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ANTHONY S. COOPER DISTRICT OF COLUMBIA AUDITOR 010:97:SD:SG:cj OFFICE OF THE DISTRICT OF COLUMBIA AUDITOR June 24, 1997 TABLE OF CONTENTS EXECUTIVE SUMMARY
EXECUTIVE SUMMARYPURPOSE The Office of the District of Columbia Auditor (the Auditor) is required by District of Columbia Law 10-188, "Washington Convention Center Authority Act of 1994," Section 305(a), to audit the accounts and operations of the Washington Convention Center Authority (WCCA) each fiscal year. This report sets forth the results of the Office of the District of Columbia Auditor's examination of the accounts and operations of the WCCA for fiscal years 1995, 1996, and a limited review of fiscal year 1997. CONCLUSION The WCCA has made significant financial contributions to the economies of the District of Columbia and neighboring jurisdictions. Its nine member Board has shown a clear determination to aggressively control expenditures and enhance revenues. The Convention Center's management has received nationwide recognition within the convention center industry for numerous operational and marketing accomplishments. Overall, WCCA continues to foster economic growth in the District of Columbia and has taken numerous steps to fulfill its primary mission to build a new state-of-the-art convention center facility in the District of Columbia. However, there are some areas which can be further improved. For example, the WCCA must fully document and justify the business related purpose of all credit card purchases. WCCA should initiate better internal controls relating to out-of-town travel. In addition, the WCCA should ensure that all expenditures are properly documented and relate to the mission of the WCCA. Improving these areas will help to ensure that assets needed for the construction of the new convention center are protected. D.C. Law 10-188 requires the Auditor, on or before July 1, to make a specific finding of the sufficiency projected revenues from dedicated taxes to meet WCCA's projected expenditures and reserve requirements for the upcoming fiscal year. Further, the law provides that the Mayor shall impose a surtax on all dedicated taxes, excluding the tax on sales of restaurant meals and alcoholic beverages if there is a deficiency of project revenues. The taxes subject to the surtax are the sales and use tax on the gross receipts charged for hotel rooms, the corporate and unincorporated business income and franchise tax, and the hotel occupancy tax. Based on the Auditor's review of available financial information, it appears that dedicated tax revenues will not be sufficient to cover projected expenditures and reserve requirements. Due to the preliminary status of a number of key financial issues, the Auditor is not in a position to issue a specific finding. However, once key components are finalized, the Auditor will issue an appropriate report. MAJOR FINDINGS
RECOMMENDATIONS
PURPOSEThe Office of the District of Columbia Auditor (the Auditor) is required by District of Columbia Law 10-188, "Washington Convention Center Authority Act of 1994," Section 305(a), to audit the accounts and operations of the Washington Convention Center Authority (WCCA) each fiscal year. This report sets forth the results of the Office of the District of Columbia Auditor's examination of the accounts and operations of the WCCA for fiscal years 1995, 1996, and a limited review of fiscal year 1997. OBJECTIVES. SCOPE AND METHODOLOGYThe objectives of this audit were to:
In conducting this audit the Auditor reviewed D.C. Law 10-188 entitled, "Washington Convention Center Authority Act of 1994;" D.C. Code, Sections 47-3201 through 47-3206 entitled, "Hotel Occupancy Tax;" and D.C. Law 10-253 entitled, "Multi-Year Budget Spending Reduction and Support Temporary Act of 1995." The Auditor reviewed the District of Columbia's Comprehensive Annual Financial Report for fiscal years 1995 and 1996. The Auditor also reviewed and analyzed the WCCA's annual independent auditor's reports for fiscal years ending 1995 and 1996; the WCCA's "Statement of Revenue, Expenses and Changes in Retained Earnings" for the period ending September 30, 1996; the year-end analysis for fiscal year 1995; the Financing and Economic Impact Analysis Related to the Proposed New Convention Center; and the WCCA's accounting, travel, personnel, and contract policies and procedures. The Auditor interviewed officials and employees of the WCCA and the Department of Finance and Revenue, currently the Office of Tax and Revenue (for the purpose of this report, we refer to the Department of Finance and Revenue). Additionally, the Auditor met with officials of the National Capital Planning Commission (NCPC). The Auditor reviewed and examined all dedicated tax transfers from the District to the WCCA. On a sample basis, the Auditor reviewed and examined accounts payable and contract files to determine if the WCCA was in compliance with its policies and procedures pertaining to accounting, travel, and contracts; and tested the adequacy of internal controls. This audit was conducted in accordance with generally accepted government auditing standards and included such tests of the records as deemed necessary and appropriate under the circumstances. BACKGROUNDThe Council of the District of Columbia enacted D.C. Law 10-188 entitled, "Washington Convention Center Authority Act of 1994," which became effective on September 27, 1994. This law was established for the following purpose:
The law states that both the existing convention center and the new convention center should be operated as public enterprises in order to achieve maximum utilization of resources and efficiency of operations. Further, the law states that to accomplish the desired social and economic benefits to the District and to ensure the fiscal soundness of the existing convention center and the new convention center, the granting of powers conferred by the act is both necessary and in the public interest. A nine-member Board of Directors provides operational oversight of the WCCA. The Board's membership consists of the Chief Financial Officer of the District of Columbia, the Director of the Office of Tourism and Promotions, and seven public board members appointed by the Mayor of the District of Columbia with the advice and consent of the Council by resolution. The mission of the WCCA is twofold. Its first mission is to build a new state-of-the-art convention center facility, which is scheduled to open by the year 2000, that is suitable for multipurpose use to house trade shows, conventions, cultural, political, musical, educational, entertainment, athletic and other events. Its second mission is to expand the tax base of the District of Columbia by promoting the convention center and hosting large international and national conventions and trade shows that bring out-of-town delegates and exhibitors into the District of Columbia. Section 208 of D.C. Law 10-188 established the Washington Convention Center Authority Fund ("Fund") to be operated by the Authority. The Fund is capitalized with dedicated tax revenues from sales and use taxes, corporate and unincorporated business franchise taxes, and a surtax on hotel occupancy. To facilitate the transfer of dedicated taxes, Sections 301, 302, 303, and 304 of D.C. Law 10-188 amended provisions of the District of Columbia's tax law pertaining to sales and use taxes, corporate franchise tax, and the unincorporated business franchise tax by imposing a surtax and/or additional taxes upon existing taxes. Table I presents dedicated tax revenue collected and transferred by the District to the WCCA Fund for fiscal years 1995 and 1996. TABLE I
Source: District of Columbia Comprehensive Annual Financial Report, and WCCA. In addition to the dedicated tax transfer for hotel occupancy taxes outlined in Table I, Section 304 of D.C. Law 10-188 provides the following for hotel occupancy taxes:
Currently, WCCA receives monthly hotel occupancy tax transfers which are deposited in its bank account at First Union National Bank and are subsequently transferred, monthly, to the Washington Convention and Visitors Association, Mayor's Committee to Promote Washington (referred to as Tourism Responsibility Centers), and the WCCA. Hotel occupancy tax revenue transferred to WCCA for disbursement to the tourism responsibility centers is presented in Table II. TABLE II
Source: WCCA As reflected in Table II, between fiscal years 1995 and 1996, WCCA received hotel occupancy tax transfers totaling $10,575,000 that were then transferred to the Washington Convention and Visitors Association, the Mayor's Committee to Promote Washington and the Washington Convention Center Authority. The funds were transferred and dispersed for the purpose of promoting WCCA activities and promoting conventions and tourism in the District of Columbia. WCCA's ACCOMPLISHMENTSOne of the primary missions of the WCCA is to expand the tax base of the District of Columbia by promoting and hosting events to bring out-of town delegates and exhibitors to the District. During fiscal years 1995 and 1996, the WCCA accomplished the following:.
Despite the fact that WCCA is losing an increasing number of large, national events to new and expanded facilities around the country, it continues to foster economic growth in the District. The other primary mission of the WCCA is to build a new state-of-the art-facility that will open by the year 2000. In connection with the new convention center, WCCA achieved the following milestones during fiscal years 1995 and 1996:
These milestones represent a positive direction towards the beginning of construction for the new convention center. Additionally, the WCCA instituted several management initiatives to contain costs during fiscal years 1995 and 1996. The Auditor was provided with three documents issued by WCCA's management pertaining to budget reduction actions. Although we did not audit all policies and procedures outlined in the documents, we did see efforts by the WCCA's management to aggressively control expenditures. FINDINGSTHE FINANCIAL STATUS OF THE NEW CONVENTION CENTER HAS NOT BEEN FINALIZED D.C. Law 10-188 requires the Office of the D.C. Auditor to make a specific finding of the sufficiency of the projected revenues to meet projected expenditures and reserve requirements of the WCCA. As a result of the preliminary status of key financial components pertaining to the new convention center, the Office of the District of Columbia Auditor is unable to make a specific finding Of the sufficiency of the projected revenues from the dedicated taxes to meet the projected expenditures and reserve requirements of the WCCA for the upcoming fiscal year. Based upon the Auditor's review of WCCA's projected expenditures as contained in a report entitled, "Summary Project of Funding Options," dated May 23, 1997, it appears that WCCA's projected revenues are insufficient to cover projected expenditures and reserve requirements. According to WCCA's financial advisors and underwriters, the current level of dedicated taxes will only support bond financing and related proceeds of approximately $560 million. As a result, WCCA's financial team estimates a financing shortfall of approximately $90 million. The Office of the D.C. Auditor will make an appropriate finding, on the sufficiency of the projected revenues to meet expenditures, once key financial components are finalized. The original project cost estimate for a below ground convention center was $512 million as reflected in the feasibility study entitled, "Financing and Economic Impact Analysis Related to the Proposed New Convention Center," dated December 3, 1993. That same feasibility study established estimates for an above ground convention center at $444 million. As of October 23, 1996, WCCA in conjunction with Convention Center Associates3 (CCA), the program manager hired by the Authority to assist in administering the management, development and delivery of the design and construction of the proposed new center, issued revised cost estimates for a new below ground convention center. At that time, the construction and predevelopment costs were estimated at $550 million. Based upon the NCPC's4 preliminary review of the WCCA's master plan, the WCCA was required to make changes and resubmit its master plan for further review. WCCA's revisions to the master plan, in response to concerns raised by NCPC and the community, increased the project's cost estimate significantly. As of March 1997, the most recent cost data developed on behalf of WCCA by Convention Center Associates, indicates that the estimated cost of the new convention center now stands at $650 million for a new partially below ground state-of-the-art convention center. The revised project costs are outlined in the Washington Convention Center Authority Project Overview and Financing Options report, dated March 1997. The revised cost estimate of $650 million represents an increase of approximately $ 100 million, or 18%, above the revised estimate, of $550 million, which was developed on October 23, 1996. The Auditor notes that the predevelopment costs increased approximately 515% based upon WCCA officials inclusion of an amount for acquiring land that is not currently owned by the District at the preferred Mt. Vernon Square site and the inclusion of Environmental Impact Study costs, consultant fees, permit costs, insurance, and financing costs. The Auditor believes that the project cost estimate is subject to further change based upon the WCCA's refinement of financial data to include preliminary approval of the site and design of the facility. The original and revised project costs of the new convention center are presented in Table III. TABLE III
Source: Project costs as presented in the Financing and Economic Impact Analysis Related to the Proposed New Convention Center, Deloitte & Touche in association with Carmona, Motley & Company, and the Project Overview and Financing Options Washington Convention Center Authority March 1997. The constant fluctuation and changes in financial data has made it difficult to analyze the new convention center's projected costs. In particular, it has been difficult to assess the true cost estimate for the new convention center. Also of significant importance is that, as the WCCA moves towards obtaining the necessary approvals, further modifications may be required to its master plan and the environmental impact statement resulting in further cost revisions. This uncertainty has impacted the Auditor's ability to evaluate the sufficiency of the projected tax revenues to meet projected expenditures and reserves of the WCCA largely because much still remains to be finalized. Initially, the WCCA considered the sale of the existing convention center to help offset the cost of the new convention center. The WCCA's current plans to finance the new convention center does not rely on the sale of the existing convention center nor does it rely on any type of private participation. This represents a vast departure from the WCCA's original plans and is based, in part, on the low market value of the existing convention center. Financing Options Currently Under Consideration According to the most recent information presented by WCCA's underwriters, Paine Webber Incorporated and W.R.Lazard & Company, in consultation with WCCA's financial advisors, Evensen Dodge, Inc. and Columbia Equity Financial Corporation on behalf of WCCA, the projected dedicated tax transfer will only support a bond issue of approximately $560 million. As previously discussed, because the total project costs now stand at $650 million, a gap of approximately $90 million has been preliminarily identified. WCCA officials indicate that, "at this juncture no other sources have been definitively identified." As outlined in an earlier analysis, the "March 1997 Project Overview and Financing Options," WCCA was exploring, as one option, the feasibility of financing the remaining portion of the WCCA project with a Federal loan. WCCA officials wanted to obtain a federal loan structured consistent with a loan granted by the Federal government to the Alameda Corridor Transportation Authority (ACTA) that was used to finance improvements to a rail and truck corridor link between the ports of Los Angeles and Long Beach. The March 1997 Project Overview and Financing Options report also listed a number of other financing options in addition to the bond and the federal loan proposal including: (1) the immediate sale of the existing convention center site; (2) increase and/or reallocation of current pledged revenues to the WCCA; (3) federal guaranty of bonds for project completion; (4) GSA long-term lease of existing site; and (5) securing a private developer. The most recent analysis, dated May 1997, entitled "Summary Project of Funding Options" listed a number of other financing options contemplated by WCCA's financial advisors and underwriters. They include reallocating the entire hotel occupancy tax to the project, having the District of Columbia government absorb part or all of the shortfall, and a combination of the reallocation of dedicated taxes and the District's absorbing the shortfall. The WCCA presently notes that it is no longer considering the use of federal loans or grants; a GSA lease and, as previously discussed, does not rely on the sale of the existing site or private participation to provide funds for the new convention center. WCCA officials pointed out that the "Summary Project of Funding Options" report has not been finally submitted to WCCA's Board and that none of the options are under review for consideration by the Board at this time. In accordance with the statutory authority establishing the WCCA, WCCA officials have begun the process of planning the development and construction of a new state-of-the-art convention center. The WCCA has identified the Mount Vernon Square location as the preferred site for the new convention center. The WCCA must obtain approvals for the building site and design from NCPC. NCPC officials indicated to the Auditor, that even though District officials have chosen Mt. Vernon Square as its preferred site, NCPC officials are under no obligation to approve the site. Further, according to information published in a March 18, 1997 document entitled, "New Washington Convention Center Executive Summary Highlights," the WCCA recognized that it is proceeding at its own risk. Specifically, the document stated: "At its own risk, the Authority is proceeding with Project Design, based on Mt. Vernon Square emerging as the best site." WCCA officials have imposed certain deadlines to begin construction of the new center and must adhere to a strict time-frame in order to obtain the necessary approvals which must be obtained prior to beginning the project. Table IV highlights some of WCCA's proposed critical deadlines. A detailed timeline schedule can be found in Appendix A. TABLE IV
Source: Project Overview and Financing Options Report dated March 1997 There is a regulatory process that the WCCA must adhere to in order to go forward with its plans to construct and build the new convention center. Approval for the construction of the new convention center must be obtained from NCPC in conjunction with recommendations from the Commission of Fine Arts and the Historic Preservation Review Board. Additionally, the WCCA must obtain an environmental impact statement (EIS) on the WCCA's preferred site for the proposed new center and the other alternative sites. Presently, the WCCA is in the process of finalizing EIS findings. In addition to the EIS, the WCCA must prepare a written Memorandum of Agreement (MOA) in accordance with the Historic Preservation Act. Parties to the Agreement will be the WCCA, the District of Columbia government, the Advisory Council on Historic Preservation, NCPC, and the D.C. State Historic Preservation Of ficer. The purpose of the Agreement will be to mitigate all matters under discussion by the affected parties under the Historic Preservation Act in accordance with Section 106, which requires discussions of impact and mitigation of those matters under a signed Memorandum of Agreement (MOA). The WCCA is currently engaged in this process but no final agreements have been reached. Additionally, the Environmental Protection Agency will, at some point in time, issue an opinion on WCCA's proposal for the new center. These approvals must be obtained before NCPC will act on the WCCA request for preliminary approval of its site and design. Following NCPC's preliminary approval, the WCCA must then obtain approval from the Council of the District of Columbia to close streets and alleys affected by the construction of the new convention center. WCCA officials initially indicated that May 29, 1997 was their target date for NCPC approval. However, because of delays in the WCCA obtaining the MOA the May 29, 1997 date was changed to June 1997. Following NCPC approval, the WCCA will immediately move to seek Congressional approval (Congress' summer recess begins in August) to permit the WCCA to pledge dedicated tax revenues to cover the debt service costs on the bonds. The WCCA is authorized by D.C. Law 10-188, Section 202 (b) to maintain and operate the existing convention center until the new center is completed. The legislation also authorized the WCCA to use dedicated tax revenues for ongoing operating expenses. Dedicated tax revenues totaling $68.2 million were transferred to the WCCA during fiscal years 1995 and 1996. The WCCA utilized approximately $6.5 million of dedicated tax transfers to fund operating expenses of the existing convention center. The WCCA's use of dedicated taxes to fund operating expenses provides fewer funds to enter the bond market. The amount of bond proceeds ultimately generated by the WCCA directly relates to the amount of capital available for investment by the WCCA in the construction of the new convention center. As a result, the WCCA must minimize its use of dedicated tax revenues to ensure sufficient funds to invest in the construction of the new convention center. In addition to covering operating expenses of the existing center, the WCCA used a portion f the dedicated taxes to fund predevelopment costs of the new center and to repay $4.2 million that was borrowed from the District's Rainy Day Fund (see Table V). Of the $68.2 million transferred to the WCCA, approximately $33 million was transferred during fiscal year 1995 and $35 million during fiscal year 1996. The WCCA is expected to receive approximately $37 million in dedicated tax revenues during fiscal year 1997 and about $38 million during fiscal year 1998. Between fiscal years 1996 and 1998, dedicated taxes are projected to increase only slightly, approximately 8.6%. Between fiscal years 1995 and 1996, the WCCA earned approximately $1 million in interest from investments of dedicated tax revenues. The WCCA adopted a resolution on August 8, 1996 authorizing the investment of that portion of WCCA funds (dedicated taxes) not needed for immediate disbursement. The resolution approved the investment of funds in obligations of U.S. government securities or repurchase agreements. The approved investment vehicles included Fannie Mae, Freddie Mac, Farm Credit Bank, and Federal Home Loan Bank discount notes. The maximum term an investment may be held is ninety-one (9l) days. Table V presents the WCCA's dedicated tax transfers and highlights the uses of dedicated tax revenues during fiscal years l 995 and l 996. TABLE V
Source: WCCA As of September 30, 1996, the balance of dedicated taxes invested on behalf of the WCCA was approximately $55 million. These funds are available to fund the expenses of the proposed new convention center. Initial long-term estimates for dedicated tax revenues have been revised several times and are subject to further revisions. According to Department of Finance and Revenue officials, long-term revenue estimates are periodically revised depending on economic factors such as sales and employment and the overall economic health of the region. A comparison of the initial, revised, and proposed revenue estimates is summarized below in Table VI. TABLE VI
Sources: (a) Long-Term Revenue Estimates, FY 1996-2002, Preliminary as of
12/12/95 The revised long-term revenue estimate (1st quarter) for the WCCA decreased estimated dedicated tax revenue collections by $14,915,000, or 7%, between fiscal years 1997 and 2001. The revised revenue estimates (2nd quarter) increased the 1st quarter revised estimates by $17,400,000, or 8%.
The Department of Finance and Revenue underpaid dedicated taxes to the WCCA by a combined total of $939,218 for fiscal years 1995 and 1996. This occurred, largely, because the Department of Finance and Revenue failed to calculate the additional dedicated taxes owed the WCCA based upon reconciliations of sales and use tax payments that were completed 60-90 days after DFR's initial reporting period. Based upon these reconciliations, additional dedicated taxes should have been transferred to the WCCA, however, they were not. To determine the amount of the underpayments, the Auditor reviewed "Sales and Use Tax Paid Returns" reports for fiscal years 1995 and 1996 and amounts collected for each of the respective months according to the most recent report for that month. The Auditor compared these amounts to the tax payments transferred to the Washington Convention Center Authority. Based upon the Auditor's analysis, dedicated tax transfers to the WCCA were short by: $435,786.22 for November 1994 tax collections; $3,069.36 for December 1994 collections; $21,173.94 for January 1995 collections; $2,004.43 for February 1995 collections; $476,212.29 for March 1995 collections; and a combined $971.40 for collections between June 1995 and April 1996. Appendix I presents a summary of the results of the comparison. In one instance, in preparing the reconciliation for May 1995 sales and use tax payments, the Department of Finance and Revenue based its transfer payment on sales tax collected at 8% instead of 10%. In this instance, the Department of Finance and Revenue's miscalculation resulted in a $15,651 underpayment to the Washington Convention Center Authority. The majority of underpayments occurred during the first part of fiscal year 1995 when the District first began to transfer dedicated taxes to the WCCA. Subsequent to that period, the proper transfer amounts were made to the WCCA. Presently, the District of Columbia has established a lockbox arrangement with a bank, in the capacity of trustee. The bank is responsible for the collection of dedicated taxes. This permits the WCCA to receive its dedicated taxes daily, allowing for timely deposits, and excludes the District's DFR from the transfer process. In summary, the Department of Finance and Revenue failed to develop and implement appropriate follow-up procedures to ensure that reconciliations were properly made for all sales and use tax payments that should have been transferred to the WCCA. This deficiency resulted in the underpayment of $939,218 for fiscal years 1995 and 1996. The underpayments went unnoticed until the Auditor made a preliminary determination of the deficiency and shared its preliminary findings with the WCCA and Department of Finance and Revenue officials.7 The Auditor also shared its findings, on this matter, with the General Accounting Office.
The WCCA was remiss in not verifying the reliability and validity of dedicated tax transfer payments submitted to it by the Department of Finance and Revenue. The WCCA's management should have developed a methodology to independently verify the validity of the dedicated tax transfer data and process to ensure that monthly transfers of dedicated taxes were accurate. On a monthly basis, the Department of Finance and Revenue submitted a calculation statement with the amount of taxes to which percentages were applied to determine the dedicated tax transfer payment to the management of the WCCA. The Department of Finance and Revenue, however, did not submit to WCCA the reports (Sales and Use Tax - Paid Returns) from which tax amounts were derived. After receiving documents submitted with the first dedicated tax transfer payment on February 3, 1995, the Convention Center's accounting staff indicated that they contacted DFR to express concern about the transfer and to request the source documents. According to a WCCA supervisor, the Department of Finance and Revenue never provided the information and the WCCA's accounting staff did not further pursue the matter. The Convention Center's management did not exercise its authority to obtain adequate data from DFR in order to independently perform its own calculations of the amounts of revenue it was entitled to receive from the District. The Convention Center's staff also failed to inquire in writing to DFR about the basis for the calculation of the transfer payment or its request for the source documents.
EXPENSES EXCEEDED OPERATING FUND REVENUES DURING FISCAL YEARS 1995 AND 1996 The WCCA established the operating fund to account for all revenues and expenditures relating to the existing convention center. A separate building fund was established to account for the revenue and expenditures relating to the construction of the new convention center. As of September 30, 1995, WCCA's operating fund expenses exceeded its operating fund revenues by $3.8 million. As of September 30, 1996, WCCA's operating fund expenses exceeded its operating fund revenues by $7.8 million. According to WCCA officials and industry data, convention centers do not operate to generate profit. Rather, they exist to promote economic development. However, in carrying out its mission to build a new convention center, WCCA should focus on decreasing operating costs and increasing operating revenues to the greatest extent possible. During fiscal year 1995, the WCCA Fund was capitalized with $40,698,000 which was derived from dedicated tax transfers, client generated revenue, and non-event revenue. Of this amount, the building fund account was capitalized with $32,903,000 in dedicated tax transfers and $280,000 in interest income. The WCCA's operating fund account was capitalized with $-7,339,000 in client-generated revenue and $176,000 in non-event revenue for a total of $7,515,000. Actual expenditures from the WCCA's operating fund account in fiscal year 1995 totaled $15,537,000 while revenues totaled only $11,715,000, resulting in a net operating loss of $3,822,000. Retained earnings of $816,000 reduced the deficit to $3,006,000. The fiscal year 1995 operating fund account ending balance was a negative $3,006,000. The WCCA Fund ended fiscal year 1995 with a balance of $25,977,000 (See Appendix II). During fiscal year 1996, the WCCA Fund was capitalized with $45,432,000 which was derived from dedicated tax transfers, client generated revenue, and non-event revenue. Of this amount, the building fund account was capitalized with $35,353,000 in dedicated taxes and $1,753,000 in interest income. The WCCA's operating fund account was capitalized with $8,152,000 in client-generated revenue, and $175,000 in non-event revenue for a total of $8,327,000. During fiscal year 1996, WCCA Fund expenditures totaled $16,795,000. Actual expenditures from the operating fund account totaled $16,170,000 resulting in a net operating loss of $7,843,000. The WCCA transferred $6,260,000 from the building fund account to the operating fund account, which reduced the operating fund account deficit to $1,583,000. However, the fiscal year 1996 operating fund account deficit increased to $4,589,000 as a result of a deficit of $3,006,000 in the fiscal year 1995 operating fund account ending balance. Expenditures of $625,000 were charged to the building fund account to hire administrative staff to work on the planning of the new convention center project. Additionally, contractors were awarded contracts to provide project management services and environmental impact services for the construction of the new convention center. The operating fund account's fiscal year 1996 ending balance was a negative $4.6 million. The WCCA Fund ended fiscal year 1996 with a balance of $54,615,000 (see Appendix III). Client-generated revenue consisted of fees collected by the WCCA for space rental, charges for utility services, fees received from Service America/NBSE for exclusive rights to provide catering services, commissions from public telephones located in the Convention Center, and commissions on food services. Client-generated revenue totaled $7,339,000 for fiscal year 1995 and $8,152,000 for fiscal year 1996. The Washington Convention Center Authority hosted ninety-nine (99) events during fiscal year 1995 and ninety-one (91) events during fiscal year 1996. Non-event revenue totaling $176,000 in fiscal year 1995 and $175,000 in fiscal year 1996 consisted of interest from the Operating Fund account and a portion of the Hotel Occupancy Tax. Table VII presents client-generated and non-event revenue generated during fiscal years 1995 and 1996. TABLE VII
Source: WCCA's Statement of Revenues and Expenses Client-generated revenue increased approximately $1 million, or 11.08%, from fiscal year 1995 to fiscal year 1996 even though the number of events hosted during fiscal year 1996 were fewer than those hosted during fiscal year 1995. WCCA Did Not Maintain Per Event Cost Figures The Office of the District of Columbia Auditor noted that the WCCA did not maintain financial data on the cost to the WCCA of hosting each event staged in its facilities and, therefore, could not determine whether fees charged to event sponsors were sufficient to cover the cost of hosting the event. While the WCCA believes that it is not in the business of making a profit from hosting events, its user fees should bear a defined relationship to WCCA's expenses associated with each event. Although the WCCA does not maintain per event cost, they do prepare monthly revenue reports which forecasts revenue it expects to receive from various conventions. The Auditor found that during fiscal year 1996 the WCCA hosted approximately 63 events where revenues exceeded or met projections. The remaining 28 events hosted by the WCCA generated less revenue than projected as reflected in Appendix IV. WCCA Subsidized Certain Events WCCA does not charge certain conventioneers, such as the Congressional Black Caucus and Organizers of the Presidential Dinner, the full cost for hosting events in its facility. WCCA officials reasoned that the existing convention center belongs to the District of Columbia and that they view concessions such as these as a normal part of doing business. The Auditor's discussion with the Pennsylvania Convention Center Authority found that they are often approached to provide services on a reduced fee basis. The Pennsylvania officials indicated that this business practice is sometimes agreed to because it generates business for the center. This concurs with WCCA's business practices. However, WCCA in carrying out its mission to build a new convention center should limit its practice of subsidizing these types of events and focus its efforts on events that are sufficient to cover their costs. Table VIII reflects a sample of events and is not inclusive of all the events the WCCA may have subsidized during fiscal year 1996. TABLE VIII
Source: WCCA's Revenue Budget vs. Actual The WCCA can incur large out-of-pocket expenses associated with various concessions it makes in hosting events. In some instances, these expenses can be offset with revenues that exceed the projected costs in hosting certain other events. Despite this, the WCCA must be ever vigilant in monitoring its spending as it endeavors to enter the bond market. It must also focus more on hosting events that are economically beneficial.
1The Chamber of Commerce, also considered a tourism responsibility center, receives approximately $500,000 annually from the WCCA. Although D.C. Law 10-188 does not specifically provide for the Chamber of Commerce's receipt of funds, the Mayor end the Council of the District of Columbia approved, through the District's budget process, the Chamber of Commerce's receipt of these funds. During fiscal year 1995, D.C. Law 2-58, a temporary amendment, was enacted to decrease the hotel occupancy tax transfer to the WCCA from 60% to 52.59%. The difference was deposited in the general fund of the District government in fiscal year 1995. 2This information was based on data contained in the WCCA's fiscal year 1995 and 1996 annual reports. The figures presented were not audited by the Office of the D.C. Auditor. 3Convention Center Associates is composed of three primary venture partners: JBG Companies (program managers); Tumer Construction/McKissack and McKissack (construction managers); and HNTB Companies (design managers). 4According to a fact sheet obtained from the National Capital Planning Commission (NCPC), NCPC is the central planning agency for the Federal government. NCPC's authority extends to the District of Columbia, the counties of Prince Georges's and Montgomery in Maryland, Arlington, Fairfax, Prince William, and Loudoun County, the city of Alexandria and the cities and towns within these counties. NCPC is responsible for reviewing District elements of the Comprehensive Plan for the National Capital and reviewing and approving Federal and District of Columbia government master plans and construction proposals within the National Capital Region. 5During fiscal year 1995, the District government loaned the WCCA $4.2 million from its Rainy Day Fund The loan was made prior to WCCA s receipt of dedicated tax revenue WCCA's repayment of the loan to the District's Rainy Day Fund reduced its dedicated taxes to $295 million during fiscal year 1995 The Rainy Day Fund allocates a portion of funds to be used at the discretion of the Mayor and the Council of the District of Columbia for unavoidable expenses bearing investments 6As of September 30 1996 during the period under audit the WCCA had a balance of $55 million of dedicated taxes in interest 7According to WCCA officials, DFR has reconciled the underpayments, identified by the Auditor, of sales and use taxes due WCCA during the audit period of fiscal years 1995 and 1996. |
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