Financial risks loom as Chicago awaits Olympic fate
Chicago taxpayers would be responsible for any Olympic cost overruns
The city has been hit by the recession, and many citizens don't want the Games
Mayor Richard Daley had to put taxpayers on the hook or risk losing the bid
Like many a transplanted Chicagoan, I'm eager to show off my hometown after spending most of my adult life in New York City. I want my coast-centric acquaintances to know what real pizza looks like; that Chicago has a majestic skyline with the country's tallest building; that one of the world's two outdoor Picasso sculptures stands by City Hall; and that, no, you cannot skip a rock across Lake Michigan. (It's more than twice the size of New Jersey! And three times as clean!) I can't help but get a little tingly when I consider that the International Olympic Committee might award the 2016 Summer Games to Chicago on Oct. 2, when its members meet in Copenhagen to choose a site from a final four that also includes Madrid, Rio De Janeiro and Tokyo. And I'm not the only one. A slightly more famous ex-Chicago resident, President Barack Obama, will be in Copenhagen to schmooze IOC members.
Of course, it's easy for me to be excited: I'm no longer an Illinois taxpayer, so I don't have to worry about picking up the tab should the Olympics become a money pit. And if recent host cities are any guide, the risk is real. Since Vancouver was awarded the 2010 Winter Games six years ago, its Olympic budget has ballooned over $400 million dollars, to around $1.6 billion. London's 2012 budget now tops $15 billion, nearly four times what it was when the city was awarded the Games in 2005. Chicago's plan, which has the advantage of requiring relatively little new construction -- thanks in large part to McCormick Place, the country's largest convention center and prospective home to 11 Olympic disciplines -- starts with a $4.8 billion price tag. To protect against everything from the financial collapse of a sponsor to a terrorist attack, Chicago 2016, the committee bidding for the Games, has arranged for historically unprecedented levels of insurance. But taxpayers are still the ultimate backstop. In June, mayor Richard Daley, after repeatedly promising taxpayers that they would not be on the hook for an overrun, did an about face and (pending City Council approval that he had not yet received) pledged to sign the standard Olympic host city contract that puts full financial responsibility for cost overruns on the city and its organizing committee. Daley had to either sign the contract or wave goodbye to his Olympic dream, as no city in the last quarter-century has won the Games without agreeing to the terms.
His sudden reversal, though, did not sit well with many Chicagoans struggling through the recession as they watched the city impose three furlough days for municipal employees where the city forgoes such luxuries as garbage pickup and a staffed City Hall. So it's no surprise that some windy citizens are recoiling at the thought of shelling out for the Games. Earlier this month, a Chicago Tribune poll found that nearly as many Chicagoans don't want the Olympics (45 percent) as do (47 percent), a sharp decline from the 2-to-1 support for hosting the Games in the paper's February survey. Eighty-four percent said that no public money should be used. "It's fine to wave the Olympic flag and get all gooey-eyed about girls tumbling," says Tom Tresser, a Chicago educator and organizer of the ad hoc group "No Games Chicago," who went to Switzerland in June to lobby the IOC against picking his hometown. "But the city is broke as a stone."
Chicago 2016 contends that the Tribune poll is misleading because it was conducted before community meetings in which committee members visited every Chicago ward and tried to allay citizens' fears. In those get-togethers -- some were about as genial as your congressman's healthcare town hall -- Olympic organizers hammered the talking point that the bid will be entirely privately financed. Apparently the committee was not counting the $35 million the Chicago Park District is supposed to kick in for a velodrome and a canoe/kayak course. Ditto for a city plan to implement "tax increment financing," a taxation strategy to incentivize development of an Olympic Village on Chicago's South Side by locking in a low tax rate and plowing city revenues back into infrastructure improvements in the area.
It would be great, of course, to have a downtown kayak course for public use once the Games are over, and the site of the proposed village -- currently a shuttered hospital -- certainly could use the development. But the city has said that the Olympic Village site will get a makeover whether or not Chicago gets the Games, and economists SI interviewed uniformly said that using the Games to spur urban development is a backward strategy. "If you want to develop housing, the most efficient way is to spend the money directly," says Allen Sanderson, a University of Chicago senior economics lecturer with a sports specialty. "You don't throw a big block party, which is what the Olympics are, and then say, Oh, by the way, we'll revitalize the neighborhood ...Tails ought not to wag dogs."
But what about the publicity boost? Sanderson concedes that Chicago, which is within six driving hours of 60 million Americans, might benefit from the exposure. An economic analysis commissioned by Chicago 2016 predicts that a tourism boost in the Olympic year and the five years before and after would help produce a $22.5 billion economic impact on Illinois, largely through tourism spending and job creation, with $19.2 billion of that in Cook County, where Chicago is located. The analysis cites a 25 percent increase in foreign visitors moving through Sydney's airport since the 2000 Games, but it fails to mention that researchers at Australia's Monash University found that tourism in New South Wales, where Sydney is located, has not even kept pace with the rest of the country. (Additionally, because Sydney spent taxpayer money on projects of limited utility -- a kayak course isn't exactly an economic engine -- the Monash study concluded that the net Olympic impact on Sydney was negative $2.1 billion. The study did not say that Sydney shouldn't have hosted the Games, just that they cost money.) When asked about the Sydney tourism discrepancy, Dennis Tootelian, the California State University at Sacramento marketing professor who, with a colleague, conducted the analysis for Chicago 2016, said that he is "not aware of what it could be. It could be just the logistics of getting to Sydney ... The cause and effect are hard to quantify."
Michigan-based Anderson Economic Group, which independently tried to quantify the economic impact on Cook County of hosting the Olympics, suggested that Tootelian's analysis had improperly counted normal summer tourism spending that would occur regardless of whether or not the Olympics come to town. Anderson Economic Group's report, which came out last week, estimated a still significant but much smaller $4.4 billion impact to Cook County, and noted that if ticket revenues, sponsorship dollars, or corporate donations fall short of Chicago 2016's aggressive projections, the city could be left "with a substantial bill should expenditures not be cut to offset the revenue shortfall." Mayor Daley chafed at the Anderson report, suggesting that people from the economically broken state of Michigan should not be telling Chicago what to do. "They wish they had the Olympics," Daley said. (Of course, the Chicago 2016 report came from Californians, who reside in a state that had to cut over 10 percent of K-12 and community college funding and furlough state workers three days a month to close a $26 billion budget deficit.)
When Daley first pledged to sign the host-city contract without consulting the City Council, some Chicago aldermen expressed their fear over being stuck with a big bill. But an August report by Chicago's independent Civic Federation calmed them by concluding that the Chicago 2016 plan projects aggressive revenues but "provides adequate protection for taxpayers" even though "the development of the Olympic Village exposes the City of Chicago to continuing real estate risks that must be managed." Just how independent the report was, however, quickly became a point of contention for Chicagoans like Tresser, who do not see the Olympics as a justifiable financial risk. L.E.K. Consulting, the firm the Civic Federation hired to do the report, is currently competing to run concessions in the O'Hare Airport international terminal -- a fact L.E.K. disclosed in its report. Terminal concessions would presumably get a bounce during the Games.
Chicago alderman Manny Flores, still concerned even after the report came out, pushed the council to pass legislation requiring Chicago's inspector general to review quarterly reports from the Olympic organizing committee if Chicago gets the Games. Before passing the legislation, though, the City Council changed the wording so that the IG "may" review quarterly reports, but is not required to do so. Rather, the council voted to give oversight to two Daley allies on the council, one of whom is Edward Burke, chair of the finance committee, or, as Chicagoans know him: "Fast Eddie." Four days before Burke was vested with oversight power, he was making headlines for spending $45,000 of taxpayer money to build a sidewalk and a fence that keeps passersby away from his house, and, Burke claimed, off of a dangerous nearby railroad crossing. Additionally, No Games Chicago has been pointing out potential conflicts of interest for Burke stemming from his private legal practice. Burke's 2008 "statement of financial interests" shows that he has a number of corporate clients that have donated to Chicago 2016.
On Sept. 9, Chicago City Council members had their last chance to tell the mayor and the bid committee that the potential for a cost overrun was too big a risk to take. They were voting on whether to give Daley the authority he needed to sign the host-city contract, putting Chicago and the Chicago 2016 bid committee on the hook for the entire cost of the Games, including any overruns. In the two weeks leading up to the vote, several aldermen SI interviewed thought that the Chicago 2016 committee had assembled an outstanding bid, but expressed some concern over the financial prospects of the Olympics. When 32nd Ward alderman Scott Waguespack kindly gave SI a few minutes in the hour before his wedding, he noted that one of his guests, an Australian, told him that Australians by now agree that the Olympics did not give Sydney the boost they had hoped for, and Waguespack said that Chicago 2016 projections have not "provided any sense of financial reliability for me." And yet, he, like every other council member, a few of whom harangued anti-Chicago Olympics folk as fearful and unimaginative, voted yea without raising so much as a qualm.
Sitting quietly in the gallery during the vote, sporting an "I Support The Bid" T-shirt, was 32-year-old Charley Nelson, a gymnastics coach at the University of Illinois-Chicago. "I think there's probably some [positive] economic impact from the Olympics," he said, "but I'll take a loss to showcase the city for two weeks." I suppose I'm with Charley, especially because I no longer pay Chicago taxes.