Monday, July 14, 2003

Norwood fumes at incentives

Officials say plan leads Convergys to break deal

By Ken Alltucker
The Cincinnati Enquirer

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A decade ago, Norwood landed hundreds of new jobs and a high-tech calling center when Ohio approved an economic incentive package for Convergys Corp.

With six years left until the agreement expires, the Cincinnati-based billing and customer-service company plans to shift 300 of the 400 jobs it has in Norwood to downtown Cincinnati under a multimillion dollar tax break plan negotiated by the state and Ohio Gov. Bob Taft.

As Cincinnati City Council prepares to vote Tuesday on its $63.4 million share of the new deal, Norwood leaders are fuming and vowing to fight.

"We have an agreement," said Rick Dettmer, Norwood's development director. "It's reasonable to expect a business to honor it."

State officials say the Convergys deal, aimed at keeping it from relocating to Northern Kentucky, is a stark example of how development deals are done these days in an ugly economy. More companies across the country are doling out jobs to communities willing to offer generous tax giveaways.

The most obvious national example of this shop-for-jobs trend can be found with Boeing Co. About 40 U.S. cities and states - including Ohio - are vying to land its $500 million high-tech passenger jet assembly plant. Washington state and Boeing's hometown, Seattle, appear to be the front-runner with a $3.2 billion package of tax breaks and subsidies.

"It would be great if every deal were a win-win-win all the way around," said Bruce Johnson, director of Ohio Department of Development. "That's not economic development in this century."

City council Tuesday faces its most important decision about economic development since the 1998 vote that guaranteed construction of Paul Brown Stadium. It would be Cincinnati's largest incentives package, and it could ensure that Convergys would retain about 1,500 full-time jobs downtown. By 2018, Convergys officials say the company could expand to nearly 3,000 workers.

The city's $63.4 million package would be added to $144.2 million in loans, grants and tax breaks from Ohio.

Norwood Community Development Director Richard Dettmer stands in front of the Matrixx Marketing building at Montgomery Road and Sherman Avenue in Norwood. He holds newspaper clippings spelling gloom and doom for Norwood from the closing of the GM plant 10 years ago.
(Glenn Hartong photo)
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But approving the deal means some city programs could be cut. That's because the city would have to divert as much as $2.8 million annually to finance the tax breaks.

Five of nine council members must approve the deal for it to happen. As of Sunday, council members were still reviewing the details.

Last-minute lobbying is expected to continue today in City Hall. No organized opposition to the tax deal has surfaced, and Convergys executives have not discussed the proposal with reporters.

Convergys has been among the most aggressive Cincinnati-based companies pursuing tax breaks in Ohio and across North America, an Enquirer review of such deals shows.

The firm has 55 U.S. call centers and office buildings, according to the company's Web site. Convergys has won major tax concessions from Florida to Canada.

For example, a $1.1 million package in suburban Orlando helped Convergys two years ago build a state-of-the-art data center and three-story office building for 2,000 employees.

But no Convergys tax-break effort has been as intense or sustained as its two-year pursuit of a $207.6 million package of tax credits, grants and a loan from Ohio and the city.

Shifting Ohio's economy

Ohio's package for Convergys is perhaps the biggest ever offered to a non-manufacturing company, state officials say.

The effort to reach it has involved intense lobbying from the company, its representatives and Taft, who has aggressively sought to keep Convergys from leaving to Northern Kentucky.

How hard has the governor worked on this deal? His administration sought for new state laws and tax considerations for Convergys. Taft has also telephoned Republican Cincinnati City Council members Pat DeWine and Chris Monzel, urging them to approve the city contribution.

Mayor Charlie Luken, too, has been a reluctant cheerleader. He realizes Convergys offers the high-quality, high-wage jobs that consultant John Alschuler describes as vital for downtown to stay relevant in the 21st century.

The average salary for Convergys' downtown jobs is $71,000. Executive salaries such as CEO James Orr's 2002 salary of $880,000 (plus a $342,000 bonus) tend to skew that average higher, but the city's administration assured council members there are plenty of good-wage jobs at the billing and customer-service company.

About 72 percent of the firm's Cincinnati employees earn a salary ranging from $55,000 to $80,000, the company said.

Taft views keeping Convergys in Cincinnati as critically important, economically and symbolically. As the state transforms its smokestack economy to one that champions knowledge-based jobs and technology, it becomes vital to keep homegrown tech firms such as Convergys.

"This is a Third Frontier company," Johnson said, referring to the governor's proposal to boost high-tech employment in the state. "The governor's economic development cornerstone is the Third Frontier project, focusing on companies that have high wages and high growth potential."

A fight in Norwood

Even if Cincinnati's council approves the package, Norwood officials vow to fight back.

Norwood's 1996 enterprise zone granted Convergys a 50 percent break on personal property taxes. Convergys in turn agreed to invest $3.9 million, create 450 new jobs and retain another 601 positions.

A 2002 review of this tax break by Norwood and Hamilton County shows Convergys had 724 jobs in Norwood. Convergys now says it employs about 400 in Norwood, and it plans to transfer 300 of those jobs to downtown Cincinnati.

"We're objecting to the state action because it basically provides an incentive to further violate their agreement with the city of Norwood," said Dettmer, the city's development director.

He said the city is researching its options and will soon write a letter to the state protesting the decision.

But Johnson said the state had little choice in the deal. Convergys warned it would close all Cincinnati office buildings and the Norwood call center if the state didn't approve its downtown consolidation plan.

Convergys officials wouldn't comment about specifics of the deal, including taking jobs from Norwood. The firm says the downtown consolidation plan will be good for Cincinnati, Ohio and Convergys.

Under the current plan, at least 100 jobs will remain in Norwood, Johnson said.

Still, Norwood officials say they didn't get much of a chance to make their case before state officials approved the new tax incentives.

In fact, Norwood was notified of the state's plan to subsidize Convergys' move on June 30 - the same day the Ohio Tax Credit Authority approved the bulk of the subsidy, $131.5 million in job creation and retention tax credits.

The state faxed the meeting notice to Norwood City Hall while the tax credit authority deliberated.

"If you would like to comment on this matter, please call me or forward your written comments to me in advance of the meeting," wrote Ohio Tax Credit Authority's executive director, Carrie Richards Manno.

The mailed invitation to speak at the June 30 meeting arrived at Norwood City Hall - on July 2.

Johnson acknowledges that the state should have notified Norwood about the vote sooner, but he added the city still could object later this month. Johnson and the tax credit authority would decide whether Norwood's objection is sufficient to block the move.

"It's a difficult case for them to make, but I'll be glad to listen," he said.



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