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Evan Horowitz

So what happens when things go wrong with Olympics?

Facing widespread public skepticism and mixed reviews from Massachusetts political leaders, the group behind Boston’s Olympic bid has unveiled its new vision for the 2024 Olympic Games.

Bid 2.0, as it’s being hailed, expands the games to include venues all around the state, and conceives the Olympics as an opportunity to create thriving new neighborhoods in Boston.

One thing the revised bid doesn’t really address, however, is the risk to taxpayers. Massive cost overruns are as much a part of Olympic history as record sprints and photo finishes.

And while the Olympic planners are hoping to take out an insurance policy against unforeseen costs, it’s not clear whether that approach is really feasible. If not, any shortfalls will have to be made up with money from city and state coffers.

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How much does an Olympics cost?

Between the venues and the pageantry, hosting the Olympics doesn’t come cheap. In authoritarian states, like Russia and China, the price tag has reached $40 billion to $50 billion. But even in democratic states, like England and Greece, recent Olympic Games have cost over $15 billion, according to numbers collected by megasports economist Andrew Zimbalist.

Boston’s bid includes a much lower cost estimate, less than $10 billion for construction and operations. The hope, presumably, is to run a tighter ship and follow the example of small-budget Games like the 1984 Los Angeles Olympics, which cost well under $1 billion.

It’s worth noting that the firesale pricetag in 1984 wasn’t just about responsible budgeting. Los Angeles had a big advantage: No one else even wanted the Olympics that year. So the city was able to negotiate aggressively with the International Olympic Committee.

By contrast, Boston is competing against several eager host cities, including Rome and Hamburg. And even jilted Los Angeles is still eyeing the prize.

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Won’t some spending support Boston’s long-term needs?

That’s a major point of emphasis in bid 2.0. Preparations for the Olympic stadium are set up to double as efforts to redevelop an entire Boston neighborhood. Ditto for the athlete’s village.

There’s at least one big advantage to this approach: By using the Olympics as a catalyst for new housing and other kinds of urban development, you can ensure that projects move forward, rather than languishing in the planning stages.

On the other hand, this same strict timeframe gives developers a lot of leverage. Threaten to pull out mid-project — when the city is relying on you to finish up by a certain date — and you can extract some painful concessions.

Why are cost overruns such a big problem?

Partly, it’s just the nature of big construction projects. Along the way, you run into unexpected challenges, which require unexpected sums of money.

With Olympic overruns, there’s another factor: You can’t adjust the construction schedule. When troubles arise, they don’t just have to be fixed, they have to be fixed quickly. So while ordinarily you might opt for the cost-effective solution that takes some additional time, with the Olympic clock ticking, you often need to take the quicker, and more expensive, approach.

The results can be jaw-dropping. We’re not talking about cost overruns of 20 or 25 percent. The final cost of the London Olympics was 300 percent higher than originally estimated. Currently, many of Boston 2024’s estimates include a contingency of less than 10 percent, with little room in the budget to absorb overruns beyond that.

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What about the insurance policy?

The latest bid documents talk about the possibility of using insurance coverage as a hedge against potential cost overruns. However, this approach has never really been tried before. And for now, the plan is in the early stages. No policy has actually been written, and no insurance company has signed on.

It’s possible that a truly robust insurance policy would effectively shield taxpayers from unexpected costs and generally protect public money. But again, it’s untested. And there’s a big question mark: Why would an insurance company agree to cover cost overruns, given that such overruns aren’t rare events, but a regular part of Olympic construction?

So does this mean taxpayers will have to pay for the Boston Olympics?

Not necessarily. If everything goes according to plan, it’s possible the Boston 2024 Olympics can be funded with private money.

The big question is what happens when things go wrong — as they almost always do when preparing for an Olympics.

Before the International Olympic Committee will award the games to Boston, some government entity — the city or the state — has to sign a guarantee, promising that the Games will go on, whatever the obstacles, and that all necessary costs will be covered.

Unless a truly robust insurance policy can be put together, bid 2.0 doesn’t change the underlying fact that public money will be on the line.


Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the United States. He can be reached at evan.horowitz@globe.com. Follow him on Twitter @GlobeHorowitz

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