed New Convention

Center

(Dollars in millions)

Funding sources

Financing plan

as of 5/97

Financing plan

as of 5/98a

Senior lien bonds $343 $487.4

Junior/senior subordinate lien $80 $128.2

Subtotal $423 $615.6

Cash for reserves $30 $72.8

Construction fund earnings $51 $62.7

Cash for preconstruction activities $40 $37.2b

Federal funds 0 $35

Vendor participation 0 $18

Funds for administrative costs 0 $5c

Subtotal $544 $846

Total funding required $650d $846

Estimated shortfall ($106) 0

Interest rate 6.3%e 5.6%f

Term of debt 30g 34

Dedicated annual revenues to back bonds $27.5h $44

Revenue growth assumption 1% 1%

Avg. annual debt service $26.0 $42.6

(Table notes on next page)

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aApart from this financing plan, WCCA’s underwriter and financial adviser developed several

other financing structures: (1) final maturity of 30 years with a 1.50 times coverage on the senior

lien bonds, (2) final maturity of 34 years with 1.35 times coverage on the senior lien bonds, and

(3) final maturity of 30 years with 1.35 times coverage on the senior lien bonds. However, this plan

is WCCA’s preferred because it provides a better level of coverage (1.50 on the senior lien

bonds), a longer maturity (34 years), and more funding for the project.

bThis money reflects dedicated tax collections available of which about $27 million had already

been spent on predevelopment activities as of May 31, 1998.

cWCCA reflects funds for administrative costs (salaries and wages) of the proposed new

convention center as part of the operating subsidy it receives through dedicated tax collections

for the existing center.

dThe $650 million did not include WCCA’s preliminary estimate of $87.3 million needed for

financing costs and reserve requirements.

eThe interest rate was based on prevailing interest rates as of May 21, 1997, and a projected

bond issuance date of October 1997.

f

The interest rate was based on prevailing interest rates as of May 6, 1998, and a projected bond

issuance date of July 1, 1998.

gSubsequent to our September 1997 report, WCCA had proposed a financing strategy that would

lengthen the maturity of the bonds from 30 to 40 years. See our report, Convention Centers’

Economic Benefits (GAO/GGD/AIMD/OCE-98-71R, February 27, 1998).

hThis amount did not include the operating subsidy and the 60 percent Hotel Occupancy Tax

contribution to the marketing entities, which are now being assumed in the May 1998 Plan.

Source: WCCA.

Since WCCA is exposed to rising interest rates until the bond financing is

finalized, WCCA considered a scenario with a higher bond interest rate of

5.85 percent, or 25 basis points higher than its preferred financing plan

interest rate assumption of 5.6 percent.18 Based on this scenario, the

increased interest rate does not materially change the financing plan.

Framework for Evaluating

Dedicated Tax Financing

Since the majority (73 percent) of the funds to finance the project are

expected to come from bonds supported by dedicated taxes, our review of

the financing plan considers some of the key factors rating agencies use to

rate dedicated tax financing for convention center projects: (1) breadth of

the tax base, (2) historical performance of the revenue stream, (3) the

underlying strength of the economy, and (4) the absence of legislative

risk.19

18As of July 10, 1998, the 30-year Treasury yield was 5.62 percent versus 6.56 percent at the same time

last year.

19On Entertainment and Tourism, “Moody’s Approach to Rating Stadium, Arena, and Convention

Center Bonds,” February 13, 1995. Standard & Poor’s Public Finance Criteria 1998, “Special Tax and

Recreation Facility Bonds.”

Page 15 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

Breadth of the tax base. According to the rating agencies, taxes levied on a

broader range of goods, services, and population are stronger and less

volatile than those derived from narrower bases. The current tax structure

that was established in fiscal year 1995 to provide financing for

predevelopment activities for the proposed new center is comprised of the

hotel occupancy tax, hotel sales tax, corporate franchise, unincorporated

franchise, restaurant meals, alcoholic beverages, and automobile rental

taxes.20, 21

On June 16, 1998, the D.C. City Council approved a change to the

dedicated tax structure that will be available effective October 1, 1998, to

guarantee the repayment of revenue bonds issued to finance the

construction of the new center.22 After the Council changes become

effective, WCCA will essentially rely on taxes levied on hospitality industries

to finance the construction costs of the project. The District’s hotel sales

tax rate was increased from 13 percent to 14.5 percent, of which WCCA will

receive 4.45 percent. WCCA’s existing rate is 2.5 percent. WCCA will continue

to receive 1 percent of the 10 percent tax rate on restaurant sales,

alcoholic beverages, and automobile rentals. WCCA will no longer receive a

portion of the corporate franchise and the unincorporated business taxes.

The hotel occupancy tax will be repealed. The Council change requires the

Mayor to impose a surtax on the hotel sales tax if additional funds are

required to cover debt service and operations costs.23

20Based on the Washington Convention Center Authority Act of 1994, the existing dedicated taxes to

WCCA include the following: 2.5 percent of the 13 percent sales and use tax on hotel room charges;

1.0 percent of the 10 percent sales and use tax on restaurant meals, alcoholic beverages consumed on

premises, and automobile rental charges; $1.50 hotel occupancy tax per hotel room per overnight stay.

(WCCA receives 40 percent of the $1.50 per hotel room per overnight rate and the D.C. Committee to

Promote Washington and the Washington Convention and Visitors Association receives 60 percent);

2.5 percent surtax on the 9.5 percent corporate franchise tax; and 2.5 percent surtax on the 9.5 percent

unincorporated business franchise tax.

21According to the District, the automobile rental tax comprised a small portion since most of the car

rental companies are located in Virginia and Maryland, near the airports.

22The Washington Convention Center Authority Financing Amendment Act of 1998 was passed by the

Council and was signed by the Mayor. It was approved by the Authority on July 13, 1998, and will now

be sent to the Congress where it will be subject to a 30-day congressional review period before

becoming law.

23In addition, the 1998 Act repealed the direct dedication of tax revenue to the marketing entities and

established the Washington Convention Center Marketing Fund. This fund would be held by the

trustee for the Authority’s bonds and shall receive monthly deposits equal to 17.4 percent of WCCA’s

share of the hotel sales and use tax collected. This provision replaces the designation of the 60 percent

of the hotel occupancy tax.

Page 16 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

Under the current tax structure, about 79 percent of the revenue WCCA has

received comes from the hotel sales, and restaurant and automobile rental

taxes. As a result of the change to the dedicated tax structure, 71 percent

of WCCA’s total dedicated tax revenues are expected to come from the hotel

sales tax and the remaining 29 percent from the restaurant sales and

automobile rental taxes. Convention centers in Dallas, Baltimore, and New

Orleans have been funded primarily by a hotel sales tax.24

Historical performance of the revenue stream. The rating agencies analysis

also includes a review of multiyear historical data for collections of the

dedicated revenues. According to the rating agencies, 5 years of historical

data are usually a good indicator of how the tax is likely to perform in the

future. Table 4 shows the collection history of the taxes currently

dedicated to the project.

24Convention Centers’ Economic Benefits (GAO/GGD/AIMD/OCE-98-71R, February 27, 1998).

Page 17 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

Table 4: Current Tax Structure Including Dedicated Tax Cash Collections

Fiscal year

Dollars in thousands

Tax 1993 1994 1995 1996 1997 1998

Avg. annual

growth rate

93-97b

Restaurant and automobile

rental

Total $109,826 $110,646 $120,970 $126,300 $134,520 $137,000

WCCA’s portion $12,097 $12,630 $13,452 $13,700

Percent of change 0.7% 9.3% 4.4% 6.5% 1.8% 5.2%

Hotel sales

Total $66,037 $65,629 $74,100 $79,451 $92,160 $98,300

WCCA’s portion $14,260 $15,279 $17,723 $18,900

Percent of change –0.6% 12.9% 7.2% 16.0% 6.7% 8.7%

Hotel occupancy

Total $8,991 $9,245 $9,045 $8,861 $8,917 $9,000

WCCA’s portion (40%)c $3,673 $3,560 $3,481 $3,600

Percent of change 2.8% –2.2% –2.0% 0.6% 0.9% –0.2%

Corporate franchise

Total $86,885 $112,402 $122,868 $127,755 $144,680 $155,400

WCCA’s portion $2,959 $3,052 $3,531 $3,700

Percent of change 29.4% 9.3% 4.0% 13.2% 7.4% 13.6%

Unincorp. franchise

Total $31,795 $34,731 $35,570 $34,700 $42,147 $43,040

WCCA’s portion $853 $832 $1,034 $1,040

Percent of change 9.2% 2.4% –2.4% 21.5% 2.1% 7.3%

Total taxes $303,534 $332,653 $362,553 $377,067 $423,388 $442,740

Total WCCA tax receipts $33,842 $35,353 $39,221 $40,940

Percent of change 9.6% 9.0% 4.0% 12.3% 4.8% 8.7%

aFiscal Year 1998 projections were provided by the District’s Tax and Economic Policy

Administration.

bThe percentage change reflects total taxes collected by the District, not WCCA’s portion.

cThe other 60 percent goes to the marketing entities.

Source: Unaudited tax cash collection data provided by the District’s Office of Tax and Revenue.

Table 4 shows that during fiscal years 1993-1997, total tax collections grew

by an average annual rate of about 8.7 percent. The hotel sales, restaurant,

and automobile rental taxes’ combined annual rate of growth averaged 6.6

Page 18 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

percent over the same period.25 These taxes experienced rate increases in

fiscal year 1995. According to the District, the increase in collections also

reflects improvement in the District’s economy, including the increase in

the number of tourists to the District. WCCA’s tax receipt data for fiscal year

1998 shows receipts being about $4.6 million higher through May 1998

than for the same period of time last year.26

Underlying economic strength. Since economic conditions are an

important factor for the future stream of dedicated taxes, rating agencies

evaluate the underlying strength of those parts of the economy most

relevant to the dedicated taxes. For example, if the dedicated tax is mainly

generated by local residents, such as the restaurant tax, the evaluation

would focus on the strength of the local economy. If the tax is mainly

generated by visitors, such as the hotel sales tax, the evaluation would

include the economies of the areas from which visitors come. In cities like

Washington, D.C., which attracts visitors from all over the country and the

international community, the future stream of hotel sales tax is likely to be

influenced by the strength of the national economy.

WCCA’s financing plan assumes 1 percent growth in dedicated tax revenues

under the new dedicated tax structure beginning in fiscal year 1999.

According to WCCA’s chief financial officer, the 1 percent growth

assumption is conservative when compared to historical trends in

collections. To evaluate the reasonableness of WCCA’s tax projection, we

reviewed the historical trends, as discussed above, the underlying strength

of the economy most relevant to the dedicated taxes and the District of

Columbia government’s and Coopers & Lybrand’s methodologies and

assumptions used in projecting the future stream of revenues.

The U.S. economy is projected to grow at a moderate rate over the next

decade. For example, the Congressional Budget Office estimates the

average annual growth in real gross domestic product (GDP) will be

2.2 percent during 1998-2008, and over the same period, the consumer

price index (CPI) is projected to increase at an average rate of 2.7 percent.

25The District’s Comprehensive Annual Financial Report provides data for the last three taxes shown

on table 4, but does not provide the information separately for the hotel sales, restaurant, and

automobile rental taxes because they are component parts of the general sales and use tax. According

to the District, for the restaurant and hotel sales taxes, data subject to an audit process is available

beginning only in fiscal year 1995, the year when the dedicated taxes were earmarked for the

convention center project.

26In addition, the table reflects WCCA’s total receipts for the past 3 fiscal years, which does not include

$5.2 million given annually to the Washington Convention and Visitors Association, the D.C.

Committee to Promote Washington, and the D.C. Chamber of Commerce for marketing activities.

WCCA’s financing plan assumes that this $5.2 million, combined with the $39.2 million in fiscal year

1997, shown in table 4, will be used as the base year revenue to support the bond financing.

Page 19 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

The WEFA Group, a macroeconomic forecasting firm, expects real GDP to

grow at 2.3 percent per year during 1998-2007 and the CPI to be at

2.6 percent during this period.

The projections for the Washington, D.C., population and economy reflect

improvements over the next 3 to 5 years. Standard & Poor’s DRI27 projects

that the population during 1998-2007 will remain virtually unchanged. This

contrasts with a decline of an average annual rate of over 2 percent per

year during the previous 3 years. Standard & Poor’s DRI projects that,

during 1998-2007, the District’s personal income28 will increase at an

inflation adjusted average annual rate of 0.9 percent. During 1995-1997,

personal income annual average growth rate was close to zero.

Figure 1: Dedicated Taxes: Projected

Annual Percentage Change

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

2000 2001 2002 2003 2004 2005 2006 2007

Fiscal Year

Coopers & Lybrand District of Columbia

Figure 1 shows combined annual percentage change for the hotel,

restaurant, alcoholic beverages, and automobile rental taxes based on the

District’s and Coopers & Lybrand’s forecast under the new tax structure

27DRI is a commonly used source of economic forecasts.

28As defined by the U.S. Department of Commerce, personal income consists of wage and nonwage

income received by city residents, with the wage component accounting for a little over half of the

total.

Page 20 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

from fiscal year 1999 through fiscal year 2007. The District forecasts

average annual growth in revenues for the hotel and restaurant taxes

combined over fiscal years 1999 to 2007 to be about 2.1 percent, while

Coopers’ forecast reflects combined average annual growth of about

3.4 percent. These estimates are substantially less than the combined

average annual growth rate of 6.6 percent in these same taxes between

fiscal years 1993 and 1997.

To evaluate the reasonableness of Coopers’ projected revenues from the

hotel tax, we reviewed its key assumptions and its U.S. lodging industry

forecast model. The model estimates future hotel room demand, hotel

room starts, and hotel room rate inflation. Key predictors for these

variables are real GDP, the inflation-adjusted average daily rate, and the

lagged occupancy level, respectively. Based on the WEFA forecasts

discussed above, the Coopers’ report assumed that the U.S. economy will

continue to grow at about 2.3 percent. It also assumed that the District’s

lodging market will not experience significant demand or supply shocks

during this period. The Coopers’ lodging industry forecast model for the

District is driven by the U.S. forecast model.29 Coopers estimates that hotel

room demand between 1999-2001 in the District will increase at or slightly

above the U.S. industry trend growth. Beyond the year 2001, hotel room

demand growth is expected to decrease to levels at or slightly below those

for the U.S. lodging industry as a whole. The growth in total hotel room

revenue to the District during 1998-2007 is expected to average 4.7 percent

annually.

Based on an analysis of historical data, Coopers determined that the

number of District households and the District’s gross income can predict

restaurant taxable sales. They estimate that during 1999-2007, restaurant

sales will increase at an annual rate of about 1.6 percent, lower than the

projected rate of inflation. The estimate is based on the assumption that

the District’s gross income will grow slightly in nominal terms. Coopers

assumed that the number of households will continue to decline but at a

lower rate than the previous years.

Coopers’ assumptions are generally consistent with the outlook provided

by independent sources discussed above. Accordingly, the projected rate

of growth in dedicated taxes appears to be reasonable.

29Local hotel room demand is a function of real GDP. The local average daily rate is a function of the

U.S. average daily rate. Local hotel room inventory is a function of the U.S. hotel room supply level.

Page 21 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

The District’s Office of Tax and Revenue (OTR) projections are derived

from a time-series forecasting model.30 Using a standard time-series

model, OTR estimates future hotel and restaurant tax revenues using

monthly historical tax collection data. These estimates were then

fine-tuned using projected inflation and personal income under the

assumption that these variables will influence the future trend of tax

revenues. Based on the DRI forecasts, OTR assumed an annual inflation of

2.4 percent and an annual growth in personal income of 2.5 percent during

1997-2002. OTR assumed no major changes in the District’s economic

circumstances and in the future success of collection practices. Overall,

OTR’s methodology and assumptions appear to be conservative as reflected

in their estimated projected growth rates of the hotel and restaurant taxes

discussed above.

Based on our analysis of trends in collections of hotel sales, restaurant and

automobile rental taxes, the national/local economic outlook, the District’s

and Coopers & Lybrand’s assumptions, WCCA’s growth assumption of 1

percent to support the bond financing seems conservative. Assuming that

the District’s forecast of annual average growth of about 2 percent holds

true, WCCA stands to gain an additional $63 million for fiscal years 1999

through 2007, which could be used to retire the bonds earlier than their

stated maturity dates.

Absence of legislative risk. According to the rating agencies, for dedicated

tax-secured debt to be rated investment grade, the revenues must not be

subject to annual appropriation and the authority to levy the tax must not

be subject to revocation by the legislature within the life of the debt.

Section 212 of the Washington Convention Center Authority Act of 1994,

as amended,31 provides that the District pledges to the Authority that the

District will not limit or alter rights vested in the Authority to fulfill

agreements made with holders of the bonds, or in any way impair the

rights and remedies of the holders of the bonds until the bonds, together

with interest and all costs and expenses in connection with any action or

proceedings by or on behalf of the holders of the bonds, are fully met and

discharged. Also, Section 490 (f) of the Home Rule Act, as amended,32

30In time-series models, future values of a variable are estimated solely based on the historical

behavior of the variable.

31D.C. Code Ann. Sec. 9-813 (1981).

32D.C. Code Ann. Sec. 47-334.

Page 22 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

makes dedicated tax revenues pledged to secure revenue bonds generally

available without requiring further appropriations.

While the financing plan does not reflect legislative risks associated with

the dedicated taxes, WCCA assumes one-time federal funds of about

$35 million for Metro expansion and utility relocation at the Mount Vernon

Square site. The President’s fiscal year 1999 budget to the Congress

includes $25 million for WMATA to expand the Mount Vernon Square-UDC

Metro station. The $10 million anticipated for utility relocation work is

expected to be financed with a Community Development Block Grant

made available to the District by the U.S. Department of Housing and

Urban Development. However, until the federal budget is adopted, it is

uncertain whether federal funds will be available. Therefore, there is a

legislative risk to the financing plan of about $35 million. If these grants

are not received, WCCA’s $30 million project contingency outside of the GMP

would not be sufficient to cover these estimated costs.

Other Components of the

Financing Plan

The other components of the financing plan include cash-on-hand from

dedicated tax collections, construction fund earnings, and reserve

requirements.

WCCA Cash-on-Hand. WCCA’s financing plan includes $110 million from

dedicated tax collections. WCCA’s financing plan was predicated on

entering the bond market on July 1, 1998; therefore, WCCA expects that it

would have already used $37 million of dedicated tax collections on

preconstruction activities and have about $73 million33 of the collection on

hand to satisfy reserve requirements at that time. WCCA now anticipates

entering the bond market in September 1998. Due primarily to the delay in

entering the market and because tax revenue collections through

May 1998 had been higher than anticipated, WCCA’s available cash for use

could be about $15 million higher than the $110 million assumed in the

financing plan. Based on dedicated tax collections and expenditures as of

May 31, 1998, if WCCA’s projected expenditures are substantially accurate,

by September 1, it would have spent an additional $15 million—for a total

of about $52 million—on preconstruction activities and would have

$73.6 million cash-on-hand to satisfy the reserve requirements.

Construction Fund Earnings. Based on a preliminary construction draw

schedule, the financing plan assumes that about $62.7 million can be

33Operating and Marketing ($50 million), Renewal and Replacement ($12.8 million), and Revenue

Stabilization ($10 million).

Page 23 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

generated in interest earnings on bond proceeds of about $550 million. The

bond proceeds would be deposited in a construction fund. During the

construction period, funds that are not drawn from the account would

earn interest at a rate of 5 percent. The interest rate assumption appears

reasonable when compared to the rate of earnings on WCCA’s dedicated tax

revenue investments over the past 3 years.34 When analyzing this type of

funding mechanism, the rating agencies’ primary concerns are whether the

construction estimate is reasonable and what source of funds would be

used to address the shortfall should the earning assumption fall short.

According to WCCA’s underwriter, at the time of bond issuance, WCCA plans

to obtain a fully flexible investment agreement,35 which will include

guaranteed investment earnings and conditions that stipulate that there

would be no penalty should additional funds be required to satisfy project

needs.

Reserve Requirements. The financing plan assumes that about 15 percent,

or $126 million of the $846 million funds identified, will be used to

establish the following reserves: debt service, operations and marketing,

renewal and replacement, and rate/revenue stabilization.36 Reserves are

established to strengthen the bond transaction. We spoke with rating

agencies’ officials regarding the adequacy of WCCA’s reserves. There appear

to be no established guidelines regarding the level of funding for each

reserve. The actual character and amount of each reserve is shaped by

several factors: the quality of the dedicated tax revenues, anticipated

ongoing needs of the facility, economic projections, availability of funds,

and bond insurers and rating agency concerns. WCCA’s underwriter states

that the estimated reserve requirements are more than adequate and

necessary to achieve the lowest possible cost of borrowing.

Site Selection Process

Has Long History

Discussion about building a larger convention center was underway at the

time the existing convention center opened in 1983. The site at Mount

Vernon Square was identified as a preferred site as early as 1986. Since

that time, a number of studies have examined alternative sites in various

parts of the city, with the Mount Vernon Square site repeatedly being

selected as the most viable site, given its location in the downtown core,

34The dedicated tax revenues are being invested in discount notes such as Fannie Mae and Freddie

Mac, which have been earning an average of 5.5 percent annually.

35Under the terms of an investment agreement, WCCA would enter into a contract with a third party,

such as a bank, giving that party the right to invest these funds. In exchange for the future right to

invest these funds, the bank will make periodic payments to WCCA.

36See table 1, footnote J for the estimated amount of each reserve.

Page 24 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

amidst the kind of amenities that make possible a thriving convention

center, with its associated economic benefits.

Research results included in our February 1998 report37 demonstrated that

convention centers generally cannot earn enough direct revenues to cover

all of their recurring operating costs or their construction costs. However,

cities sponsor convention centers with the expectation for significant

direct and indirect economic benefits to the area, from spending by

out-of-town convention delegates, that will increase local tax revenues to

offset operating losses and construction costs of convention centers. In

addition, based on Coopers & Lybrand’s Analysis for the Proposed

Washington Convention Center, the proposed convention center is

estimated to generate approximately $1.1 billion of total output38 in year

2002 within the metropolitan D.C. area, increasing to about $1.4 billion in

2006.39 Further, results indicated that the most important factor to a

convention center’s success in attracting a large number of out-of-town

delegates who spend a significant amount of money is location in a

desirable city and near hotels, restaurants, and shopping.

WCCA determined that Mount Vernon Square was the most advantageous

site selected because it offered a variety of favorable attributes: proximity

to existing hotels, restaurants, and museums, the presence of an existing

Metrorail station, and entertainment venues and other tourist points of

interest.

Section 215 of the Washington Convention Center Authority Act of 1994

(1994 Act),40 states that Mount Vernon Square was where the new

convention center “should be located.” In the same section, it says that the

Mayor “may evaluate” other sites and “should specifically evaluate 2 sites:”

Northeast No. 1 and the site located at the Anacostia Metro.41

37District of Columbia: Convention Center’s Economic Benefits (GAO/GGD/AIMD/OCE-98-71R,

February 27, 1998).

38Total output includes total direct, indirect, and induced spending. Of the $1.1 billion, Coopers

estimates that approximately $618 million, or 55 percent, would occur in the District.

39Coopers’ study is dated December 30, 1997. Based on recent information from WCCA’s officials, the

center is expected to be completed in March 2003.

40D.C. Code Ann. sec. 9-816 (1981) (1995 repl.). See also section 101(12) of the 1994 Act, D.C. Code

Ann. sec. 9-801 (12) (1981) (1995 repl.).

41Located Southeast of Frederick Douglas Memorial (South Capitol Street) Bridge, north of Howard

Road and the Anacostia Freeway, S.W.

Page 25 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

When the 1994 Act was passed, the latter two sites had already been

evaluated (along with nine others) in a financial feasibility study

conducted between 1991 and 1993 by Deloitte and Touche.42 In 1996,

Northeast No. 1 and the Anacostia Metro were again evaluated by WCCA

along with 14 other sites when it prepared a study regarding the project.

WCCA determined that both the Northeast site and the Anacostia Metro site

did not compare favorably with Mount Vernon Square, largely because of

their isolated locations, distance from hotels, and other amenities. When a

final Environmental Impact Statement (EIS) was prepared for the National

Capital Planning Commission in April 1997,43 it rated the Mount Vernon

Square site as more acceptable.

In June 1997 the federal Commission of Fine Arts gave its preliminary

approval to a design for the convention center at Mount Vernon Square.

Such approval is a requirement for public buildings sited in the District. In

September 1997, the following additional approvals were granted.

• The federally appointed Advisory Council on Historic Preservation

approved the preservation/neighborhood revitalization plan for the Mount

Vernon Square site.

• A Memorandum of Agreement outlining specific historic preservation

mitigation measures at Mount Vernon Square was signed by the D.C.

Mayor, the D.C. City Council, the D.C. State Historic Preservation Officer,

NCPC, and WCCA.

• The Mount Vernon Square site, building footprints, and preliminary design

were approved by NCPC.

Before NCPC issued its approvals for building the convention center at

Mount Vernon Square, it heard public testimony on the issue.44 At that

time, some community members requested that the District reconsider

Northeast No. 1 as a possible site for the new convention center. WCCA

then performed an additional study of the Northeast site, including a cost

comparison. WCCA concluded that building the convention center at the

Northeast site would increase the cost much higher above the cost of

building it at Mount Vernon Square and would delay the project

substantially.

42This study, Financial Feasibility Study of a New Convention Center in the District of Columbia, was

funded by the Hotel Association of Washington, D.C., the Washington, D.C., Convention and Visitors

Association, and the District of Columbia Government. Mount Vernon Square was determined to be

the best site for the new convention center.

43This EIS was required under the National Environmental Policy Act.

44NCPC held a Special Commission Meeting, Open Session No. II, on September 22, 1997.

Page 26 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
B-279554 

Agency Comments In commenting on this report, the Chief Financial Officer, the General

Counsel, and the Managing Director of Development of WCCA as well as the

District of Columbia Government’s Chief Economist generally agreed with

our presentation of their progress and the data presented concerning

construction and financing for the proposed convention center.

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. Copies will be

made available to others upon request. Major contributors to this report

are listed in appendix I. 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

Page 27 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
Appendix I 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

Hodge Herry, Assistant Director

Barbara Shields, Project Manager

Roy Hutchens, Senior Auditor

Fred Evans, Senior Auditor

Linda Elmore, Senior Evaluator

Angela Samblanet, Auditor

Maria Zacharias, Communications Analyst

Mel Mench, Senior Assistant Director

Office of Chief

Economist

Yesook Merrill, Senior Economist

Office of General

Counsel

Richard Cambosos, Senior Attorney

(916241) Page 28 GAO/AIMD/OCE-98-238 Status of New Convention Center Project
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Permit No. G100