Now the civic conversation about the Olympics can really begin.
If the complaint has been that there’s not enough information about Boston’s bid, well, Steve Pagliuca has buried us in numbers. The Boston 2024 chairman has delivered a plan we should have gotten in January, when the city got the nod from the United States Olympic Committee.
So what have we learned?
Hosting the Summer Games is as ambitious — and as risky — as we thought it would be. The plan calls for the creation of two neighborhoods, which would involve $4 billion in private sector investment, and it proposes what could be the biggest tax break in the city’s history to spur development.
On top of that, the region will need another $3 billion in transportation upgrades, from better rail to new roads. Much of it is funded, but the state will need to find another $775 million to finish the job.
Pagliuca, managing director of the private investment firm Bain Capital and an accountant by training, assures us the organizing committee has been conservative in its financial modeling. In other words, revenues are underestimated, and costs are overestimated.
But we all know the Olympics famously go over budget. Cities tend to lowball numbers to get everyone behind the bid, or catch Olympic fever and just go overboard with construction.
A 2012 study by Oxford University’s Said Business School found that costs, on average, ballooned 179 percent from the original bid. Based on that estimate, the price tag of Boston’s Summer Games with a proposed budget of $8.5 billion, not including transportation upgrades, could grow by an additional $15 billion to more than $23 billion.
Our bid will live or die on how comfortable taxpayers are that they won’t be stuck with a ginormous bill after the athletes clear out.
So does Boston 2024 come even close to making us feel better about the Olympics?
It’s a start, and by my count, a lot will ride on the insurance the group buys.
Boston 2024 has set aside $128 million to purchase more than a dozen kinds of policies to protect against several billion dollars of losses, ranging from lawsuits to a cancellation of the Games to a terrorist attack. Buying enough insurance so that taxpayers won’t be on the hook for unexpected costs is an untested strategy.
On top of that, Boston 2024 has set aside $210 million in contingency funds from its operating budget. Developers typically build contingencies into their projects, and Boston 2024 has factored in a 5 percent cushion for most of its venues.
Outside the operating budget, Boston 2024 is requiring developers to kick in additional contingency funds for the most expensive projects — the $1.2 billion Widett Circle site and the $2.8 billion athletes’ village.
Developers will need to provide $215 million in contingencies for the village and $92 million for Widett Circle, where the temporary Olympics stadium would be built. The $176 million stadium itself would come with a 17 percent contingency coming out of the Boston 2024 operating budget.
And there’s more — in the form of agreements between developers and contractors to ensure that work is done on time and on budget. Olympic construction needs to meet its deadline — and organizers often end up spending more because the Games can’t get delayed.
As good as Pagliuca may be at crunching numbers, there are a lot of assumptions and a lot of moving parts, which create more room for error. Just think about how many economists predicted the Great Recession; most didn’t until it was too late.
It will take another team of professionals to vet Boston 2024’s numbers — and luckily the state has ordered up an independent review, due out at the end of July, to see whether the plan makes financial sense.
Now comes the hard part: figuring out whether it’s all enough. Not only to satisfy taxpayers but also Governor Charlie Baker, who ultimately will need to declare whether Boston will go for the gold, or watch the Games on TV like everyone else.
Clarification: An earlier version of this column underestimated potential cost overruns for Boston’s Olympic bid based on an Oxford University study.