2010 watchdogs sound alarm

2010 games in crisis: Watchdogs sound alarm

B.C. taxpayers on hook for about $1.5 billion and construction is moving too slowly

The Vancouver Sun

Friday, September 15, 2006

By Miro Cernetig With a File From Chad Skelton

The true cost of the 2010 Olympic Games is at least $2.5 billion, which could still soar higher and may even result in the delay or elimination of promised sporting facilities, perhaps damaging athletes' chances to win gold medals.

Those are the hard-hitting conclusions of reports released Thursday that outline a series of Olympic planning, marketing and construction snags -- not to mention a $150-million US currency blunder -- that have increased the risks to taxpayers.

The opening salvo of the critiques came from B.C.'s Auditor-General Arn van Iersel, who effectively shot down the provincial government's long-standing claim that the cost of the Olympics wouldn't exceed $600 million. Van Iersel says $1.9 billion in Olympic-related projects -- from the Sea to Sky Highway to sections of the new Canada rapid rail line that will service the Olympic Village -- should be included in the Games' real price tag of $2.5 billion.

Meanwhile, a team of consultants hired by the federal government warns the Vancouver Olympic Organizing Committee may not be able to build Olympic venues on its $580-million construction budget -- even after receiving a $110-million boost to the original $470 million three weeks ago.

"Whether the revised enhanced [$580 million] budget will be sufficient to deliver a venue package that meets [International Olympic Committee] satisfaction is questionable," warns the federal report by Pacific Liaicon, a subsidiary of construction powerhouse SNC-Lavalin Inc.

Olympic organizers managed to get the IOC to agree to downsize the Games' arenas to NHLsized rinks instead of the larger European surfaces that are the Olympic standard, as the report suggested. But a curling arena is still up for grabs -- if it can't be built on the original $28-million budget it should simply be scuttled. The speed skating in oval in Richmond is also facing a scheduling crunch.

It all promises a showdown over the leadership of the Olympics, with the provincial New Democratic Party saying the reports suggest mismanagement, planning errors and cost overruns that are reminders of the indebted 1976 Summer Olympics in Montreal.

The federal consultants suggest a December deadline should be put in place for Vanoc -- and its head John Furlong -- to determine if the new budget can be met. That timeline loosely jibes with an expected move by the federal government to announce new appointments to the Vanoc board.

"This is a very, very complex project," said Furlong, who said Thursday the Olympics will come in under its $580 million construction budget. "I believe that we have the confidence of the people of the province.

Still, the federal consultants warn national pride is at stake.

If construction isn't sped up Vancouver might be headed to the sort of embarrassing delays and cost overruns that plagued last year's Torino Winter Olympics in Italy, the report says.

Such a scenario could also tarnish Canadian organizers' promises of early completion of Olympic sites so Canadian athletes can practice on them, improving the odds of winning medals.

"It should ... be noted that in the worst cast scenario, similar to Torino 2006, the venues could be delayed to just prior to the Olympic events," the report says.

"This would ... result in Canadian athletes not being able to do practice runs on the actual Olympic venues as presently planned. In addition, another downside effect is that additional escalation that is presently not provided for in the $580-million [construction] budget would be incurred."

The auditor-general presented a broader critique of the provincial government's management and accounting of the Games, suggesting the province has not been properly adding up the true price or being clear about the organizational risks ahead.

Three and half years before the Olympic flame will be lit, the auditor-general now pegs the Games' total budget at $4.3 million. About $1.8 billion of that will be recouped from Olympic revenues.

Ottawa will contribute $607 million and local government $389 million, leaving B.C. taxpayers on the hook for about $1.5 billion, the report estimates.

But like the federal report, the auditor-general also warns of the possibility of more budget problems looming. Some construction schedules for Olympic venues are sliding, adding a threat of even more cost overruns. In addition, $175 million in security costs may be underestimated and even the anticipated $13 million in medical costs anticipated for looking after athletes could rise.

The auditor-general, who is responsible for ensuring government bookkeeping is clear, warns the provincial government's $76-million contingency fund for cost overruns may prove inadequate for the costs ahead.

"There are still many pressures facing the capital budget for the Games and the risks inherent in the operating budget as well," said van Iersel. "We question whether the remaining $76 million is adequate."

Unlike the government, the auditor-general chooses to add in all costs associated with the 2010 Winter Games, including the $775 million Sea to Sky Highway to the ski village of Whistler, part of the new rapid-transit Canada Line that will service the Olympic Village in False Creek and other costs the province prefers to keep in its general budget.

That accounting decision has effectively kept the price tag of the Games pared to about a third of the $1.9 billion the auditor-general estimated B.C. taxpayers will pay.

The 2010 Games may also not offer the economic spinoffs that have long been promised, van Iersel warns.

While the government has estimated the Games will generate at least $4 billion to $10 billion in economic spinoffs, van Iersel notes those estimates did not take into account a serious marketing hurdle: the International Olympic Committee, which controls the Olympic brand, won't allow the full, global marketing of Vancouver's Games until after the 2008 Summer Games in Beijing are completed.

The auditor-general criticizes the province's marketing campaign as "delayed and uncoordinated, with no central agency taking the lead."

"Not having a centralized agency take the lead, together with not being able to start marketing effort early, means the maximum economic benefits forecast by the province back in 2002 may not be achieved."

Most embarrassing, however, is that organizers actually lost $150 million US because they delayed entering into currency hedging contracts, a simple financial tool commonly used by experienced investors and businesses to insulate themselves from the rise and fall of the American dollar, the currency in which the revenues for the 2010 Games are paid out.

"When the Games were awarded to Vancouver, the exchange rate could have been locked in at US $1 = $1.457, but steps to do that were not taken," noted the auditor-general. "As of the date of this report, the rate has fallen to US $1 = $1.125. That represents a loss for Vanoc of approximately US $150 million for the broadcasting and international sponsorship revenues."

Since then, the auditor-general notes that Olympic organizers have taken measures to buffer themselves, entering into hedging contracts for $240 million US and $50 million EU.

In response to the criticism, the province said "the IOC did not confirm the actual currency, amount or timing of the revenues until 2005," even though the IOC usually works in U.S. dollars. The government also explained "to everyone's surprise, the current rate we are now experiencing are significantly higher than anyone thought at that time."

Ultimately, however, the province lays the blame on Vanoc: "The decision on whether or not to hedge was a decision of Vanoc's board of directors and not the province."

Furlong said Vanoc received "a lot of expert advice" on whether it should have hedged its broadcasting revenues and "we followed the advice that we got."

He said Vanoc could have just as easily locked-in the value of the broadcast rights, seen the Canadian dollar plummet, and ended up missing out on a potential windfall.

Faced with the auditor-general's critique, the provincial government continued to argue its bookkeeping was sound and more realistic than the auditor-general's methodology.

"The auditor-general flags some risks and we take that very seriously," said Economic Development Minister Colin Hansen, who is overseeing the Games' provincial budget. "Those are risks that we have already identified and are managing."

Hansen also acknowledged that the province will have to absorb any overruns if other Olympic partners don't agree to help out. The Olympic organizers face little risk beyond the money they have already put on the table.

"We have guaranteed the IOC and the Canadian Olympic Committee that they will not face costs over and above what they committed to," Hansen told reporters.

But Hansen added he "took offence" at any suggestion the government has already gone over its original $600-million budget. Major projects such as the Sea to Sky Highway and the Canada Line are public infrastructure projects, he explained, not unlike the building of the Coquihalla Highway during the run up to Expo 86.

"Those are all infrastructure developments that we can be pretty proud of in 2010," said Hansen. "But had we not won the Games, guess what, that project still would have been built."

The government has already accounted for most of the extra $1.3 billion that the auditor-general has added to the original Olympic price tag. The $1.3 billion in infrastructure and other costs, including some serious cost overruns reported in the past, are mostly accounted for in its general budget.

But the report was still a political defeat for the government, which has in effect been trying to minimize the cost of the Olympics through its accounting approach. The auditor-general has essentially endorsed the New Democratic Party's view that all projects connected to the Olympics should be added into one budgetary envelope for the public to see, as Australia did when accounting for the true costs of its 2000 Summer Olympics in Sydney.

Harry Bains, the NDP's spokesman on the Olympics, called Thursday's report proof the auditor-general should be appointed the "auditor of record" of all Olympic spending, to keep the public abreast of all spending.

Bains warned that the report shows serious mismanagement and a lack of transparency, raising the spectre of the 2010 Games going the way of the debt-plagued 1976 Summer Olympics held in Montreal.

"We're talking about billions in taxpayers dollars," said Bains. "If we don't do it right, if we don't manage it right, the risk are real. All you have to do is go back to what happened in Montreal."

OTTAWA

- A 2010 construction czar is needed to bring the projects in on time, on budget, and properly built.

- "Escalation" runs rampant because of higher material and labour costs, and the lack of competitive bids and skilled tradespeople, especially in the Lower Mainland.

- Olympic venues are particularly vulnerable to higher costs because of high profile, tight deadlines, government involvement.

- Planning delays must end; it is time to get on with construction.

- Contingency fund was built into the project but it is now mostly gone, leaving just $13 million to deal with the unexpected.

- Vanoc got its wish of $110 million in extra money, but even with $580 million will have difficulty bringing in a minimally acceptable package of Olympic venues.
VICTORIA

- Security and medical costs have not been counted into either operating or capital budget, and could stretch contingency fund.

- Contingency fund needs to be bigger to reflect actual risks.

- Lack of pre-construction agreements on some venues means costs are likely to rise.

- Nobody is responsible for reporting to the public on the overall cost of the Games.

- Vaunted $4-billion spin-off benefits for B.C. in question because International Olympic Committee authority prohibits international marketing of 2010 Games until after Beijing's 2008 Games.

- Vanoc will get $150 million less from broadcasting, international sponsors because it failed to hedge against U.S. dollar fluctuations.

- The true cost to taxpayers of the Games -- for now -- is $2.51 billion.

OLYMPIC COST CRUNCH

B.C.'s auditor-general's office says the true cost of the 2010 Olympic Games to taxpayers is $2.506 billion.

Games costs $4.338 billion

Less: Games Revenues ($1.832 billion-)

Net Games cost: $2.506 billion

Costs to be funded by:

Province of B.C. $1.5 billion
Local government cost $389 million
UBC property tax cost $10 million
Federal taxpayer cost $607 million
Total taxpayer cost $2.506 billion

- Excludes revenues from government grants for Paralympic operating costs.

Source: Office of the Auditor-General of British Columbia

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B.C. auditor general unveils true cost of Vancouver Olympics

CanWest News Service

Friday, September 15, 2006

by Lindsay Kines

VICTORIA - The 2010 Olympic Games will cost B.C. taxpayers nearly $1 billion more than the provincial government previously indicated, according to the province's acting auditor general.

In a hard-hitting report released Thursday, Arn van Iersel pegs the true cost of the Olympics at a minimum $2.5 billion, of which $1.5 billion will come from the province.

The B.C. government insists its total commitment to the Games is $600 million. But van Iersel says that figure ignores key Olympics-related costs such as $775 million in upgrades to the Sea-to-Sky Highway, $41 million in expenses for the B.C. Olympic Secretariat, and $8 million for a rapid-transit line stop at the athletes' village.

The government, he says, needs to come clean with the public.

"Given the province has the ultimate responsibility for the financial outcome of the Games, we feel there should be regular and complete reporting of the total Games costs to the taxpayers," the report states. "To date, the province has only reported to taxpayers on the $600 million envelope it has established; however, there are many other Games related cost that are not being reported as such by the province."

B.C. Economic Development Minister Colin Hansen took issue with van Iersel's findings, arguing that the Sea-to-Sky Highway would have been improved anyway, and should not be considered an Olympics-related cost.

"Sure there's lots of things that the government is doing that we are wrapping an Olympic flag on," he said. "But those are programs that are not part and parcel of us living up to our obligations for the staging of the Olympics."

The 65-page report also highlights significant problems with the management and marketing of the Olympics, and warns that costs could go even higher. Van Iersel found, for instance, that the province lost $150 million in projected revenue from broadcasting and international sponsorships by failing to adopt a routine ''hedging strategy'' that would have protected them against fluctuations in the dollar.

He found, too, that the government will have to wait six years longer than expected to launch a marketing campaign, because it didn't realize the International Olympic Committee restricts such campaigns until the previous Olympics are over. B.C. had planned to start its campaign in 2003, but now will have to postpone it until after the 2008 Olympic Summer Games in Beijing. Van Iersel said the delay could hurt the provinces plan to reap $4 billion in economic spin-offs.

The auditor's report also notes that the Vancouver Organizing Committee (VANOC) has transferred construction risks for many of the venues to other partners. But if rising costs make it impossible for those partners to finish the job, ''there is a risk the province will have to contribute more funding to VANOC to get the projects completed,'' the report says.

The province has set aside $76 million for such unexpected costs, but the auditor general also questions whether that emergency fund will be enough.

NDP critic Harry Bains said the report shows B.C. risking a financial disaster on par with the 1976 Olympics in Montreal.

"All you have to do is go back to what happened in Montreal, and then go back to what happened in Athens," he said. "We don't want to see that kind of stuff happening here, but the way this government is going, the direction this management is going, I think theres a real risk of going in that direction if we don't stop it now."

A federal report, also released Thursday, confirms the auditor general's warnings about rising construction costs. The report, dated May 19, 2006, was prepared in response to VANOC's request for an extra $110 million, already approved, and says governments will likely face further requests in the future.

"Escalation continues to run rampant in British Columbia as a result of higher material and labour costs, and the lack of competitive bids and skilled trades people, especially in the Lower Mainland," the report says.

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