CHICAGO — Chicago’s $4.8 billion operating budget for its bid to host the 2016 Summer Olympic Games is reasonable and has adequate protections against financial risks, but additional insurance is needed to protect against the construction risks of building the privately financed Olympic Village, an independent review has found.

“Overall, the fiscal viability of hosting the games depends heavily on continued effective and professional management that adheres to the plan as proposed by Chicago 2016,” the review by the Civic Federation of Chicago found.

Though generally favorable, the 90-page review conducted by the Civic Federation of the city’s 2016 plan called several revenue estimates, such as prospective donations, “optimistic compared with previous games.”

The $4.8 billion budget includes the cost of operating the Olympics, building sports facilities, providing an Olympic Village to house athletes, and hosting the Paralympic Games. Chicago is vying against three other finalists — Tokyo, Madrid and Rio de Janeiro — to host the games. The International Olympic Committee will announce its decision on Oct. 2.

The Chicago-based tax policy and government research group conducted its analysis with the help of L.E.K Consulting at the request of the City Council.

The council passed a resolution in June seeking the review of the city’s fiscal risks and projections after council members were surprised to learn that Mayor Richard Daley had promised the International Olympic Committee that the city would sign a host-city contract providing an unlimited guarantee in case the games lose money.

The pledge contradicted past assurances from Daley that Chicago is on the hook for no more than $500 million and that other privately funded guarantees, a state guarantee, and insurance coverage would kick in first in what he has portrayed as the unlikely event the games lose money. The council is scheduled to vote on Sept. 9 whether to authorize the city to sign its host-city contract.

Chicago has provided a $500 million guarantee and Illinois has offered $250 million that applies to deficits in the operating budget or any liability associated with hosting the games. A proposed insurance package that Chicago would purchase provides up to $500 million in coverage leading up to the games and then $1 billion in 2016.

The city’s greatest risk is posed by the construction of the $1 billion Olympic Village because of its expensive price tag and reliance on funding from the private sector. The city recently paid $86 million to acquire the land that would house the project. After the Olympics, the village would be converted into housing. If Chicago loses its bid, private developers would be sought to develop the area.

“It is impossible to eliminate all risks associated with any real estate endeavor including the Olympic Village,” the report reads. “As has been recently observed in Vancouver, host of the 2010 Winter Games, turmoil in the global capital markets leading to the loss of developer financing during construction can create considerable risk to taxpayers.”

Chicago’s bid does have several layers of protection as developers would be required to purchase typical construction-related insurance such as surety and performance bonds. The report recommends that either the committee or developers be required to purchase a new type of insurance, called capital replacement insurance, developed and priced specifically for the Chicago 2016 games.

The report further recommended that the City Council exercise oversight of Chicago’s planning for the games and receive regular progress reports.

“It is critically important that aldermen provide legislative oversight to ensure the Organizing Committee is sticking to the detailed plan laid out by the Bid Committee,” said Civic Federation president Laurence Msall.

The report comes as it was announced that the IOC is stepping in to provide the Vancouver 2010 Winter Games with extra funds to help cover a budget shortfall due to a lack of corporate sponsors. Vancouver and London, host of the 2012 Summer Olympics, have been forced to put up more money to cover housing projects due to global recession.

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