Wednesday, August 26, 2015

The Boston Olympics and the Downward Spiral

Imagine if Boston had taken on the Olympics, and imagine if revenue shortfalls and cost overruns had totaled $3 billion. Boston is a large city, but not that large. Taxpayers would be on the hook for $4,550 per person. Not everyone pays taxes, so the average per taxpayer would be higher. It is extremely difficult to make up that kind of shortfall through taxes. A special one-time tax on that scale would drive a significant fraction of taxpayers into bankruptcy, ruining the city economy and reducing future tax revenues. An increase in tax rates over an extended period of time would drive residents and would-be residents beyond the city limits, again reducing tax revenues. Boston would be stuck in a bind, most likely struggling for half a lifetime to keep up with its bills, much like Detroit, Harrisburg, or Puerto Rico. Each place is in a downward spiral created by government debt and taxes. Tax rates are high enough to drive taxpayers away, so that the growth that could solve the governmental fiscal problems can never arrive.

But wait. The likely cost overruns for hosting the Olympics would be much higher than $3 billion. The deficit could easily be $10 or even $20 billion. The Olympics are always more expensive than early estimates suggest, as Andrew Zimbalist notes in Harvard Magazine:

The risks are formidable, and London’s experience in 2012 is instructive. London earned $3.5 billion directly from the Games, yet spent more than $18 billion before factoring in infrastructure investments. Further, tourists stayed away . . .

London’s total Olympics deficit, then, was around $16 billion. But London is a very large city. It can arguably spend that kind of money. A $16 billion deficit in the Boston Olympics would have been made up by the taxpayers at a cost of $25,000 per person. That would have been a tax bill high enough to ruin the city for the next 50 years.

It’s no accident that Boston officials cited this very risk when they elected not to sign the papers for the Olympics. It is a little scary that they came as close as they did to going forward. We have a small group of determined activists to thank for averting this calamity.