DALLAS — Denver International Airport chief executive Kim Day acknowledged that a hotel and transit center originally budgeted at $500 million could rise closer to $600 million before completion at the end of next year.
Day, meeting with the city's independent Audit Committee on Nov. 20, said the additional cost will not exceed 10% of the adjusted budget of $544 million set in 2013.
Day's comments followed a second audit from Auditor Dennis Gallagher criticizing the project's financial management.
"While I commend DIA for improving project management, I remain troubled that costs continue to climb," Gallagher wrote in a letter preceding the audit report. "It appears that DIA was willing to pay handsomely for a promise of certainty from its primary contractors."
Denver issued $763 million of subordinate-lien bonds for the project called the South Terminal in July 2013 with ratings of A2 by Moody's Investors Service, A-plus by Standard & Poor's, and A by Fitch Ratings.
Projects related to the hotel and rail depot add another $138 million to the total cost.
Day told the committee that rising construction costs and bad weather in the past year has caused delays and problems. However, she said that a variance of 5% to 10% in the construction industry is considered acceptable.
The audit report warned that the hotel may have diverted attention from critical infrastructure projects at the airport, but Day said the budgets for airport maintenance and the South Terminal are separate.
The audit made 11 recommendations on controlling costs, including a call for more oversight by the city and more transparency in reporting costs to elected officials.
Several council members and Gallagher criticized Day for the cost overruns and for a 4.25% bonus that airport officials agreed to pay three contractors for completing the project on time.
The South Terminal funding comes from general aviation revenue bonds, which are commonly issued for airport infrastructure projects, the second audit noted. GARBs can be backed by various types of revenue, such as airline rates and charges, parking revenues, terminal concessionaire revenues or other lease revenues, and, in some cases, grant revenues.
"Although DIA already holds a significant amount of bond-related debt, DIA leadership anticipates that when (the project) is complete, the hotel will provide an important new revenue stream generated by room reservations, conferences, and retail space," the audit noted.