Managing the cost of Olympic gold

July 1, 2003

Vancouver has won the opportunity to host the world at the 2010 Winter Olympic and Paralympic Games. The widespread (though not universal) display of triumphant joy by supporters underscores the main reason for hosting the Games - pride and enjoyment.

But the cost-benefit analysis I co-authored of the 2010 Winter Games indicated clearly that these benefits will come at a financial cost - some $1.2 billion (net present value in 2010). And, that cost could get higher.

Our study also noted that the Games could pose significant social and environmental costs. For the most part, Bid proponents have committed to take steps to mitigate or address these issues. Many will watch closely to ensure that these commitments are met.

The weakest of the pro-Olympic arguments has been that the "economic stimulus" before, during and after the Games will substantially boost the provincial economy, so much so that increased tax revenues will fully cover the provincial government's costs. There is no basis to believe that the economic stimulus will be that great, that sustained and especially that it would be enough to fill the hole in the provincial treasury.

Is our view controversial? Certainly the Premier and the Board of Trade have restated their firm belief in the miraculous economic healing powers of the Games (they have been transformed from tax-cutting supply-siders to born-again Keynesians). They cite billions in economic activity and hundreds of thousands of jobs based on a consultant's economic impact study.

A careful review, however, shows the impact study provides no indication of net return, and even its rosy scenarios do not envision increased tax revenues to offset costs.

Regardless, the Games are coming. Whether they're worth having is now a moot point. But, it is worth considering what can be done to make the best of the opportunity and obligations the 2010 Games present. Enthusiasm should not blind anyone to the serious risks that the next seven years present. So what should we do to make the best of the Games?

The federal and provincial governments should ensure effective and accountable governance for the Vancouver Organizing Committee for the Olympic Games with full transparency in all financial matters. The Organizing Committee should be subject to the same freedom of information rules as government agencies. This can help to reduce the possibility of conflict of interest and financial impropriety that have tainted many Olympics (including both the Calgary and Montreal Games).

The governments and the Organizing Committee should set aside economic impact models as a tool for justifying Olympic projects. That approach makes all spending appear good - and would perversely make a cost overrun (more economic activity) appear better than an on-budget project. Instead, they should return to conventional benefit-cost tools incorporated within the provincial government's own Capital Asset Management Framework. Done right, a benefit-cost evaluation lays bare the tradeoffs between project options - the pros and cons - and identifies the net gains or losses for each.

Governments and the Organizing Committee should define exactly what the minimal requirements of hosting the Games are - which venues, with what capacity and features, and what transportation are minimally needed for 2010. Closer review may show that the Sea-to-Sky highway does not require such extensive upgrades. Costs of mitigating social and environmental impacts should also be included. This baseline budget - plain vanilla Games - should anchor all financial decisions.

There may be a case for spending more than plain-vanilla on a particular project. It may be wise, for example, to build in additional features to a facility so that it can be converted after 2010 to be more useful. But warning lights should go off whenever someone argues for an enhancement based on it being a "legacy" or an opportunity to "show the world." Each case should be judged by whether the additional benefits warrant the additional costs.

And each enhanced spending decision should face the same ruthless cost-cutting scrutiny that healthcare, child services, education and all other government services must face. Elaborate torch displays must compete for scarce dollars with seismic upgrades of elementary schools.

The federal and provincial governments should reconsider setting aside a "legacy fund" where $110 million is placed in a trust in 2010 to sustain money-losing facilities indefinitely after the Games. It was honest of the Bid Corporation to identify this obligation. But, such a fund provides a "free-pass" around the gauntlet of annual budget appropriations that other public facilities face. It will be hard for communities that have lost a school, hospital, or courthouse to understand why ski jumps or luge tracks get guaranteed operating subsidies after the Games have come and gone.

Undoubtedly, the provincial government will be under considerable pressure to make sure that the rest of the province (outside the Lower Mainland, Squamish and Whistler area) should share in the Olympic bounty. But, the Olympic construction boom cannot be moved, nor can we expect many tourists to explore far afield from Vancouver or Whistler in February. The Olympics themselves are not the best way to address equity between different regions of the province.

By all means the government should take advantage of the profile provided by the Olympics to showcase BC and its businesses. But any campaign should be grounded in the reality that February is not a good time to showcase most of BC, and that Vancouver itself may appear darker and wetter than we'd like the world to picture it.

Finally, the provincial and federal governments should get on with managing their real economic responsibilities. An economic strategy based solely on the Olympics neglects many important sectors in BC (natural resources, high tech, financial services), redirects transportation investment away from key goods movement routes in the Lower Mainland and places too much emphasis on one event seven years out.

There is a real risk that government in Victoria will become pre-occupied with the Olympics initiatives. Cabinet meeting agendas will refocus on the feel-good of the Winter Games, to the neglect of the many serious problems facing British Columbia over the next decade. If so, that could be the biggest cost of the Games.