A look at Olympics budget points to overruns
Expensive details, such as land ownership, could sink Boston’s budget
Now that Boston 2024 has begun to show its hand, it’s time for a fresh assessment of the no public funds pledge. The bid budget document refers to three categories of expenditures: the operating budget of $4.7 billion; the development budget of $3.4 billion; and the infrastructure budget of $5.2 billion. Since Boston 2024 continues to maintain that the infrastructure budget is already planned and financing is already publicly allocated, it is not included in the cost of the Games. These costs are all estimated in 2016 prices.
Let’s take a closer look. The operating budget is supposed to cover the costs of staging the Games themselves. Although the details are scarce, it appears that the operating budget includes the costs of building, dismantling, and modularly transporting the 60,000-seat Olympic Stadium. This stadium is said to be bare bones, without club seating, luxury suites, catering facilities, etc. Boston 2024 officials have said it will cost $350 million to $550 million to build. Eleven other temporary competition venues are also included in the operating budget, which, together with support services, work force, technology, games services, hospitality, and the opening and closing ceremonies, will push expenses well over budget.
The document also states the assumption that all security and transportation expenses during the Games (likely in excess of $2 billion) will be paid for by the federal government. But this is not automatic and is subject both to negotiation and legislation. It also implies that local police, security personnel, and fire department employees will not work the Games. If they do, others will have to be hired to work the rest of the city on an overtime basis.
Also excluded is the requirement that Boston remove all advertising in the city for the 17 days of the Games and the preceding month. This involves all billboards, signage, bus, train and airport advertising. The city will either lose ad revenue or have to reimburse private owners for their lost space.
Boston 2024 claims that the alleged operating cost of $4.7 billion will be covered by ticket sales, its share of international television money, domestic and international sponsorships, and approximately $1.1 billion in unspecified revenues. Included in the latter is Boston philanthropy. The document lauds the generosity of Bostonians through the Pan-Mass Challenge, the Jimmy Fund, etc., and expects that they will continue to support the Olympics. If they do, what impact will this have on giving to charitable organizations?
Next, there’s the development budget. Of the presumed $3.4 billion total, $2.5 billion is allocated to the Olympic Village, which it assumes will be absorbed by a private developer. Perhaps, perhaps not. For the 2012 Games in London, a private developer contracted to fund the village for $1.7 billion, but pulled out, leaving London with the tab. Another $500 million is allotted to the media center and only $400 million for all other competition venues. This $900 million supposedly will be covered by “public/private partnerships.” Again, there is no commitment of funding yet, nor any guarantees. What would happen if the US economy stumbles into another recession between now and 2024?
And significantly, Boston 2024 acknowledges that 25 percent of the land it is targeting is owned privately. It would have to be bought. There is no money budgeted for these purchases. Nor is it clear from where the financing for the remediation or utility connections is coming.
Finally, there’s the “we are spending it anyway” category of infrastructure. Boston 2024 considers it a benefit that some infrastructure spending will be accelerated by hosting the Games. This assumes that all infrastructure spending should take priority over other city needs. There is also roughly $1 billion of additional infrastructure needed for the Games that the document lists as having a funding source “to be determined.” Unless anyone thinks that, for instance, the Red Line Heavy Rail Vehicle Overhaul or Enhanced Bus Service is going to find a private funder, best to hold on to your wallets.
The real kickers though are twofold. First, every single Olympic Games has experienced massive cost overruns. The Summer Games have an average cost overrun of 252 percent in real terms since 1976 — that would put Boston’s final cost at $28.5 billion, not counting the separate infrastructure budget. Will Boston really be able to compete with Rome, Paris, Johannesburg, Melbourne, or Doha with a bare bones Olympic Stadium, or is the current plan simply one to get a buy-in from the public sector, with the bells and whistles still to come?
Second, the International Olympic Committee requires that the implementation of the final bid be financially backstopped by local government in case private funding falls short. Boston’s budget is $2.7 billion. Whoops! Governor Baker, are you listening?
Andrew Zimbalist is a professor of economics at Smith College.