Knock LA

The People’s Budget movement in the wake of the Coronavirus crisis and the murder of George Floyd has awakened Los Angeles’ collective interest in the city’s budget. There is broad outrage at a budget that gives 54% of LA’s unrestricted tax revenues to the police — and what that budget says about the city’s values. People are taking to the streets by the tens-of-thousands to demand a move away from violent policing and toward defunding of the police. At the same time, Angelenos are also seeing how fragile the budget is: even a few months of lost tax revenue already caused massive cuts that will hurt the lives of the city’s most vulnerable for years to come, and a slow recovery could make things even worse.

Unfortunately, LA’s next big budgetary hit has already been put on the calendar by Mayor Eric Garcetti: the 2028 Summer Olympics. Just how big a hit will LA 2028 be for LA’s budget? Using the best information we have, the answer is a really, really big one.

According to the work of Oxford economist Bent Flyvbjerg, the average Olympics goes over budget by 156%. The LA 2028 Olympics have an estimated $6.9 billion dollar budget. With these numbers in mind, you could expect the LA 2028 Olympics to actually cost $17.7 billion dollars. That is $10.8 billion in overages. However, for the purposes of this analysis, let’s use a more conservative approach. Recent Olympics have been hewing more closely to their original budgets. Using only a sample of more recent games, you would expect a 51% cost overrun, or $3.5 billion. And although the LA 2028 Organizing Committee claims (with questionable evidence) that it can cover the budgeted $6.9 billion with private funding, that inevitable budget overage — likely at least $3.5 billion, but maybe much more — will be borne by taxpayers.

So what exactly does that estimated $3.5 billion dollar number mean for the City of Los Angeles’ finances? Overruns are the joint responsibility of the city and the state of California, but that burden is not shared equally. The city is responsible for the first $270 million of overruns. Then the state is responsible for the next $270 million. Then the city is responsible for the remainder. The whole remainder.

This is very important: using the most conservative model available, LA 2028 will most likely result in the City of Los Angeles being directly on the hook for $3.2 billion dollars. Again, this is a conservative estimate of the average liability for the city — and for its taxpayers.

It used to be tough to put that kind of massive amount of money into perspective, but now Los Angeles has a better feel for what billions of dollars means to the city. Annual unrestricted revenues for the City of Los Angeles hover right around $7 billion dollars. This means that the city would be in a hole equivalent to the entire discretionary budget for the city for six months in today’s dollars.

But the reality of a $3.2 billion dollar liability is worse than that. The Olympics inevitably lead to a massive expansion in policing, and the cost of security does not even factor into the Games’ nominal budget. And policing, as we now all know, already absorbs over 50% of the city’s budget. Were this to remain true in 2028, this would mean an average LA Olympics would wipe out the budget for all other city services for a full year. That would theoretically mean no city fire budget, no sanitation budget, no sidewalk repair budget, no transportation budget, no housing and homelessness budget… no anything but police for a year.

In reality, if an overrun like this were to happen, the cost of the Games will be borne over a much longer period of time. The cuts will be less sharp, but interest on the debt will balloon the actual cost to Los Angeles’ taxpayers. If LA 2028 follows the trajectory of an average Olympics, it would create a budgetary disaster that will be yoked to the neck of the city for a decade or more. Do you want to finish paying off the LA Olympics sometime around 2040? Me neither.

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The Olympics are especially vulnerable to cost overruns because of their very nature. Flyvbjerg relates this to his “Iron Law of Megaprojects.” All big projects (think the Big Dig in Boston or the Crenshaw Line here in LA) come in overtime, over budget, and under-delivered, because it benefits decision makers to over-promise on all accounts to get these projects started. But the Olympics are particularly bad because they can’t be delayed. They have a fixed start date. The financial impact of the Games ends up being even worse than your typical bridge or tunnel megaproject because the schedule cannot slip — and keeping a bunch of construction projects all on time can be very expensive. Also, the IOC — that is, the International Olympic Committee, the deeply anti-democratic body that makes decisions about the Games — does not care about what happens at former host cities. None of the leaders of the IOC have returned to Rio since the closing ceremonies of the 2016 Games.

By happening over an entire region for a short amount of time on a fixed date, the Olympics require a huge investment to come online all at once. Massive construction projects must meet the arbitrary deadline of the opening ceremony, and they are also extremely susceptible to disasters causing budget overruns. Look at So-Fi Stadium, which is opening a year after it was supposed to at massive expense — plus a death and at least a dozen Coronavirus infections connected to its construction. If it were being built explicitly for the Olympics, it would have had to be built on an accelerated timeline, raising costs — and risks to construction workers — even higher. And rather than the cost being borne by Rams owner Stan Kroenke, it would have been shouldered by the taxpayers of Los Angeles.

LA 2028 is not somehow exempt from these overruns because it is a nominal “no-build Games.” A “no-build Games” really means building and demolishing a lot of temporary venues. These are not like the bleachers they roll out for the Rose Parade. These are massive installations, like the proposed conversion of USC’s baseball stadium into a temporary world-class swimming venue, and they not only have to be built — but also demolished and redeveloped. Nor is LA immune to these forces just because LA84 did not bankrupt the city. To assume that Los Angeles can avoid Olympics related cost overruns twice is akin to sitting back down at the roulette table and betting big just because you did not get wiped out the last time you played. The odds are still heavily stacked against us.

And the numbers I have included above just look at the median outcome for the Games. Although boosters claim the games will yield a $1 billion surplus, a number that would likely be dwarfed by expenses for increased security at the Games anyway, the downside risk if things go badly is almost unthinkable. Look at Tokyo, which is now dealing with as of yet uncalculated billions of dollars in costs associated with delaying the games due to the Coronavirus. These come after already spending tens of billions in overages related to construction costs. And this is Tokyo we’re talking about: the IOC explicitly considered them “safe hands” to manage the cost of the Olympics and deliver the Games on-budget. It’s one thing to say that LA is less corrupt than Sochi (although the FBI, currently investigating a half-dozen city councilmembers, might quibble). But even a city hand-picked by the IOC to change the narrative on cost overruns could not manage to navigate hosting the Olympics without dealing with two massive budgetary catastrophes. If LA were to experience a delay like the one the Coronavirus created for Tokyo, you could expect to tack another $2 to 6 billion onto the deficit the city would be responsible for.

This is not some far-fetched worst case scenario either. Under a conservative model, if LA 2028 faces typical Olympic overruns plus a natural disaster or pandemic related delay, the City of Los Angeles would expect to face a $5 to 15 billion Olympic deficit. This is exactly what Tokyo is facing right now. And if LA had shown any stomach for balancing budgets by taxing the wealthy or reducing the size of LAPD, the nation’s deadliest police force, maybe this would be a justifiable risk. But that is not how Los Angeles works.

The power-brokers in the city and state that brought LA 2028 to Los Angeles are the same ones that have placed the burden of the most recent crisis directly on the backs of the city’s most vulnerable, with broad cuts to education, housing, and homeless services. Even the supposed public benefits like investment in transit infrastructure, are the first things on the chopping block when things inevitably go awry. Watch the evolution of the Twenty-eight by ‘28 plan closely in the coming months to witness the massive scaling back of promised infrastructural improvements for the region.

So who will pay those billions of dollars in cost overruns? Working Angelenos will, through regressive sales taxes and a reduction in city services. Meanwhile those who profit from the games, the aristocrats in the IOC, the local developers and construction magnates, and the global corporate sponsors, will either be counting their money or moving on to exploit another city. No one from the IOC will come back to LA to check on us. Even the decision makers like Garcetti who brought us the Games will be long gone from office by the time the bill comes due.

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Let’s back up for a second, because it is very important to remember we do not have to do this. Los Angeles does not have to host the 2028 Summer Olympics. Again, we’re talking about somewhere between $3 billion and $15 billion in costs borne by the city depending on the scenario. This is the equivalent of 2.5 and 12 times the amount the city is spending on housing for the homeless through Measure HHH, all for a sporting event the residents of the city did not have the opportunity to vote for. Why would we as a city risk this level of cost for our Mayor’s quixotic pursuit of a two-week party?

If the Covid crisis has taught us anything, it’s that Los Angeles is not prepared for a budgetary catastrophe, and it will respond to one by hurting the most vulnerable. And remember, these numbers do not include the massive security budget for the Games. The Olympics are historically an enormous driver of police expansion. If allowed to proceed, the Games have the power to undo whatever defunding of LAPD happens this year. And eight years out, the prospect of the Olympics is already being used by police unions in Los Angeles to hold the city’s budget hostage and justify funneling more cash to the LAPD.

From a financial perspective, LA 2028 is a man-made catastrophe of comparable proportions to Covid. This city deserves leaders who would not even think of absorbing this kind of risk. Because that is apparently too much to ask, we at least deserve an honest and transparent accounting process and an opportunity to weigh in on whether this is really what Los Angeles wants to spend billions on amidst a series of true crises. We are still further out from 2028 than Tokyo was when they were awarded the 2020 Games. We can still reverse course and avoid this disaster.

Many of the same groups endorsing the People’s Budget like LA CAN, BLM-LA, and Ground Game LA (with whom, in full disclosure, I organize) are members of the NOlympics LA coalition. They are calling for the Games to be cancelled, and for LA to be spared the expense and the further militarization of the city’s policing. Now is the time to join the effort, before it’s too late.

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