Will City Foot the Bill For Olympic Overruns?

Will City Foot the Bill For Olympic Overruns?
http://www.observer.com/pages/frontpage10.asp

by Blair Golson

Standing before a crowd of high-school students that had been nicely
primed—the students leaped to their feet as they watched gymnasts Paul
and Morgan Hamm execute simultaneous back-flips—the last thing Mayor
Bloomberg expected was a razzing.

By half the auditorium.

Nevertheless, for a good 20 seconds at A. Philip Randolph High School in
Harlem on Oct. 19, the boos resounded equally with the cheers, while Mr.
Bloomberg maintained a half-embarrassed smile until the din subsided.

The Mayor was sharing the stage that day with some three dozen American
Olympians and Paralympians, who had descended en masse upon the high
school to receive a hero’s welcome in honor of their achievements at the
Summer Games in Athens. The event also served as a pep rally for bringing
the 2012 Summer Olympics to New York. And although it’s anyone’s guess
why Mr. Bloomberg proved to be so unpopular among many of the students,
it was hard not to see the jeers as a referendum on his campaign to bring the
Olympics to the city.

After all, some critics are questioning the Mayor’s assurances that the
games will be privately financed, and that the city’s taxpayers will be
completely insulated from billions of dollars in cost overruns which may
stem from the Games. Brian Hatch, a former deputy mayor of Salt Lake City
who oversaw part of that city’s buildup for the 2002 Winter Games and who
has emerged as one of the most vocal critics of building an Olympic stadium
on the West Side, dismisses the notion that taxpayers won’t get stuck with
bills.

"The Games are awarded to a city, and the city is going to be ultimately
responsible for the costs," he said.

Deputy Mayor Daniel Doctoroff, the founder of the New York’s Olympic bid,
strenuously argues the opposite.

"Under no circumstances," he said, "is the city or state on the hook," with
the exception of a $250 million contingency fund approved by the State
Legislature in 2001.

Mr. Doctoroff’s comments notwithstanding, the city’s bid committee,
NYC2012, has refused The Observer’s repeated requests to verify Mr.
Doctoroff’s claims by examining a draft of the contract which the city will
sign with the International Olympic Committee in July, should New York be
awarded the Games. A Mayoral spokesperson said the document couldn’t be
released because it has not been finalized.

"The City Council should be able to let lawyers look at this to make sure
it’s airtight," said Mr. Hatch. "Are there hidden costs? How will the City
Council know for sure unless they let lawyers look at it?"

There is reason to doubt the administration’s claims about taxpayer
insulation from cost overruns. Before the I.O.C. awarded the 2002 Games to
Salt Lake City, and the 2010 Winter Games to Vancouver, Canada, each city
had to sign contracts spelling out that the "responsibility for the
organization and staging of the Games … shall be entirely assumed, jointly
and severally, by the City and the [local organizing committee]." Moreover,
those liabilities were so large that the cities couldn’t take them on by
themselves, and both Utah and British Columbia had to step in and pledge
their own state and provincial coffers against the potential overruns.

Mr. Doctoroff maintains that that won’t be the case with New York’s bid.
Rather than the public being on the hook for overruns, he said, that
responsibility will fall to the Organizing Committee of the Games (OCOG), a
private entity that the city will create if it gets the Games.

"The OCOG is undertaking to fulfill the requirements with respect to the
[potential cost overruns]," Mr. Doctoroff said. "There are certain things
the city will do—pick up the trash, clean the streets—but there is no
financial commitment by the city for the Olympic Games."

There is no way to verify that claim, however, without seeing a copy of the
2012 Host City Contract. And what’s more, Mr. Bloomberg plans to commit to
this contract long before the I.O.C. makes it final decision in July. On
Nov. 15, when the city will submit its formal bid application to the
I.O.C., the Mayor must sign his name to an "undertaking" document, in which
he pledges to sign the Host City Contact "without reserve or amendment"
should the city win the competition for the 2012 Games. In other words, the
city will be effectively locked into the Host City Contract, which might be
tantamount to accepting financial liabilities stemming from the Games.

NYC2012 has budgeted the Olympics at $3.7 billion. About $1 billion would
go toward capital costs—the construction of some venues. The remaining $2.7
billion would go toward operating costs—the actual running of the games.
Most of that money will be secured by TV rights, tickets and corporate
sponsorships. Mr. Doctoroff said he and NYC2012 have done "remarkably
detailed" budgeting for each aspect of the two-week event. Each budgeted
venue has a contingency in its construction budget, and the overall budget
includes a $200 million general-purpose contingency—in addition to the $250
million contingency from the State Legislature.

Mr. Doctoroff contrasted New York’s plan for financing the games with that
of Athens, whose government is heavily in debt as a result of
infrastructure improvements made for the Games.

"It’s comparing a completely different model," he said. "The government ran
the Games. The government made all sorts of decisions to add additional
costs on. So they were responsible, and they picked up the costs."

Other Costs

Although it might seem that New York’s $3.7 billion budget is propped up by
sound revenue streams and relatively solid contingencies and public
guarantees, the $3.7 billion is not the whole story. That figure does not
include several billion dollars worth of capital projects that Mr.
Doctoroff calls essential to the games, but which don’t appear in the
budget because, he says, they are worthwhile and would be pursued even if
New York doesn’t win the Games.

These projects include the $1.4 billion Olympic stadium, the $1.6 billion
Olympic village and the $600 million International Broadcast Center, among
others.

Although cities vying for the Olympic Games have long been using that logic
to push for infrastructure improvements that have otherwise proved
impossible to get off the ground, the tactic has no shortage of critics.
Mr. Hatch, the former Salt Lake City deputy mayor, called Mr. Doctoroff’s
logic disingenuous. If the stadium, the village and the broadcast centers
are necessary to the Games, he argues, then it is irrelevant that the city
thinks they’re good ideas on their own. The city is counting on the private
sector to pay the lion’s share of each of those three projects, but if
private funding sources don’t materialize, Mr. Hatch argues, the city will
have no choice but to spend public moneys on the projects.

"They’re either necessary for the Games or they’re not," Mr. Hatch said.
"You can’t claim that they’re necessary to get them going, but then claim
that they don’t factor into the cost of the games once they’re started."

At the post-event press conference at Rudolph High, both Mr. Bloomberg and
Mr. Doctoroff acknowledged the city is counting on private investment for
each of those three massive projects, as well as many other smaller facilities.

So, the question remains.

"Who is going to be left holding the bag if private developers don’t step
up to build these projects?" asked Mr. Hatch.

You may reach Blair Golson via email at: bgolson@observer.com.