Months after Chicago Mayor Richard M. Daley began promising taxpayers they would not foot the bill for the 2016 Olympics, the city secretly drafted a plan to sell public assets to help fund the Games and pledged to cover $500 million in any losses.
City officials revealed the plans and pledge in March, after a visit from Olympics officials. On April 14, the U.S. Olympic Committee selected Chicago, over two-time host city Los Angeles, to represent the U.S. in the bid for the 2016 Olympics and Paralympics. The final choice of host city will be made by the International Olympic Committee in October 2009.
Covering the losses and selling public air rights over near-downtown property were ideas developed behind the scenes in response to the United States Olympic Committee, which has demanded financial assurances that Chicago can pay for the multibillion-dollar event and any cost overruns if the city wins the bid to host the Games.
“We definitely want the government to have skin in this game,” said a committee spokesman, referring to financial backup from a city legendary for cost overruns on big projects, such as the ongoing expansion of O’Hare International Airport and the glitzy lakefront Millennium Park, which opened four years late and hundreds of millions of dollars over budget in 2004.
City Predicts Profit
Daley and his backers have confidently and steadfastly insisted the city would make a profit on the Games, even after recent news that the estimated cost of the 2012 London Olympics has tripled, to $18 billion. Chicago officials believe the city can stage the 2016 Games for about $5 billion.
The $500 million in financial guarantees–to be backed by the public purse and parties still not named–won hurried yet overwhelming Chicago City Council approval in March … despite concerns by a few aldermen about the workability of the financial plan and the lack of public discussion.
The Chicago Park District, on whose land many of the Games would be played, voted to reserve $15 million in revenue to help pay for an aquatic center for the Games.
The deal involves a complicated sale of air rights, designed by city, corporate, and civic leaders behind closed doors. At its heart are the air rights over property near the sprawling lakefront McCormick Place exposition center, owned by the Metropolitan Pier & Exposition Authority (McPier), a city/state agency that also owns the popular lakefront amusement park, Navy Pier.
Daley Says Promise Kept
The Daley administration insists the pledge of $500 million in backup money does not betray the mayor’s promise that taxpayers won’t pay any of the tab. The mayor and spokespersons say he is sticking to his promise because there will be no deficit to fund.
“Operationally, we’ll have a surplus in the hundreds of millions of dollars,” Patrick Ryan, a Chicago insurance executive and head of Chicago 2016, said at a news conference.
Nor does the administration concede the sale of the publicly owned air rights amounts to putting the arm on taxpayers.
“This is not money out of taxpayers’ pockets because the Olympics creates the value of the air rights,” said Kate Sansone, the mayor’s assistant press secretary, in an e-mail to this writer. “We are essentially taking an intangible asset and putting it to public use to help revitalize [old railroad] marshalling yards that otherwise would just be sitting there. If it weren’t for the potential of the 2016 Olympic and Paralympic Games, the air rights would just be air.”
Sansone added, “Development of this area will create a new neighborhood on the lakefront that incorporates affordable housing, part of the city’s public goals. As this new neighborhood develops and prospers, taxpayers will ultimately benefit from the proceeds of an area of the city that today is not generating any tax. The creation of this new community on the lakefront will in fact further open up and develop the lakefront for the near South Side, the way that the North Side has been for years.”
It is a matter, Sansone said, of creating a “lasting legacy.”
Not All Costs Considered
However, some observers consider the city’s claims to be overly optimistic and based on incomplete information.
Among the doubters is University of Chicago sports economist Allen Sanderson, who said not all the “financial cards are on the table.” For example, the cost of upgrading Chicago’s mass transit system to meet the expected surge in demand created by the Olympics is not included.
Sanderson also noted huge cost overruns for the Athens Games in 2004, the estimated $18 billion price tag for the London 2012 Games, and estimates that the Beijing 2008 Summer Olympics could end up costing three times as much as the London Games estimates. He said that all suggests Chicago is lowballing estimates. Some members of London’s legislative assembly are already challenging the $18 billion estimate for their Games, suggesting the final cost could be at least $29 billion.
Sanderson predicted a cost overrun in Chicago is nearly certain.
Air Rights Convolute Backing
The air rights proposal involves McPier selling the rights to a private developer, as yet unnamed, who would build a $1.1 billion Olympic village for the athletes. Air rights would allow the Olympic village to be built atop a deck that would be placed over a truck marshalling yard on the property. McPier would retain ownership of the truck yard.
After the Games, the developer would convert the village into private apartments. McPier would retain partial ownership of the development, which it would sell outright or lease to a managerial firm after the Games.
McPier would give the proceeds of the air rights sale–estimated to generate about $100 million to $125 million in cash–to the city.
Chicago would then give the money to Chicago 2016, the local non-governmental Olympic organizing committee consisting of corporate, civic, and city representatives. Chicago 2016, in turn, would use the money to help fund a $316 million temporary Olympic stadium in a large park near the University of Chicago on the city’s South Side.
Dennis Byrne ([email protected]) is a Chicago newspaper columnist and freelance writer.