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GOVERNMENT OF THE DISTRICT OF COLUMBIA OFFICE OF THE CHIEF FINANCIAL OFFICER 1350 Pennsylvania Avenue, NW • Suite 209 • Washington, DC 20004 • (202) 727-2476 www.dccfo.com
Natwar M. Gandhi July 29, 2003
Vincent H. Cohen Dear Chairman Cohen: Thank you for your memorandum of July 22, 2003 discussing the Convention Center's financial expectations for FY 2003. I am in accord with many of the points you raised and agree that the Authority should operate so as to increase the overall revenues to the District and the repayment of debt. As Chief Financial Officer (CFO) for the District Government, I do appreciate the Board's attention to its fiduciary responsibilities. The Center certainly must be provided with sufficient operating funds to carry out its primary function. At issue, however, is identifying the difference between sufficient and excessive. The Board budgeted an operating deficit for FY2003 with the assurance that this amount was sufficient to successfully operate the Center. That budget estimated operating revenues at $12.9 million and operating expenditures of $28.9 million, leaving an operating deficit of $16 million, excluding the required expenditures for marketing. Clearly a budget is made up of best estimates at the time and is subject to change as conditions warrant. As CFO of the District and a member of the Board, I expect to be notified on a timely basis and in detail of such changes. I understand that in August, the Board will be told that the operating deficit is more than $3.5 million and more than 20 percent over budget and that funds will have to be voted from the bond reserves to cover this increase. We are 10 months into FY2003; why was this not brought to my attention, and that of the entire Board, much earlier? Given the timing, the Board faces two unacceptable alternatives: either increase the subsidy to the FY2003 operating budget without substantiating need or have the new Center unable to pay its bills in its first year of operation. Even the most diligent efforts of Mr. Lew are unlikely to overcome a $3.5 million budget problem in 2 months. I have a second concern that future deficits may be $20 million or more, based on your letter to Councilmember Evans dated June 17, 2003. A deficit means that tax revenue must subsidize funds from the business operation in order to break even. We have reviewed a handful of other large convention centers and find the projected $20 million subsidy to be significantly higher than these. Why must the Washington Convention Center Authority (WCCA) deficit be higher? Perhaps some cost factor unique to this area is affecting budget balance. Or are we operating efficiently, but pricing incorrectly? Are we operating as efficiently as we might? The Board needs to understand these differences to successfully execute our management responsibilities. The WCCA must contract with an outside consultant as quickly as possible to examine and document the reasons for growth in the operating deficit and to compare itself to best practices in the industry. The WCCA Board is responsible for over $524 million of taxpayer assets. Cash flow not required for the operating the Convention Center could be used to finance other badly needed public services. The District's government must show fiscal accountability in all areas. Right now many critical services have been severely cut -- at the schools, for people in need, for public safety, and in other areas -- due to the drop in general revenue collections. We need for the Center to succeed and for it to contribute to general funding for these other services, now and in the future. It is vital that we learn how to do this.
Sincerely Yours,
cc: Members of the WCCA Board |
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