Civic Fed OKs 2016 cost forecast - except for Olympic Village
By John Pletz - Crain's Chicago Business -
Aug. 26, 2009
The Civic Federation has come out with a report that generally
concurs with Mayor Richard M. Daley's budget projections for the 2016
Olympics - with the exception of the development of the Olympic
In a highly anticipated report, the tax-policy group said that "the
operating budget, including venue construction, proposed by (Chicago)
2016 is fair and reasonable." But it warns that the Olympic Village,
which would house athletes if Chicago gets the games, exposes the city
to "continuing real estate risks that must be managed." The report
recommends that the city purchase additional insurance to protect
against cost overruns on the $1-billion project.
See related story: "The next Olympic land mine
Patrick Ryan, CEO of the bid committee called the report "very gratifying."
"We've been working on it for over three-and-half years, and they came
out with the conclusion confirming what we've been saying all along,"
Mr. Ryan said.
While the Civic Federation found the projected $3.8-billion operating
budget "fair and reasonable," it warned that several of the mayor's
estimates of how much revenue the games would generate are "optimistic
compared with previous games."
Civic Federation President Laurence Msall said the Olympic Village
project presents the greatest risk in the bid because it's the most
expensive project and relies on private developers. Last month, the
city paid $86 million for the Near South Side land under what used to
be Michael Reese Hospital. The intention is to sell the land to a
private developer that would build the Olympic Village if Chicago lands
the 2016 Summer Games, or turn it into private housing if Chicago is
Vancouver and London, hosts of the 2010 and 2012 Olympics,
respectively, have had to step in with public money for Olympic housing
projects when private funding dried up during the global recession.
Chicago 2016 told the Civic Federation that it has identified a
relatively new class of insurance, called capital-replacement coverage,
that would cover a financial shortfall on the part of developers.
Mr. Msall says such coverage costs about $17 million per $250 million
of coverage, and the bid committee is contemplating about $2 billion
worth of coverage. That would cost Chicago 2016 $137 million.
The Civic Federation's report says that such insurance - along with
other policies the city plans to buy to cover everything from event
liability to default by corporate sponsors - should be sufficient to
shield taxpayers from financial risk, but only if Chicago 2016 sticks
to its current financial plan.
"Much of the protection planned by the 2016 committee requires the
purchase of insurance," Mr. Msall said. "That insurance is not yet
available until it's determined whether Chicago gets the bid or not.
That is the role where the City Council has to step forward with
Such insurance will increase the amount of private donations the
Olympic committee will have to raise to $269 million to $287 million.
Previously, the bid committee expected it would have to raise $246
million to cover previously identified construction-fund shortfalls.
The group's report comes in advance of the City Council's vote on
whether to authorize a host city contract. The contract means the city
would have unlimited financial liability for hosting and planning the
games, a move drawing sharp criticism at a time when Chicago faces a
growing budget shortfall.
Some have slammed Mr. Daley for going back on his word that no public dollars would be used for the event.
The host-city guarantee is set to be presented to the City Council's
Finance Committee on Sept. 8, followed by a full council vote Sept. 9.
Aldermen asked the Civic Federation to undertake the review, which was
performed by London-based LEK Consulting and cost more than $100,000.
Mr. Msall said the analysis was paid for largely with donations from
private groups such as the MacArthur Foundation, the Joyce Foundation
and the Chicago Community Trust.
The International Olympic Committee requires bid cities to sign the
host city contract. Chicago is competing against Tokyo, Madrid and Rio
de Janeiro. The IOC will announce the host city on Oct. 2.