Los Angeles' Bid for the 2024 Olympics and Paralympics

Los Angeles’ Bid for the 2024 Olympics and Paralympics YEARS OF SERVICE MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • NOVEMBER 10, 2016 AN LAO REPORT 2 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT EXECUTIVE SUMMARY State Policy to Support Los Angeles’ Bid for 2024 Games. Los Angeles, Budapest, and Paris are bidding to host the 2024 Olympic and Paralympic Games. Earlier this year, the Legislature passed and the Governor signed SB 1465 (de León), which essentially makes it the state’s policy to support Los Angeles’ Olympic bid. Many of the key decisions about hosting the Games will be made over the next few months as the Los Angeles bid is refined in preparation for the International Olympic Committee (IOC) choosing the winning city in September 2017. Among these decisions may be the Governor’s negotiation of a financial guarantee contract for the Games under the terms of SB 1465— for up to $250 million in state monies to support any Games financial deficits, after all other possible sources have contributed. Bid Aims to Minimize Public Financial Risk. In recent years, several major cities have chosen not to bid for the Olympics, fearing massive sports venue and infrastructure cost overruns that have plagued prior host cities. Recognizing this problem, the IOC recently has put in place mechanisms intended to favor bid cities that propose low-cost, low-risk plans that primarily utilize existing or already-planned facilities. Los Angeles’ 2024 bid benefits from this low-cost, low-risk approach, as all of its planned venues already exist or are on track to exist by 2024. The bid also needs no new major public infrastructure to proceed. Short-term economic gains from the Games likely would generate additional state and local tax revenues that would offset some or all public costs. Compared to many past Olympic bids, the current proposal by the LA 2024 organizing group is a relatively low risk one. Strict Limits on Public Financial Exposure Should Continue. While the Los Angeles bid aims to minimize financial and execution risks, history tells us that there may be no way to completely eliminate these sorts of risks for a “mega-event” like the Olympics. State and city leaders have, to date, adopted a firm approach concerning the Los Angeles bid: aiming to strictly limit public financial exposure. We believe this is a sound approach and advise state leaders to continue this stance. If problems develop in organizing the Los Angeles Games, state leaders can push organizers to develop privately funded alternatives at minimum cost and minimum risk for state and city taxpayers. Role for Legislative Oversight. If Los Angeles is awarded the 2024 Games, public attention will focus on planning for the event, and the state will have a few hundred million dollars of taxpayer funds on the line. We advise the Legislature to develop an oversight framework for the Games. (This would be in addition to the much more intensive oversight expected to be provided by Los Angeles city leaders.) Legislative leaders may want to appoint one or more oversight committees to oversee the Governor’s contract negotiations with Games organizers, as well as learn of key decisions concerning refinement of the bid before September 2017. If Los Angeles is chosen, legislative oversight committees could hear of any later issues that develop in the planning of the Games and prod state departments, if needed, to help Games organizers. This report is intended to provide background information that could be useful for the Legislature in planning its oversight efforts. www.lao.ca.gov Legislative Analyst’s Office 3 AN LAO REPORT 4 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT THE OLYMPIC MOVEMENT Olympic and Paralympic History. The first example, gymnastics are governed by the modern Olympic Games were held in 1896 in International Gymnastics Federation. Athens, Greece. The first Olympic Winter Games • National Olympic Committees (NOCs). were held in Chamonix, France in 1924. About NOCs manage and promote Olympic two dozen countries—in every inhabited continent activities in individual countries. NOCs except Africa—have hosted summer or winter choose a nation’s athletes for each Games Olympics. The U.S. has hosted eight summer or and decide which cities in their countries winter Games—most recently in Atlanta during the can bid to host the Games. Team USA is summer of 1996 and in Salt Lake City during the managed by the U.S. Olympic Committee winter of 2002. Since the 1988 Games in Seoul, the (USOC), with headquarters and a training Paralympic Games—an international sports event center in Colorado Springs, as well as two involving athletes with a range of disabilities—have other training centers (Lake Placid, New been held soon after each Olympics. York and Chula Vista, California). A federal The Olympic Movement. The Olympic law—the Ted Stevens Olympic and Amateur Movement, as it is called, consists of three main Sports Act—designates the USOC as the groups: coordinating body for international amateur • International Olympic Committee athletics in the U.S. The law gives the USOC (IOC). The IOC, the Olympics’ highest exclusive rights in the U.S. to govern use of decision-making body, consists of up to certain Olympic symbols and brands (like 115 members. The IOC President— the Olympics’ five interlocking rings). currently Thomas Bach of Germany— These three groups all have a stake in the successful presides. The IOC chooses host cities for staging of each Olympics. They provide feedback each Olympic Games. The committee is to cities hosting the Games or bidding to host headquartered in Lausanne, Switzerland. the Games concerning venues and facilities. City • International Sports Federations. leaders set up their own Organizing Committees Federations are responsible for the for the Olympic and Paralympic Games (OCOGs) integrity and administration of one or to manage the massive logistics needed to host the more sports at the international level. For Games, once their city is selected to host them. CALIFORNIA’S OLYMPIC GAMES California has hosted two summer Games (Los the Squaw Valley Games required significant state Angeles 1932 and 1984) and one Winter Games financial assistance. (Squaw Valley 1960). In each case, the Games were 1932 Los Angeles Games. In 1923, Los successful in terms of providing a good experience Angeles was awarded the 1932 Games. In 1927, for athletes and spectators. The two Los Angeles the Legislature passed Senate Constitutional Games, however, were financial successes, while Amendment 24 (Lyon), which placed before voters www.lao.ca.gov Legislative Analyst’s Office 5 AN LAO REPORT a $1 million state general obligation bond proposal required by the IOC) and noted the Games were to help fund the Games. (This $1 million is equal “financially unsuccessful revenue wise due to poor to about $18 million today.) Voters approved spectator attendance.” The audit found that ticket the bond—Proposition 2 on the November 1928 sales were not well controlled. ballot—with 73 percent voting yes. Amid the 1984 Los Angeles Games. The 1984 Games Depression, organizers used existing facilities, hosted about 5,500 male and 1,600 female athletes including the Memorial Coliseum, for 12 of from 140 countries, using existing, temporary, 14 events. New facilities were built for swimming and new facilities throughout the region. Athletes (near the Coliseum) and rowing (Long Beach were housed at three universities (University of Marine Stadium). Equestrian events were at the California campuses in Los Angeles and Santa Riviera Country Club, and a cycling track was built Barbara, as well as the University of Southern at the Rose Bowl. Over 1,000 male athletes from California). Attendance—the number of tickets about 40 countries were housed at an Olympic used to attend events in the region—totaled Village—with portable houses (sold after the 4.7 million. About two thirds of ticket users were Games)—in Baldwin Hills. About 125 women area residents. Over 600,000 visitors came from athletes were housed at a hotel on Wilshire outside the area and attended, on average, several Boulevard. Two days after the Games concluded, events each. organizers announced that enough revenues were The 1984 Games budget exceeded $400 million generated to pay off the bonds. (the equivalent of over $950 million today). While 1960 Squaw Valley Games. The 1960 Olympic boycotted by the Soviet bloc, the Games were a Winter Games, which hosted around 700 athletes huge financial success, attracting unprecedented from 30 countries, were a success in developing sponsorship and broadcast revenues and generating Squaw Valley’s winter sports infrastructure. The a significant surplus that continues to support Games, however, were heavily subsidized by the youth athletics in the region. These private funding state and generated controversy as costs escalated. sources were needed because Los Angeles voters In 1955, the Legislature appropriated $1 million approved a 1978 measure prohibiting city capital from the State Beach and Park Fund to support expenditures for the Games that would not be the Games, and lawmakers anticipated private paid back. To offset Games-related operating costs, support to help develop facilities. In January the city approved a 6 percent Olympic ticket tax 1956, however, the IOC said it would move the (generating $8.7 million) and a 0.5 percent hotel tax Games to Austria unless an additional $4 million surcharge (generating $9 million), which went into was provided. The 1956 state budget package effect in 1978. appropriated the $4 million. An added $3 million State budget analyses, including our own, was provided by the state in 1957 and $1 million anticipated tens of millions of dollars of state more was appropriated from the General Fund in a revenue due to the Games. An April 1984 DOF special legislative session convened less than three analysis estimated total state costs related to the weeks before the Games. (The total state support of 1984 Games at about $22 million (the equivalent of $9 million is equal to about $75 million today.) over $50 million today). According to that analysis, A 1961 Department of Finance (DOF) audit half of that $22 million cost was addressed through noted Squaw Valley’s history of cost overruns shifting existing departmental appropriations to (including costly permanent housing construction Olympic purposes instead. The analysis said the 6 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT federal government would provide $5 million to an estimated $3.6 million in costs for personnel reimburse California Military Department costs reassignments and overtime (including $484,000 for public safety operations related to the Games. from the General Fund for dignitary protection). The California Highway Patrol (CHP) incurred THE OLYMPIC BID PROCESS Prior Cost Overruns. Cost overruns have been • The long duration of the competitive common for cities hosting the Olympics. Exact Olympic Games bid process, which brings figures vary because studies focus on different growing pressure over time for “ever more aspects of Olympic costs. Figure 1 displays data elaborate and expensive plans.” compiled in one recent report, which provides data • The long lag time between initial planning from public sources concerning initial budgets and and the event itself, which brings many final costs for Olympics since 1996. It shows that years of intervening inflation. Inflation final costs for almost all recent Olympics greatly can affect various categories of local costs. exceeded initially budgeted expenses. Another For example, “when a lot of production is recent paper published by University of Oxford concentrated in a few areas, the increasing researchers found that sports-related cost overruns demand for construction materials, for 19 Olympics since 1960 averaged 156 percent. engineers, and manual labor pushes up the These averages are elevated due to the Montreal prices of all the inputs.” 1976 Games’ 720 percent cost overrun and the 324 percent cost overrun for the Lake Placid 1980 Winter Games, such that the median cost overrun reported Figure 1 for the 1960-2016 period was Estimated vs. Final Olympic Costs 90 percent. (In Billions) A 2015 study of the economics of the Olympics Rio de Janiero 2016 and soccer’s World Cup Sochi 2014 described several reasons for London 2012 cost overruns at such events, Vancouver 2010 including the following: Beijing 2008 Torino 2006 • The pressure to Athens 2004 “low ball the cost Initial Budget Salt Lake 2002 estimates with a Final Cost Sydney 2000 bare-bones plan” in order to convince the Atlanta 1996 public and leaders 10 20 30 40 50 $60 to support a city bid Source: James McBride, Council on Foreign Relations paper, The Economics of Hosting the Olympic Games, July 2016. effort. www.lao.ca.gov Legislative Analyst’s Office 7 AN LAO REPORT • The tendency to fall behind construction • Strengthening IOC governance, schedules, which can lead to higher prices transparency, and ethics practices. to ensure projects are finished prior to the 2024 Bid Process. The bid process for the 2024 event. Games is the first full process under Olympic Largely due to this history of financial risk, several Agenda 2020. It is summarized in Figure 2. major cities have explored and ultimately rejected Following an initial “invitation phase,” candidate opportunities to bid for the Games in recent years. cities entered Stage 1 of the bid process to consider There has been a steady decline in the number of the vision, concept, and strategy of their bid late applicant and candidate cities to host the Olympics in 2015. Stage 1 submissions were due to the IOC since the 2002 Games. in February 2016, and four cities—Budapest, Los Olympic Agenda 2020. In December 2014, the Angeles, Paris, and Rome—submitted files then. IOC approved 40 recommendations—known as Stage 2 of the bid process consisted of further Olympic Agenda 2020—as a “strategic roadmap clarifying bids’ governance and legal issues, as well for the future of the Olympic Movement.” The as venue funding. While all four cities submitted recommendations aim to address various issues Stage 2 documentation on October 7, 2016, Rome that have emerged in recent years, including the subsequently announced a suspension of its 2024 concerns noted above about financial risks of bid, leaving only Budapest, Los Angeles, and Paris hosting the Games. Olympic Agenda 2020 resolves as active 2024 bid cities. The IOC later will confirm that the IOC will “consider as positive aspects for a the cities advancing to Stage 3 of the bid process— bid the maximum use of existing facilities and the in which more details are to be provided about how use of temporary and demountable venues where the cities intend to execute their plans and ensure no long-term venue legacy need exists or can be that the Games leave a positive legacy for their justified.” This resolution aims to reduce financial regions and countries. risk for Olympic host cities. The agenda also speaks In the coming months, cities advancing in of a “new philosophy” for the IOC, one “to invite the bid process will finalize their last submissions potential candidate cities to present an Olympic to the IOC—the Stage 3 submissions that are due project that best matches their sports, economic, on February 3, 2017. By that time, Los Angeles social, and environmental long-term planning and other bid cities must commit that, if selected needs.” to host the Games, they will sign the IOC’s Host Among other goals of Olympic Agenda 2020 City Contract. That contract formalizes the are: responsibility of the city, along with their NOC and the city’s organizing committee for the Olympic • Fostering gender equality by working with Games (OCOG), to finance and stage the 2024 federations to achieve 50 percent female Games. According to Los Angeles City Council participation and to encourage mixed- documents, City Council approval will be required gender team events. to make this commitment. • Focusing on protecting and honoring Following the Stage 3 submissions in February, “clean” athletes, including continued the IOC Evaluation Commission will visit each anti-doping efforts. candidate city and publish an evaluation report in 8 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Figure 2 Time Line for 2024 Olympic and Paralympic Candidate Cities STAGE 1: VISION, GAMES, AND STRATEGY 2015 September LA 2024 launches bid 2016 January City MOU with LA 2024 | Olympic Village at UCLA announced February Budapest, Los Angeles, Paris and Rome submit Stage 1 files to IOC STAGE 2: GOVERNANCE, LEGAL PLANS, AND VENUE FUNDING July IOC workshops with each candidate city August Through September Candidate cities observe Rio de Janeiro Games | LA 2024 revises venue plan October Stage 2 files to IOC | Rome suspends bid STAGE 3: GAMES, DELIVERY, EXPERIENCE, AND VENUE LEGACY 2017 Now Through February Candidate cities clarify bid plans February Stage 3 files due to IOC | LA city government must commit to sign IOC Host City Contract if selected February Through June IOC Evaluation Commission visits July IOC Evaluation Committee report published September Host City for 2024 chosen at IOC meeting in Lima, Peru PLANNING AND DELIVERING THE 2024 GAMES 2017-2024 www.lao.ca.gov Legislative Analyst’s Office 9 AN LAO REPORT July. In September 2017, the IOC will choose the Angeles, if chosen, plans to host the 2024 Olympic host city for the 2024 Games at its meeting in Lima, Games from July 19 to August 4, 2024, followed Peru. Implementation of the winning city’s plan to by the 2024 Paralympic Games from August 21 to host the Games in 2024 then will commence. Los September 1, 2024. THE LOS ANGELES BID Los Angeles’ Selection by USOC. Boston University of California, Los Angeles (UCLA) originally was chosen by the USOC over Los would host the Olympic Village and University Angeles, San Francisco, and Washington, D.C. of Southern California (USC) residential facilities to be the U.S. bid city for the 2024 Games. would host the Media Village. The universities Community concerns about potential cost overruns would likely be reimbursed for certain costs plagued the Boston bid, and that city withdrew associated with housing attendees during the from the process on July 27, 2015. On September 1, Games. This switch in plans for the Olympic 2015, the Los Angeles City Council voted Villages reduced significantly the financial risk unanimously to support a bid. LA 2024, a local associated with the bid. bid committee led by various community leaders No New Permanent Sports Venues Planned. and former Olympians, proceeded at that time to As illustrated in Figure 3, Los Angeles’ bid features develop its current bid for the Games. (LA 2024 is no new permanent venues built specifically to host a private organization that essentially will become Olympic sports, ceremonies, or villages. Instead, the city’s Organizing Committee for the Olympic in the current venue plan (which remains subject Games, or OCOG, if Los Angeles is selected by the to change), events will be hosted at facilities that IOC to host the 2024 Games.) The USOC chose Los (1) already exist or (2) are already planned to Angeles as the U.S. bid city on September 16, 2015. exist by 2024. In some cases, temporary facilities From its beginnings, LA 2024’s bid has opted to or temporary upgrades to existing facilities will reduce city financial risks by enhancing its reliance transform venues into ones that are Olympic- on existing or already-financed venues. ready. An example of an existing facility that will Reduced Risk Concerning Olympic Village. require temporary upgrades is the USC baseball LA 2024’s original bid plan proposed an ambitious field, Dedeaux Field, which will have temporary $1 billion (or greater) Olympic Village plan. That pools installed to host swimming and diving plan would have developed a downtown site (the events. Similar temporary pool facilities have Union Pacific’s “Piggyback Yard” between the Los been used at arenas in the past. USC’s aquatics Angeles River and the county’s medical center) center, adjacent to Dedeaux Field and the site as a new residential neighborhood and a major of the 1984 swimming events, will be the place post-Olympics legacy project for the city. City where swimmers and divers practice. Nearby, the leaders voiced concerns about the plan’s financial Coliseum will house warm-up and operations risks, and it was dropped as a component of the facilities under a temporary “athletics deck,” and Olympic bid. On January 25, 2016, bid leaders this surface will be removed after the Paralympics announced that the residence facilities at the for use by USC football that fall. The beach 10 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Figure 3 All Planned Olympic Venues Exist or Already on Track to Exist in 2024 Long Beach Waterfront/Pier LA Convention Center StubHub Center Facilities The Forum City Hall and Grand Park USC Dedeaux Field Sepulveda Basin UCLA Pauley Pavilion LA Memorial Coliseum Lake Perris USC Galen Center Some Sports Require Modifications to Existing Venues Riviera Country Club Existing or Already on Tracka Long Beach Arena Temporary Upgrades Microsoft Theatre Permanent Upgrades Honda Center Support Infrastructure Staples Center Olympic Village (UCLA Campus) LA Football Club Stadiuma International Broadcast Centera (NBCUniversal) Main Press Center (USC) Rose Bowl Media Village (USC) Santa Monica Beach LA Rams Stadiuma To be determined a A venue that is already planned to exist in 2024, but has not been finished yet. LA 2024’s October 2016 public submission to the IOC includes a map that anticipates three other events (archery, modern pentathlon, and mountain biking) will be held at unspecified temporary, upgraded facilities. www.lao.ca.gov Legislative Analyst’s Office 11 AN LAO REPORT volleyball venue in Santa Monica also will be site” for fan entertainment along Figueroa Street); temporary. Only one venue, the existing VELO (2) Valley (including the Sepulveda Dam Basin in Sports Center at StubHub, requires permanent the San Fernando Valley); (3) South Bay (including upgrades under the current bid plan. StubHub Stadium in Carson); and (4) Long Beach A few planned Olympic facilities, such as (including the Long Beach Arena and Pier). Other the Los Angeles Football Club’s new 22,000-seat events would be held elsewhere in the region, such Banc of California Stadium (planned host of as gymnastics events at the Forum in Inglewood, soccer preliminaries) and the Rams Stadium in volleyball at the Honda Center in Anaheim, Inglewood (not slated for any specific event yet), and rowing and canoe-sprint competitions at are already on track to be opened by 2024 but not Lake Perris in Riverside County. In recent IOC yet finished. In addition, LA 2024’s submissions to submissions, LA 2024 stated that they continue to the IOC anticipate that the Games’ International work with the ownership team of the new Rams Broadcast Center in Universal City would consist Stadium in Inglewood to identify opportunities for of sound stages and offices to be built as part of Olympic activities there. improvements to NBCUniversal’s facilities there, Beyond Southern California, the plan is including temporary broadcasting facilities for the for some preliminary soccer matches to occur Games. Venues and all other elements of the bid in selected cities across the United States. The plan are subject to change between now and when Olympic torch relay also may cross the country and Stage 3 bid documents are submitted to the IOC in many parts of California, as it did in 1984. February 2017. Transportation During the Games. The IOC This approach—with no new permanent sports requires organizers to focus on how athletes and venue or infrastructure construction needed officials will move from the Olympic Village to specifically for the Games—greatly reduces the events, as well as how spectators and others will risk of financing expensive permanent venues. In get around during the Games. Bid documents state adopting this approach, LA 2024 aims to avoid the that Los Angeles will not require any additional mistakes of various host cities in recent decades transport infrastructure to host the Games beyond that have experienced major cost overruns for infrastructure already planned. LA 2024 plans venues or infrastructure, often eventually paid by for each sports park to connect to the public national or local taxpayers. transit system. In addition, the already-planned Olympic Action to Be Centered in Four LAX Landside Access Modernization Program “Sports Parks.” As shown in Figure 4, the current (including a new automated people mover bid plan envisions that Olympic events will be system between terminals, rental car facilities, centered primarily in four areas described as sports and new connections to the regional Metro rail parks. Each sports park is described by LA 2024 and bus system) will help the process of moving as a multi-sport and entertainment experience arriving visitors elsewhere in the city, but these within a secure perimeter where all attendees will improvements are slated to happen whether the be able to walk from one venue to another. The Olympics are awarded to Los Angeles or not. Bid sports parks include: (1) Downtown (including documents, however, have hinted that acceleration the Coliseum, the Banc of California Stadium of elements of the Metro Purple Line extension to that is under construction, Staples Center, the Westwood and some LAX improvements might Convention Center, and the Games’ largest “live be helpful in planning for the Games. These 12 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT documents, for example, mention the possibility High-Occupancy Vehicle (HOV)/High-Occupancy that federal help could help accelerate these two Toll (HOT) Express Lanes.” “These freeways,” the projects. report continued, “will easily be converted to an Bid documents envision use of a controlled extensive ORN system that connect venue clusters Olympic Route Network (ORN) system to move within 30-minute drive-time,” with more HOV/ athletes and officials. “Our system,” bid organizers HOT lanes to be added by 2024 “allowing for have reported to the IOC, “already consists of more bus rapid transit and an even more extensive 16 major freeways and over 550 kilometers of ORN.” The bid plan anticipates that spectators and Figure 4 Selected Venues for Los Angeles’ 2024 Olympic Bid Valley Sepulveda Basin Sports Park Rose Bowl International Broadcast Center City Hall and Grand Park UCLA Olympic Village and Training Center LA Convention Center Riviera Golf Course Figueroa St. Staples Center USC Dedeaux Field Main Press Center Santa Monica Beach Santa Monica LAFC Stadium LA Memorial Coliseum Venice Downtown Sports Park LAX The Forum LA Rams Stadium Manhattan Beach South Bay Hermosa Beach Sports Park Redondo Beach Stubhub Stadium Long Beach Sports Park Long Beach Arena Long Beach Waterfront Long Beach Note: Circles indicate the general location of sports parks—not the areas of their planned secure perimeters. www.lao.ca.gov Legislative Analyst’s Office 13 AN LAO REPORT the Games workforce will be encouraged to use Olympics. For example, Los Angeles organizers public transportation—including already planned have committed to work with U.S. tax authorities transit expansions—to access Olympic sites. New to avoid “potential forms of double taxation” for technologies for ridesharing and parking are to certain Olympic stakeholders. These commitments be emphasized as the Games approach. Regional seem to raise the possibility that federal, state, and/ traffic officials are expected to use their significant or local officials will be asked to approve additional public outreach experience—such as Los Angeles’ tax legislation or regulations related to the 2024 “carmageddons” and the relatively traffic-free 1984 Games. Games period—to help manage traffic flow during Privately Financed Budget Plan Yet to Be the Games. During the 1984 Games, commercial Finalized. Los Angeles’ city government, along deliveries often were made only during nighttime with the city’s OCOG and the USOC, would have hours, and these types of strategies could be used important contractual obligations if the Games again in 2024 to keep traffic moving. are awarded to the U.S. The LA 2024 organizing Security for the Games. Ensuring that Los group, however, has committed itself to funding Angeles is secure during the Olympics is an the Olympics from private sources. In August important consideration, especially considering the 2015, bid officials released a rough sketch of what acts of violence that affected the Munich Games of a privately financed LA 2024 Games budget 1972 and the Atlanta Games of 1996. If Los Angeles would look like. The portion of the budget to be is selected, the 2024 Games will be designated financed by the OCOG (and not other private a National Special Security Event (NSSE) by entities) is summarized in Figure 5. Revenue would the U.S. Department of Homeland Security. be received primarily from three sources: IOC (Other recent NSSEs include the Democratic and contributions from broadcast and sponsorships, Republican National Conventions, State of the domestic sponsorships, and ticketing revenue. Union addresses, and presidential inaugurations.) Costs would include payments for goods, services, The U.S. Secret Service is the mandated lead and personnel to operate the Games, hundreds of agency for design and implementation of an NSSE’s millions of dollars for venue costs (including costs operational security plan. The Secret Service will for temporary facilities and upgrades), $200 million work in partnership with other federal, state, of payments to the city for Games-related operating and local agencies, including the Federal Bureau costs, and a $150 million insurance premium. This of Investigation (which leads the regional Joint initial plan envisioned about $560 million left over Terrorism Task Force), the Los Angeles Police for unexpected contingencies (unexpected costs Department, and the CHP. or revenue shortfalls) and an operating profit for Labor and Tax Commitments. In recent bid the Games. (A bill passed by the Legislature this documents, LA 2024 organizers have committed to year to support the Games—described later in this work with area labor unions to secure agreements report—envisions that operating profits would be that prohibit strikes and work stoppages during the devoted to “legacy programs for youth and citizens Games. This type of commitment is customary and of California.” This is similar to how the 1984 may be a prerequisite to winning IOC support. Games’ profits were given to the LA84 Foundation, Similarly, bid cities must report to the IOC which supports youth sports programs in Southern about the effect of national, state, and local tax laws California.) on payments to foreign parties associated with the 14 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT While the August Figure 5 2015 budget is useful August 2015 Rough Sketch of LA 2024 Games Budget in giving a sense of the (In Billions) broad categories of costs Revenues and revenues associated IOC contributions (broadcast revenues and worldwide sponsors) $1.5 with the Games, it will Domestic sponsorship revenues 1.4 be refined and revised in Ticket revenues 1.2 Torch run, coin, and stamp revenues 0.2 the coming months. The Licensing revenues 0.2 City Council is engaging Donations 0.1 independent analysts to Other revenues 0.2 review the bid plan before Total $4.83 it takes a final vote on the Expenditures Personnel and services costs $1.5 bid by early 2017. A final Venue costs, including operations 1.3 proposed Games budget is USOC and other joint venture payments 0.6 expected to be completed Technology services 0.4 City operations payments 0.2 prior to the submission Ceremonies costs 0.2 of Stage 3 bid documents Insurance premiums 0.2 to the IOC in February Facilities maintenance costs 0.0 Total $4.27 2017. City leaders, in Amount Left Over (Including Contingency Budget) $0.56 particular, have a major IOC = International Olympic Committee and USOC = U.S. Olympic Committee. stake in ensuring that the final bid plan minimizes including budgeting for private funds to buy “a public sector financial risk substantial insurance package to protect the city because the city must agree to execute the IOC’s against unexpected liabilities.” According to a Host City Contract, which involves key financial and September 29, 2016 press release from LA 2024, operating guarantees related to the Games. “significant private insurance payouts” and an up to Bid leaders also have repeatedly committed $250 million payment by the city would be the first themselves to minimize risks of cost overruns. lines of financial defense. After these and any other In a “Frequently Asked Questions” section of its available sources are exhausted, the state could be website, LA 2024 says the OCOG “will indemnify on the hook for certain payments under the terms the city for all of its incremental costs and of recent legislation, as summarized below. obligations related to the operation of the Games,” SB 1465 Direct Federal Subsidies Not Available. Often, Olympics’ capital and operating costs. The federal national governments provide significant financial government does provide important security and support for their cities’ Olympic bids. While the intelligence services, in partnership with state U.S. Congress passed a resolution supporting Los and local law enforcement agencies, for Olympics Angeles’ 2024 bid, the federal government typically hosted in this country. has not provided a direct financial subsidy to www.lao.ca.gov Legislative Analyst’s Office 15 AN LAO REPORT SB 1465 Dedicates Up to $250 Million in State state’s contractual obligations to the Los Angeles Support if Needed. State governments in the U.S. OCOG have concluded. often support Olympic organizing efforts with State’s Liability Clearly Limited. Senate Bill financial assistance. As noted earlier, California 1465 specifies the uses of the state security and the provided a large share of the funding for the conditions that must be met to access the funds. 1932 and 1960 Games, while the Los Angeles In particular, the funds may be used for certain Games in 1984 were almost entirely privately payments to third parties for costs related to the funded. In recognition of the IOC’s expectation of games and OCOG deficits resulting from the Los governmental support, the Legislature passed and Angeles Games. Funds may only be accessed, the Governor signed SB 1465 (de León) earlier this however, if all other funding mechanisms have year. Senate Bill 1465 allows the Governor to enter been exhausted, including insurance purchased into a contract with Los Angeles’ OCOG for the state by OCOG and at least $250 million of city funds. to accept financial liability of up to $250 million of The state must be listed as an “additional insured” financial debts related to the 2024 Games. The bill on any OCOG insurance policy related to the anticipates that the exact funding mechanism will preparation and conduct of the Games. In the be determined at or about the time Los Angeles is final analysis, the state is obligated to pay no more selected to host the Games next year. The legislation than $250 million under SB 1465. The state most states that this “state security,” whether provided by likely would provide funding only if the Games a cash appropriation, an insurance policy, or other experienced significant financial problems. Further, instrument, will be deposited into a state Olympic under the authority provided in SB 1465, the Games Trust Fund. This fund will be maintained contract negotiated by the Governor could place until the Director of Finance determines that the further limits on the state’s payments. ECONOMICS OF THE GAMES Short-Term Economic Gains Likely. As largely from out-of-state sources—would generate discussed above, Los Angeles’ selection to host the economic activity in the Los Angeles region during 2024 Games would result in billions of dollars of the Games and in the few years before the Games, Olympic revenue—from international broadcast as preparatory activities occurred. Moreover, rights, sponsorships, and ticket purchases from hundreds of thousands of visitors, including the rest of California and elsewhere around the spectators, athletes, officials, and members of world—flowing into the Southern California the media, would arrive for the Games in 2024, economy. While the Los Angeles bid assumes spending money for food, lodging, and other goods no new permanent sports venue or major public and services. infrastructure construction, it would require This sort of short-term economic boost—an billions of dollars of spending—paid from Olympic increase in jobs, for example—directly linked to revenues—to construct temporary venues, pay the Games is visible when looking at jobs data for temporary venue upgrades, and build the for the Atlanta and Salt Lake City regions during technological and other improvements needed to the period they hosted the Olympics in 1996 and host large numbers of athletes and other visitors. 2002, respectively. As shown in Figure 6, seasonally This billions of dollars of spending—funded adjusted employment in the Atlanta region 16 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT jumped by nearly 50,000 (up Figure 6 2.4 percent) in July 1996 when Short-Term Employment Boost of Atlanta's 1996 Games it hosted the Olympics. Salt Seasonally Adjusted Nonfarm Payroll Jobs in Thousands Lake City’s Games took place in the economic downturn 2,060 of the early 2000s as jobs 2,040 declined there and elsewhere 2,020 in the country. That being 2,000 said, as shown in Figure 7, the 1,980 February 2002 jobs data for the 1,960 Salt Lake City region jumped 1,940 by about 4,000 (up 0.7 percent) 1,920 after it had been dropping for 1,900 several months previously. 1,880 In 1984, economic analysts -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 estimated that Los Angeles Months Before Games GAMES Months After Games experienced net economic gains due to the Games. A The report also made an attempt to estimate June 1986 post-Games report how much the Olympics “displaced” other by Economics Research Associates (an economics spending in the economy—that is, how much analysis firm) found that the direct economic economic activity did not occur due to the impact of the Games in terms of Olympic venue Olympics. For example, it is believed that many operations, visitation, capital improvements, and visitors to other Los Angeles attractions stayed governmental revenue totaled over $1 billion. The Games produced an estimated employment increase of 37,500 Figure 7 jobs (primarily short-term), Short-Term Employment with additional income Boost of Salt Lake City's 2002 Games also generated for 37,500 Seasonally Adjusted Nonfarm Payroll Jobs in Thousands others who already had 560 jobs. “Induced” economic activity—the “ripple effect” 555 in the economy from that initial spending—exceeded 550 $1.5 billion, the report found. 545 The total economic impact of the Games represented 540 1.6 percent of the total gross product (output) in Los 535 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 Angeles County that year, the Months Before Games GAMES Months After Games study found. www.lao.ca.gov Legislative Analyst’s Office 17 AN LAO REPORT away that summer, fearing traffic congestion, and will generate future economic gains related to new some residents left the region during the Games. sports facilities. These types of economic displacement were General infrastructure improvements can estimated at over $330 million of lost economic produce long-term economic gains for a region. activity, according to the report, partially offsetting Here too, Los Angeles’ low-risk financial bid the short-term gains noted above. We note that assumes no new major infrastructure specifically such displacement estimates are difficult to develop related to the Games. Accordingly, for Los Angeles, and must make a variety of assumptions, such that the Olympics probably would not generate much different analysts could come up with larger or or any long-term economic gain related to new smaller economic displacement estimates. infrastructure. In addition to these analyses, both our office Finally, some argue that the Olympics help “put and the DOF estimated that the state experienced a city on the map” in terms of tourist visitation additional economic activity and state revenue or economic investment. Some Olympic hosts— growth in 1984 specifically due to the Games. including the relatively new ski development, Similarly, if Los Angeles is chosen to host the 2024 Squaw Valley, in 1960—seem to have benefited Games, a short-term boost in state and local tax over the long term due to visibility provided by the revenues is likely, which would offset some or all Olympics. Assuming that this type of long-term public costs associated with the Games. economic gain will materialize, however, seems Lasting Economic Gains Unlikely. While the problematic in the case of Los Angeles, a city Games likely would produce a short-term economic already well known to people and businesses all boost for Los Angeles around 2024, there is little over the world because it has hosted the Olympics basis to assume that the Games would improve the before and appears constantly in films and on region’s economy substantially over the long term. television. While we cannot rule out the possibility When hosting events like the Olympics, some that the 2024 Games would provide a temporary cities hope to achieve positive economic gains boost in Los Angeles’ attractiveness to visitors by building new athletics or other community and businesses, the chances that this boost will be facilities. Studies of sports facilities in host substantial or lasting seem small. communities generally find little or no net Conclusion. If Los Angeles hosts the 2024 long-term economic benefit associated with Games, some short-term net economic gains in stadiums and arenas. Further, the specialized 2024 and in the years just before the Games are nature of some Olympic venues has left some likely. Lasting economic gains, however, appear cities with “white elephants”: new facilities with unlikely. That being said, the low-risk financial little use after the Olympics. An advantage of Los strategy of the bid greatly reduces the risk that Angeles’ 2024 bid—in terms of minimizing public the Southern California economy will bear large, finance risk—is that no new permanent sports long-term taxpayer expenses related to the Games. venues are to be built specifically because of the For these reasons, under the current bid plan, Olympics. Accordingly, for Los Angeles, there is the long-term economic effect of the 2024 Games less of an argument than usual that the Olympics probably would be close to neutral. 18 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT LAO COMMENTS In this section, we provide some of our Angeles city officials also are studying perspectives concerning the state’s role in Los these projections intensively.) Angeles’ 2024 Games bid. • CHP Cost Reimbursements? Will added Negotiations Delegated to the Governor. CHP costs related to the Games be Senate Bill 1465 gives broad authority to the reimbursed from Olympic revenues? Governor to negotiate a contract with Los We understand that these costs were Angeles’ OCOG to provide the state’s back-up not reimbursed in 1984, and the financial support for the possible 2024 Games in Governor could opt to forego seeking Los Angeles. The decisions of the Governor in reimbursements in 2024. Alternatively, executing this contract will affect the likelihood the state could seek reimbursements for of the state eventually paying out any or all of the CHP costs over a given amount or only for maximum $250 million authorized in the bill. “special requests” for CHP assistance from The Governor and his advisers will need to devote the OCOG or local officials. In addition considerable effort to understanding how Olympic to CHP costs, other state public safety and Paralympic Games are financed and operated entities, such as the Military Department, in order to represent the state government’s also could incur costs related to the Games. interests well in this negotiation. State Liability Capped, but Other Costs Are • Other State Cost Reimbursements? Possible. In considering SB 1465, the Legislature Will state departments insist on had to balance its desire to demonstrate the state’s reimbursements of few, some, or all state support for the Los Angeles bid with the need to costs related to the Games? State facilities limit state financial support for the Olympics. In used for the Games, such as those at UCLA light of this, we think the Legislature’s decision to and Lake Perris, would be covered by strictly cap state financial support for any Games agreements negotiated between Olympic deficits was a sound one. Under SB 1465, the state’s organizers and the state. The agreements liability to cover cost overruns or Games revenue would specify how state entities will be shortfalls is capped at $250 million. That being reimbursed for the Olympics’ use of the said, the state can be expected to incur some other, venues. In negotiating the SB 1465 contract, potentially small, operating costs if Los Angeles the Governor may want to consider a clear is selected to host the Games. In negotiating with framework for determining which types Games organizers, the Governor may want to keep of state venue expenses will be reimbursed these costs in mind. Among the questions that the by the OCOG—including those in the Governor may face in contract negotiations are the current bid plan and those added to the following: plan in the future. Given their proximity • Realistic Budget Projections? How to the Coliseum, the roles of the California realistic are LA 2024’s budget projections Science Center and the California African concerning costs, as well as ticket, American Museum in the Games also may sponsorship, and other revenues? (Los need to be discussed at some point in the future. www.lao.ca.gov Legislative Analyst’s Office 19 AN LAO REPORT • City Payment Requirements? Senate Legislature’s role in the State Constitution, future Bill 1465 requires the City of Los Angeles state payments under SB 1465 are available only to spend at least $250 million of its upon appropriation by the Legislature. All parties, “security” for the Games prior to any of however, will expect the state to provide funds as the state’s $250 million being disbursed. envisioned in the contract the Governor negotiates At a recent City Council committee with the Los Angeles OCOG. The timing of any meeting, questions were raised about how such payments will depend on the details of the exactly this $250 million of city funds contract the Governor negotiates. For example, would be measured. For example, if the after the Games conclude, the OCOG could be city acquires an insurance policy to cover required to certify to the Governor that conditions certain financial risks, would insurance for a state payment have or have not been met, and proceeds under that policy count toward the Governor could then be required under the the city’s payment requirement in SB 1465? contract to request an appropriation to provide In contract negotiations, the Governor may any anticipated payment. (This is similar to a be able to help resolve such uncertainties. mechanism in state law for the Governor to ask the Legislature for funds if tobacco settlement revenues • Natural Disasters and Terrorist Events? are insufficient to meet debt service and other What would be the state’s financial related costs on certain bonds issued after 2003.) exposure if natural disasters or terrorist Need for Legislative Oversight. We advise the threats hamper the Games, damage venues, Legislature to provide some oversight related to the or threaten athletes and other visitors? Games—in addition to the much more intensive oversight expected to be provided by the Los • Cost Overruns at Private Facilities? Could Angeles City Council and the Mayor. Recognizing the state be on the hook for a portion of the need for state oversight of the 1984 Games, the cost overruns at private facilities, such as Assembly then appointed a Select Committee on those of NBCUniversal or USC? Olympic Oversight, and the Senate Governmental • Tax Legislation? Will the state be asked to Efficiency Committee had a subcommittee pass tax legislation related to the Games? dedicated to Olympic oversight. Legislative leaders may want to appoint similar oversight • Accelerated Public Infrastructure committees—or a joint legislative oversight Improvements? Will the state be asked committee—to oversee the Governor’s negotiations, to contribute funds to help accelerate any to hear of issues that develop in the planning of the public infrastructure improvements related Games, and to prod state departments, if needed, to the Games? to help Games organizers. These committees Full answers to these questions will not be available may find it helpful to meet even before the IOC until after the 2024 host city is chosen next awards the Games in September 2017, since key year. The Governor, however, can set important bid plans—which could affect the Games’ financial benchmarks for future discussions even in early success—will be finalized prior to that date and the negotiations with Games organizers. Governor may be negotiating with bid organizers Timing of Future Appropriations Depends concerning the SB 1465 contract. on Contract Details. Consistent with the 20 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Dealing With Financial Risks. Los Angeles’ We recommend that the Legislature stick by 2024 bid seeks to minimize financial risks for the the firm stance reflected in SB 1465, which provides city and the state government. The $250 million support for the Games, but strictly limits the state’s back-up state financial guarantee in SB 1465 may financial exposure to Games deficits. We advise not be needed. There is, however, some chance state leaders to consistently make it known that that city and state taxpayers could be called on no additional funds beyond those committed in to provide additional funds. Today, the Olympic SB 1465 will be provided. If problems develop and Paralympic Games are “mega-events” even in organizing the Games, state leaders can push for the world’s largest cities. Mega-events are organizers to develop privately funded alternatives among the most complex events to organize: huge at minimum cost and minimum risk for state and undertakings that require years of preparation, city taxpayers. billions of dollars, and involvement by every level of government. Many Olympics have experienced large venue or infrastructure cost overruns and delays, and some have had disappointing ticket sales. While a Games plan can try to minimize financial risks, there is probably no way to completely eliminate these risks. www.lao.ca.gov Legislative Analyst’s Office 21 AN LAO REPORT 22 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT www.lao.ca.gov Legislative Analyst’s Office 23 AN LAO REPORT LAO Publications This report was prepared by Jason Sisney and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 24 Legislative Analyst’s Office www.lao.ca.gov