Friday, July 18, 2003

Convergys pleads case for incentives

By Gregory Korte
The Cincinnati Enquirer

[IMAGE] Convergys CEO James Orr (right) and William H. Hawkins II, lobbyist, meet with the Enquirer's editorial board.
(Joseph Fuqua II photo)
| ZOOM |
James F. Orr, the Convergys Corp.'s chairman and CEO, doesn't think Cincinnati taxpayers have gotten the full picture of the $63.4 million deal to keep his company's headquarters downtown.

Breaking his silence for the first time since the package of tax incentives was publicly released last week - and just two days after the deal fell apart - Orr had this to say:

• Even with the tax credits, Convergys and its employees will pay $130 million in city taxes over the next 15 years. And despite the state's $144.2 million contribution, Ohio would get $275 million in taxes.

• The company wants to stay in Cincinnati, but the cost of doing business downtown makes it difficult to stay without some city help.

• Convergys leads annual corporate giving to the Fine Arts Fund, and is among the top 10 givers to the United Way. All told, its community support exceeds $4 million a year, he said.

Orr mustered these arguments and others as he spoke to the Enquirer editorial board Thursday, attempting to counter what he called "misinformation" about the deal.

In doing so, he tacitly acknowledged that the company underestimated the effect of public opinion in swaying City Council to delay a vote on what would have been the largest tax incentive package offered in the city's history.

Mayor Charlie Luken canceled the Tuesday vote in the face of mounting opposition, but that package - or something like it - may very well come back for a vote soon.

Luken said it would be difficult to arrange a vote before the next scheduled meeting Aug. 6, but Orr said Thursday that the company's timetable is much more urgent.

That's because Convergys will pay "several million dollars" - Orr would not give an exact figure - to extend its option to buy the Atrium One building downtown.

"What I will tell you is, this has to get done next week," Orr said. "As a good steward of shareholder money, I cannot in good conscience make another bet that we're going to reach a deal, without any guarantees from the city. We tried to find a way to buy a little more time to work something out - and I do mean 'buy' literally. It costs us money."

Convergys has been looking for a new corporate home for two years. The 5-year-old company, the product of a merger between two former Cincinnati Bell subsidiaries, has management employees at three sites downtown and a call center in Norwood. Convergys does billing and customer service for other companies, with revenues of $2.3 billion a year and 44,000 employees around the world.

The search for a new headquarters was not confined to downtown.

"As we looked at a variety of alternatives, our first reflection was that, as a company, we've worked very hard to be a good corporate citizen," Orr said. "Our ties are to Cincinnati and the region as a whole. Having said that, we also had to look at other sites out there."

Those sites include several in Northern Kentucky, but also other Ohio sites - inside and outside of Cincinnati - and other states where Convergys has a significant presence, Orr said. The company has more management employees in Florida than in Cincinnati, for example - even though its corporate headquarters is here.

Kentucky is not necessarily the city's top competitor. "We never threatened to go any place in particular," Orr said.

But a suburban setting does make sense for several reasons, Orr said. Parking is cheaper, the space could be built to Convergys' specifications, and there's more room to expand.

In the end, the company settled on the Atrium One building downtown as its first choice. It's the perfect size, and could be ready almost immediately. And Convergys already has its executive offices there. Plus, there's room on the Third Street side of the building to plan for future growth.

Orr would not put a price tag on the tax incentives offered by Kentucky, but conceded that the state's informal offer was less than Cincinnati's. The total cost of doing business in downtown Cincinnati - as compared with Kentucky - made it necessary for Convergys to ask Ohio and Cincinnati for tax incentives worth a combined $207 million, Orr said.

All this made so much sense to Convergys that its executives seemed perplexed that City Council members didn't understand the financial benefits for the company and the city.

Orr said the company wasn't counting votes, and might have pushed to move forward Tuesday. But City Council appeared headed toward what Orr called "an unhealthy debate."

Fueled by growing consternation from the neighborhoods and a resentment over the hurry-up nature of the vote, at least five council members said Tuesday they couldn't support the deal as is.

William H. Hawkins II, the company's chief lobbyist, said it was his decision to keep the debate as low-profile as possible. The company tried to get the deal passed without a whole lot of noise, thinking that any public statements it made would come across as "self-serving."

"We've tried to operate on a discreet, fair basis with all of the people we've dealt with," Orr said. "It's the nature of our company not to try to sensationalize all this."

Did the company underestimate the political forces at work? In retrospect, yes, Orr conceded.

"We're not politicians," he said. "That's not something we do."

Now, Convergys is trying to make its case publicly as it tries to negotiate a new deal to stay downtown.

Whether Convergys and the city are able to do that will depend on how much money the city can find to replace $33 million in job retention tax credits. It was those credits - which would have provided a direct subsidy to Convergys by giving the company a 75 percent refund of its employees' earnings taxes - that were most objectionable to most council members.

"I'm not going to take a position that the job retention credits are the best and only way to do this," Orr said. "But I will tell you that job retention and job creation credits are a routine way that states and cities provide incentives. I have also said that we're quite comfortable looking at alternatives to that."

City Manager Valerie Lemmie said Thursday that Convergys would have to expect that the city's next package would be worth significantly less than $63.4 million.

"At some level of discussion, we are talking about a fundamentally different deal," Lemmie said. She said the city doesn't have the money to replace the $33 million tax credits without sacrificing other major projects. "If we had that kind of money available, we'd be in a lot different situation."

She said she wants to see details of the Kentucky offer and of Convergys' cost estimates to see if the city can find other ways to make it cheaper for Convergys to do business downtown.

"Negotiations go two ways. A lot of it depends on what Convergys wants to do," she said.

Councilman David Pepper, whose behind-the-scenes maneuvering on Monday helped force a delay in the vote, said the city would work hard to have a new package in place next week.

"I think we all see the broader benefit of Convergys staying in town. We're just trying to do it in a way, as we said from the beginning, that makes sense policy-wise," Pepper said. "The idea that everyone's off on vacations and we should wait until they come back makes no sense. It doesn't help anyone to have this dangling out there for weeks on end."


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