Tuesday, July 15, 2003

Close call on Convergys

Council still divided on $63.4 million deal

By Gregory Korte
The Cincinnati Enquirer

All nine members of Cincinnati City Council say they're willing to do almost anything to keep the Convergys Corp. from moving to Northern Kentucky. But as they vote today on an unprecedented package of tax incentives to keep the company downtown, council members ask: How far is too far?

Click here to see an Acrobat PDF file (316k) showing what all the Council members are thinking as Tuesday's vote approaches.
An Enquirer survey of council members found the issue still very much undecided. Four council members are leaning in favor, four leaning against, with the possible deciding vote being Vice Mayor Alicia Reece.

With the outcome by no means certain and the momentum moving toward rejection of the $63.4 million package of tax incentives, Councilman David Pepper seems willing to call Convergys' bluff.

"All nine of us want Convergys here equally badly," Pepper said. "But a bad deal done badly is worse than no deal at all."

Convergys and Mayor Charlie Luken have described today's vote - the most important downtown decision since the vote that built Paul Brown Stadium - as a take-it-or-leave-it deal. If City Council votes yes, Convergys stays and promises to create 1,450 additional jobs over 15 years. If City Council votes no, Convergys says it will look for a new site in Northern Kentucky.

Pepper and Councilman David Crowley said they will propose an alternative plan today. It would eliminate the most controversial part of the package - the $33 million in job retention tax credits - and send the city and Convergys back to the negotiating table.

"You see how the votes are lining up. People are uncomfortable with the exact way it's been proposed," Pepper said.


Some council members worry that the job retention credits will set a precedent - that every major employer will seek a tax break just to stay in town.

"At some point an important policy decision was skipped over," he said. "City Council can't just be a rubber stamp. We need to establish policy parameters under which we negotiate."

The job retention tax credits work like this: Convergys promises to keep 1,450 workers, who pay a total of $2.2 million a year in city earnings taxes. The city will give an 80 percent refund to the company of taxes its employees pay. The annual value of the tax break is $1.7 million today, growing to $2.8 million by 2018.

That's money that comes directly out of the city's general fund, which pays for basic services like police, fire, street repairs and garbage collection.

But City Council may not have enough time to renegotiate. That's because Convergys has an option to buy the 20-story Atrium One building at 401 E. Fourth St. downtown from holding company Clarion Partners - but only until the end of business today. City Council meets at 3 p.m., giving the council less than two hours to gather public opinion, ask questions, deliberate and debate.

Pepper said the short deadline is a negotiating tactic by Convergys to force City Council into a quick decision.

Mayor Charlie Luken, who scheduled the special meeting, said he doesn't think the Convergys plan will fall apart over a matter of minutes or hours.

Cincinnati city councilman David Crowley and fellow council member Y. Laketa Cole addressed the Camp Washington Community Council Monday.
(Craig Ruttle photo)
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But Luken also strongly cautioned council members against tinkering with the deal.

"I don't see any value at this late date to amending the deal. I've done everything I can," he said. "I would prefer not to have a whole bunch of micromanaging of the negotiation process. But that doesn't mean it won't happen."

The vote is so close that Luken, City Hall's most veteran vote-counter, said he has no idea how it will turn out.

"I sense it's very, very close. They just have to make up their minds," he said Monday afternoon.

One vote Luken was counting on was from Councilwoman Y. Laketa Cole, who late last week was leaning in favor of the deal. By Monday morning, her vote was an emphatic no.

"I can't go back to my constituents and say, we don't have money for you all, but we have money for big business," said Cole. "This deal to me is a horrible deal at this point."

The turning point for her came Monday morning, when council members came back from a weekend of campaigning to find hundreds of e-mails, faxes and phone messages from constituents. Some said the public input was about 50-50; others put it overwhelmingly against Convergys.

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"Fundamentally, people have a bad feeling about this deal," said Crowley. "And I do, too."

With votes changing almost by the hour, Convergys executives who had been working the City Hall corridors last week were nowhere to be seen Monday. James Orr, the company's CEO, and William H. Hawkins II, the vice president of governmental relations, did not return several calls to their homes and offices. Convergys, a former Cincinnati Bell subsidiary, provides billing and customer relations services for phone companies, cable and satellite television providers and many other companies.

With public opinion sharply divided and the economic benefits - at best - difficult to measure, even supporters of the Convergys deal admit it's a tough sell politically.

"These are never easy," Nick Vehr, a former Cincinnati councilman who now heads the Greater Cincinnati Chamber of Commerce's economic development efforts. "Elected officials are used to working in a world where people see a direct benefit or a direct return. It's hard to see how Convergys in downtown Cincinnati supports a police presence in the neighborhoods, street repairs and garbage collection.

"But people need to understand that our city runs off the earnings tax. A high concentration of jobs increases earnings tax collection, which helps run local government."

What happens today

• Cincinnati City Council meets at 3 p.m. to consider a $63.4 million package of tax incentives for Convergys Corp. The package will come in the form of six ordinances granting tax credits and dealing with land-related issues.

• Convergys' option to buy the Atrium One building, 401 E. Fourth St., downtown, expires at the end of the day. Convergys wants to transform the tower into its world headquarters.

What could happen

• Council could vote the entire package - or any part of it - up or down.

• Councilmen David Crowley and David Pepper intend to introduce an alternate plan that would eliminate the job retention tax credits and send the package back to City Manager Valerie Lemmie for further negotiation.

Highlights of the package

From the state of Ohio:

• $131.5 million in tax credits over 15 years, already approved by the Ohio Tax Credit Authority.

• $12.7 million in grants and loans still to be approved by the State Controlling Board.

From the city of Cincinnati:

• $33 million in job retention tax credits over 15 years, giving Convergys a 75 percent refund of earnings taxes paid by its employees.

• $22.4 million in job creation tax credits over 15 years, at a rate of 80 percent.

• $8 million in cash grants for capital investment downtown, to be paid out of a special property tax fund devoted to downtown development.

From Convergys:

• A promise to retain 1,450 jobs in downtown Cincinnati.

• An additional 1,450 jobs created over 15 years.

• Jobs will pay at least $21 an hour and the company will make good-faith efforts to hire city residents and minority applicants.

If it fails

• City Council will ask Convergys for more time to negotiate.

• Convergys has told city officials it will move forward on plans to move to the Camp Marydale site off Interstate 75/71 in Boone County.

E-mail gkorte@enquirer.com

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