September 28, 2002

Olympic Sized Error

The Campbell government's economic impact study for the 2010 Olympics appears to have a fundamental error in arithmetic. When corrected, the incremental growth in provincial tax revenues over 30 years due to the games is less than the $600 million figure cited by the Premier as the cost to the provincial government for the games. The study erred by counting all of the benefits of expanding the Convention Centre as if they were benefits due to the Olympics.

On Sunday, September 29th, a 12 page "Special Vancouver 2010 Bid Advertising Feature" appeared in the Vancouver Province. The feature provided addresses to websites so interested readers could browse for even more information. One of the most important addresses is http://www.mcaws.gov.bc.ca/2010 where one can find the economic impact study prepared by the Capital Projects Branch of Rick Thorpe's Ministry, the Ministry of Competition, Science and Enterprise. This is ironic because it is Thorpe's Ministry which includes amongst its goals both the elimination of business subsidies and the removal of one third of the regulatory burden.

The economic impact study distinguished between gross economic impact and incremental economic impact. Gross impact includes those things that would happen even if the 2010 Olympics do not take place. For example, if the Olympics do not occur some British Columbians might vacation in the Okanagan rather than visiting Vancouver and Whistler, hence those tourism dollars would remain in BC but just go to different places. In determining whether the Olympics are a good investment for BC, the important measurements are incremental cost and incremental benefit.

To its credit the economic impact study of the proposed Vancouver Convention Centre Expansion estimated benefits with and without the Olympics. With all that care and attention to incremental analysis it is surprising to find a $5.1 billion error in the study's arithmetic. The study estimated that the "high impact" (most optimistic assumption for growth) estimate for incremental GDP growth over 30 years due to building the expanded Convention Centre would be $5.1 billion without the games and $6.5 billion with the games. The incremental benefit of the games is the difference between 6.5 and 5.1, which is $1.4 billion. The study estimated that the most optimistic assumption (most aggressive approach) would result in incremental GDP growth over 20 years of $3.5 billion not including any benefits due to the expanded Convention Centre.

The study combined the incremental benefits of both the games and the Convention Centre expansion, but instead of adding $3.5 billion plus $1.4 billion it added $3.5 billion and $6.5 billion! That is the kind of fundamental error that will result in an economic disaster for British Columbia.

You have to ask yourself whether you can trust folks to gamble on the Olympics when they cannot add their own numbers without making billion dollar errors! Then again, the project is ultimately accountable to a Premier who swore that tax cuts would pay for themselves. The same error that is made in the economic impact study on incremental GDP growth is also made on incremental job growth, and incremental tax revenues. Correcting that error reduces the optimistic estimate of incremental provincial tax revenues from $1.1 billion to $558 million. The $558 million in incremental provincial tax revenues is recoverable over 30 years for the Convention Centre and over 20 years for everything else. The province's study claims to have discounted future benefits to present value but it does not disclose the discount rate. Meanwhile, Premier Campbell claimed this week that the Olympics would "only" cost BC $600 million. Even if Campbell is right that the games will cost less than a tenth of what people like Vaughn Palmer have claimed, his own number is higher than the most optimistic estimate of incremental provincial tax revenue over the next 30 years as estimated by Thorpe's ministry when the error in arithmetic is corrected.

Government could try to claim that there is no error to be corrected in the table shown above. Such a claim could be based on the sloppy and misleading title "VCEC Expansion & Games". In that case, consider the corrected totals to be titled: "Incremental Economic Impacts of the 2010 Olympics including the contribution of the games to the VCEC expansion". The purpose of the economic impact study was to guide decision making with respect to the Olympic bid. It is misleading to claim all of the economic benefits over the next 30 years from a Convention Centre expansion are due to the games. The Campbell government wouldn't want to mislead, would it?