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Archive for August, 2015

As I pointed out in an earlier article, there is potential for the 2024 Olympics to provide a substantial economic boost to the region.

The City Council will vote on a resolution to give the mayor power to enter a binding contract with the USOC. The contract would also make us responsible for any cost overruns.

I could accept such a condition if the organizing committee has broad powers to decide on the construction, renovation or repurposing of facilities. I accept the fact that the cost of security, traffic control and crowd management will be high, but the prospects of record-breaking revenues are high too, owing to a new TV contract after the current one expires as of the conclusion of the 2020 Games, and the likely mega-influx of Asian tourists – particularly from Olympic powerhouse China. But the cost of new venues could make or break the finances.

So, before the Council authorizes the mayor to proceed, there must be strict limitations, perhaps defined as a cap, on infrastructure costs. Our current major facilities are good enough for professional sports and Division 1 NCAA contests, so there is no reason to spend on big ticket improvements. We need to ask if an Olympic village is even necessary, as opposed to dispersing teams to college dormitories or hotel complexes, the latter approach becoming more popular for nations with elite programs.

It is also critical for the Council to consider the impact the games will have on general infrastructure projects throughout the city.  It would not be wise to have the DWP tearing up streets to replace water mains in the months leading up to the competition.

It gets down to drawing a line in the sand with the IOC and USOC, organizations who have proven themselves incapable of exercising or encouraging financial common sense, and who,  because they are playing with other people’s money, bear little risk if a city goes bust.

If our terms are deemed as too restrictive, too bad.  In time, more and more cities will push back and the ruling Olympic poobahs will finally get the message that the world has had enough.

Of course, they could always rely on nations run by authoritarian regimes to cough up sums they cannot afford.

How would Tehran and Pyongyang appeal to the public as future regular destinations? Maybe we can leverage them by having some nuclear weapons inspectors pose as athletes. Our team mascot could be a geiger counter.

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The local press has lately focused on one key controversial element of the proposed DWP rate increase, one which the Mayor, City Council and General Manager Marcie “D’Arcy” Edwards would rather not discuss.

That’s the 8% transfer fee and the utility tax (10% paid by residential users and 12.5% by commercial entities). Together they will absorb around 20% of the gross increase and direct it to the city’s general fund, where it will be used for anything other than upgrading the neglected power and water infrastructure.

While allowed by the City Charter, this practice is unconscionable and the transfer component may even be declared illegal by the courts.

In all, around $250 million per year for the last several years has been diverted from what would be a source of funds available to make considerable headway in long-overdue capital improvements. That alone makes the transfer morally unethical.  It is like siphoning cash from your kids’ college savings accounts to buy a new car.

Yet the mayor, his allies and Marcie Edwards like to call the tax and transfer a dividend.  They say we are the shareholders of the DWP.  We are simply paying ourselves.

I know of no other dividend where the recipient does not have the right to decide how to spend it.

In a recent op-ed piece in the LA Times, Gregory Lippe ( a Valley CPA) and Richard Moss (a former DWP Commissioner) suggested keeping the proposed increase free of any tax or transfer fee. This would allow the additional revenue to flow 100% to improvements.

The two gentlemen pointed to the mayor’s position that the increase has nothing to do with feeding the city’s budget.

Perhaps we should refer to it as a supposed position because the mayor has not shown any indication to end the levy on ratepayers’ payments.

It’s time for the mayor to show his true colors. Will he back Lippe’s and Moss’ very sensible approach?

Garcetti’s track record does not provide cause for optimism.

He has failed to make any reforms at the DWP.  His pick for GM, Marcie Edwards, co-whined a letter with Brain D’Arcy defiling Ron Galperin’s audit of the out-of-control non profit trusts, and she has yet to remove any manager associated with the costly failure of the billing system. It appears the DWP is on a path of business as usual – no accountability, no integrity.

Does this type of management warrant a 20% premium?

It is going to be tough enough assuring the increase will be spent wisely and used appropriately.

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The Olympic Games have been devolving for many years into a grotesque spectacle of over-spending, if not virtually pushing some cities and nations towards bankruptcy.

The Athens Games exacerbated Greece’s already strained economy in 2004 with a loss of $14 billion and produced a landscape dotted with crumbling facilities.

Beijing left China with little usable infrastructure to show for its $44 billion outlay.

Russia’s $50 billion spectacle in Sochi fared better than Beijing’s games in the sense it resulted in lasting capital improvements, but one has to wonder whether the location will ever pan out into a popular destination, one worthy of the massive investment.  It’s a lot to spend on a city of only 300,000 people far removed from the rest of the country. It does not help that Putin is doing what he can to isolate Russia from the rest of the developed world.

The two most successful Games in history were held in the United States – Atlanta and Los Angeles, although Atlanta’s was marred by an act of domestic terrorism.

The Los Angeles 1984 Games succeeded beyond any standard of achievement, making $250 million on an investment of around $500 million. It was the first Summer Games to turn a profit since 1932 when they were held in ………Los Angeles.

The only new sporting venues – the velodrome and aquatic center – were heavily financed by corporate sponsors.

The legacy of these games was not unsightly ruins and Olympic-sized debt, but an endowment that still thrives today.  I’m talking about LA84.

But times are different.

The cost of security alone would be a budget-buster for many host cities and their national governments.

Also, the IOC has done nothing to discourage the senseless splurge by some governments who view the Games as a  a testimonial to their autocratic and corrupt regimes.

Boston, the United States entry for the 2024 Summer Olympics, seemed to be heading down a path to financial suicide, but an alarm rang in the mayor’s office when the city had to sign a contract that would make it liable to pay for any losses.  Give Mayor Martin Walsh a gold medal for having the courage to walk from the deal.

Considering the history of excessive and unconscionable costs, should Los Angeles dare fill the void left by Boston?

If any city in the United States can stage a successful and affordable Games, it is Los Angeles.

Record-breaking revenue would seem to be certain. The location, pleasant climate, diverse entertainment venues and beaches will likely attract a record number of visitors, including many from Olympic powerhouse China, a nation which made its debut at the Games in 1984. Back then, it was impossible for Chinese to travel abroad in any significant numbers. I would expect an armada of charter and scheduled flights carrying PRC citizens will land here this time around.

A surplus would almost be certain, too, if we insisted on managing the event our way, and not the IOC’s.

Just as in 1984, corporate sponsors will come through.  Various government entities would have to provide most of the security and transportation control, for which they should be reimbursed off the top of receipts.  Security for London 2012 came to an equivalent of $800 million and ticket sales were around $1 billion.

Don’t forget about our share of television money, which may also set a record.  NBC’s current contract to cover the games runs through 2020, so a bidding war will be likely among the major networks.  Existing production facilities and available technicians in Los Angeles should create efficiencies that translate to lower production costs, a consideration which will not lost on the bidders.

To assure a surplus, the Los Angeles organizers must stand firm against constructing new facilities. If our stadiums and arenas are good enough for UCLA, USC, MLB, NBA and NHL, they are good enough for the rest of the world.  Any costs related to sports infrastructure should be limited to clearing deferred maintenance and any technology upgrades to manage the events on the field or in the water. Temporary facilities will have to be constructed for certain sports and enhancements made to college dormitories to house the athletes, although the trend has been for many teams to stay in private facilities.

Our message to the IOC should be about financial sensibility.  Given the immense money pit forming in Rio de Janeiro, the IOC may be more receptive to the concept. If not, there will be fewer and fewer bidders for the Games in the years to come.

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