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Gold gamble

If Houston or Dallas has vaulted ahead of six other U.S. cities bidding to host the 2012 Olympic Summer Games, it has the Texas Legislature to thank or blame, depending on one's perspective.

The U.S. Olympic Committee is smiling down on the two cities because Texas is well on the way to becoming the first state to acquiesce to its demands that the games be backed with a generous financial guarantee. The Legislature is ready to pledge as much as $100 million in taxpayer money that could be lifted from the state and host city and diverted to the International Olympic Committee in the event the games end up in the red.

Before any taxpayer money could be set aside, however, local voters would have to approve a referendum, one of several protections legislators folded into the bill. The legislation requires the local Olympic organizing committee to disclose its contributions and expenditures and to provide public access to its meetings and documents. Just for emphasis, lawmakers also incorporated the state's bribery statute into the bill.

Some of the folks who are all tingly at the prospect of bringing the Olympics to your fair city already are in the campaign mode even though an election would be a couple of years away. They want to divert you from the possibility that the games may be subsidized by taxpayers and instead want you to consider the chance as "slim to negligible" that even one public penny would ever be spent.

"This legislation is not really intended to be a mechanism for funding the games," says George DeMontrond III, chairman of the Houston 2012 Foundation. "It's to satisfy a technical requirement."

The shrewd plan to satisfy the USOC requirement, however, looks an awful lot like a mechanism to provide some public financing for the Olympics. The bill sets up a trust fund, capped at $100 million, which would siphon state and municipal sales-tax revenues directly connected to staging the games.

Think of it as a $100 million insurance policy for the IOC, which fronts a host city billions of dollars to present the games. If the local organizing committee couldn't pay back the IOC, taxpayers would. If the local committee can reimburse the IOC, then the stash returns to the state and city. The IOC would like an unlimited financial guarantee instead of one capped at $100 million, but DeMontrond says that "no one thinks that is politically doable."

It takes a lot of guesswork to assess the chances of whether the games will make or lose money. The 1998 Winter Olympics in Nagano, Japan, had a surplus but benefited from public financing. Atlanta either broke even or lost money on the 1996 Summer Games, depending on whose numbers are to be believed. Atlanta, though, built $550 million worth of sports venues that were paid through Olympics receipts, which drained a good portion of the revenue. One thing is clear: The Olympics are volatile and therefore risky. A world crisis, for example, can disable the games as quick as you can say Slobodan Milosevic.

Under the Texas plan, the state comptroller would determine what revenues would be considered Olympics-related and therefore packed away into the trust fund. If Houston or Dallas is awarded the games, shortly thereafter the comptroller would compare the actual tax revenues from the city to revenue estimates of what they would have been had the games not come there. The bump in revenues would be attributed to the games, says James LeBas, the comptroller's chief revenue estimator. In coming up with an amount to be shifted into the fund, the office also would look at the direct economic effects of things like new facilities and any sporting events held in preparation of the games. The local organizing committee's expense budget also would be considered.

The office's preliminary estimate is that $63.8 million in sales tax revenues could be diverted into the fund from the time the games are awarded to three months after the torch is extinguished. The comptroller's calculation assumes a $3.5 billion total estimated economic impact from hosting the games. LeBas predicts that the comptroller would be conservative in determining amounts for the stash fund.

"Our bias, if we have one, is to protect the financial interests of the entire state," LeBas says. "These are state dollars at stake for what some people consider primarily a local project."

Supporters of the bill are fond of saying that taxpayer dollars aren't really at stake. They emphasize three things: As they see it, the Olympics almost assuredly won't run a deficit, so the money would never have to be spent; the trust fund would contain only tax revenues that come from hosting the Olympics and therefore include money the state and city would otherwise never earn; and the vast majority of Olympic-related tax revenues would come from out-of-state visitors.

 

"It's heads, the state wins, and tails, it still doesn't lose," DeMontrond says.

The USOC, which will select its favorite among the eight U.S. bidders in spring 2002, has bought into the line. Richard Schultz, USOC executive director, told the Dallas Observer that the public guarantee will be a major consideration when evaluating bids and that he considers the Texas legislation "kind of the ideal model."

While it's too early to say that certain bid cities have an advantage over others, "the cities that can deal with this in a positive way, that's certainly going to help them," Schultz says. "It's certainly a plus for Dallas and Houston and San Antonio."

San Antonio? You bet. In fact, Houston and Dallas have San Antonio to thank or blame, again depending on one's perspective, for impressing the USOC.

San Antonio, suffering from its own case of starry eyes, is bidding for the 2007 Pan American Games, the poor bloke's version of the Summer Olympics. The Pan Am Games, which also are under the USOC and IOC, take place the summer before the Olympics with about 5,500 athletes from Western Hemisphere countries competing in 40 sports. Indianapolis was the last U.S. city to host the Pan Am games in 1987. The United States is due, and San Antonio likes its chances against North Carolina and South Florida, the only other national bidders.

The San Antonio Sports Foundation, the same determined boosters who brought the NCAA Final Four basketball tournament to the Alamodome, took a now-or-never approach to the Texas legislative session. It resolved to get a bill passed that would address the USOC's requirement for a public guarantee.

Texas lawmakers meet five months every two years, and the USOC is expected to select from among the three U.S. bidders for the Pan Am Games this October. San Antonio had no time to dally.

Houston and Dallas, on the other hand, had the luxury of waiting around until the 2001 legislative session before having to deal with the messy idea of seeking public subsidy for a private sports festival. Houston preferred not to wait, while Dallas did.

In any event, San Antonio legislators led the charge at the Capitol, with Rep. Art Reyna and Sen. Frank Madla at the head of the line. It didn't take long for Houston 2012 to join in. Dallas 2012, however, is standing by its story that it is indifferent about the bill, even though it may greatly enhance the city's odds of landing the games. Dallas 2012 spokesman Kevin Sullivan said last week he had only a vague idea what it did.

Yet Dallas City Council nearly imploded this spring over the question of whether it was secretly seeking taxpayer money to help finance the games while telling residents the opposite. The mess was resolved in April when the council made its position clear with a 12-2 vote to support piggybacking onto the legislation. In making the decision, the council heard Dallas 2012 Executive Director Tom Luce reiterate his committee's neutral stand. He did mention that having Houston in the bill and Dallas out could hurt Dallas because it would appear to the USOC that Houston was more committed to the games.

The Houston City Council also voted to support the bill. But council member Orlando Sanchez doesn't buy the line that the trust fund will go untouched.

"Do you know any government pots of money that never get tapped into?" he asks. "If you do, let me know."

He figures the trust fund's existence is a disincentive for private sponsors to invest in the games, increasing the chances for a deficit. Even if the stash is never spent, the money is tied up for the years leading up to the event.

"Taxpayers need to understand that the state and city will not be able to avail themselves of any of this money until after the Olympics is over and then, only if there's money left in the fund," Sanchez says.

DeMontrond says that without the public guarantee, Houston and Dallas would be out of the running for the games. But top officials for the bid committees of three other cities competing for the 2012 Games--Cincinnati, Los Angeles, and New York--say that they believe the requirement for a financial guarantee is not that cut-and-dried.

David Simon, president of the Los Angeles bid committee, says it might be possible to satisfy the guarantee through a fund made up entirely of private donations. Dan Doctoroff, president of NYC 2012, says, "What we have tried to do is wait a little bit and try to understand what would satisfy that requirement. There's really no clarity at all as to what will satisfy it."

 

But Schultz, the USOC's top dog, sides with DeMontrond in saying the rules are explicit. "Other cities may be trying to low-key it while they try to figure out how to do this," Schultz says. The USOC views a financial guarantee from a state as more impressive than one from a host city or county, he adds.

Jack Kelly, an Atlanta-based consultant for Houston 2012 and San Antonio's Pan Am Games bid, says other bid cities may find it politically difficult, if not legally impossible, to have their state legislatures buy into a financial guarantee. He goes a step further than Schultz in saying that he's certain the other bid cities hoped the USOC requirement would bomb out. "They would have much rather gone to the USOC and said, 'See, no one can satisfy this requirement, so take it out.'"

Texas, though, has satisfied it to the tune of as much as $100 million in taxpayer money. As a result, the USOC's requirement is staying put.

So if a U.S. city somewhere down the line loses money hosting an Olympic Games and the public gets fleeced--whether it happens to Houston or Dallas, or to Los Angeles, New York City, Cincinnati, or some other luckless town--that city will have Texas to thank.

Or blame, depending on one's perspective.


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