Saturday, July 19, 2003

City offer $18M shy of Convergys' liking

By Gregory Korte
The Cincinnati Enquirer

Cincinnati officials and executives from the Convergys Corp. walked out of a 15-minute negotiating session Friday, still about $18 million apart on a proposal to keep the billing company's headquarters downtown.

In a letter to city officials Friday night, Convergys Chairman James F. Orr called the city's latest offer "disappointing and discouraging."

"Gentlemen, please recognize we must come together very quickly or face a sad day in Cincinnati's history," Orr wrote. "Please help us achieve an agreement consistent with what we agreed in principle this week."

Orr also escalated his deadline to get a deal done, telling the city that he wants the two sides to work through the weekend to ensure City Council can schedule a new vote by Thursday.

If not, he said, Convergys would have to forfeit the millions of dollars it spent on the Cincinnati proposal, and look for sites outside the city. Convergys had been talking with development officials in suburban Cincinnati and Northern Kentucky.

Orr's letter outlined a secret handshake deal reached Tuesday morning in the mayor's office, even as both sides agreed to cancel an afternoon vote on the original $63.4 million deal. Though the new deal totaled just $51.4 million, it had the same value to Convergys by front-loading the incentives to the first three years.

The difference: $33 million in 15-year job creation tax credits would be replaced by $21 million in up-front grants to help Convergys buy and upgrade the 22-year-old Atrium One building at 201 E. Fourth St.

But when Assistant City Manager Timothy H. Riordan carried the city's latest offer to Convergys early Friday morning, the package was $18 million light. By 8:30 a.m., Riordan was on his way back to City Hall.

Luken agrees with Orr's account of the Tuesday meeting, which was also attended by Riordan, Convergys lobbyist William H. Hawkins II, and Councilmen John Cranley and David Pepper.

Everyone in the room agreed that any new deal should be worth roughly the same, Luken said. Friday's offer violated the spirit of that agreement, he said.

"If the Convergys people were a little surprised, I understand that, because I heard them say it," Luken said. "You had people telling Convergys that there are alternatives of equal value. I don't know what those are, and apparently, neither does anybody."

Indeed, even as they negotiate with Convergys, city officials disagree among themselves about the size and shape of the city's offer.

Pepper, who has assumed the role of council's lead negotiator, said the city should start from the beginning to make sure it gets the best deal.

The difference between the city's original $63.4 million proposal and the deal now on the table is this:

• The city removed the $33 million in retained job tax credits over 15 years. Those tax credits, which were the most controversial part of the original package, would be worth $21 million to $22 million if paid out up front today.

• The city added $3 million in cash to the deal. The money would come from what is called tax-increment financing, or TIFs - a mechanism which allows the city to borrow money based on the projected increased revenue from property taxes after Convergys makes improvements to the property.

• Missing, Convergys says, is $18 million in "matching grants." The company proposes that the city match 15 cents for every dollar Convergys invests in the Atrium One Building, up to $125 million.

After two consecutive years of city belt-tightening, there are few places to look for that much money in the city budget. One place is the "Anthem" fund, so named for the insurance company that went public, leaving the city with $54 million in stock. But City Council has already pledged that fund for neighborhood development projects.

Another way to raise the money would be to expand the scope of Atrium One's tax-increment financing, allotting taxes from surrounding properties to help finance the improvements by Convergys.

Pepper said that funding source makes more sense than the previous deal, which took the tax incentives out of the city's general fund.

"What this is really turning into, and I hate it, is that this is turning into a battle between downtown and basic services," he said. "If we have a pot of money that's for downtown development, that's what we should use for this."

But just as Pepper worried about setting a bad precedent by giving Convergys tax credits just to keep 1,450 employees downtown, others worry about hurting the city's ability to put together future development deals.

City Manager Valerie Lemmie said that while she's fine with using part of Convergys' future property tax payments to help them make investments in the property, she would not recommend using money from surrounding properties for the same purpose.

"To fix it with the downtown TIF means that's the last project we can afford to do," she said.

Tax-increment financing helped pay for Saks Fifth Avenue's recent $6.6 million remodeling project, and would provide a significant part of the public funding for the new Center City Development Corp., a nonprofit entity that will spearhead new projects from the riverfront to Over-the-Rhine.

For his part, Luken said he doesn't care where the money comes from. He said Pepper should stick within the spirit of the Tuesday deal struck in his office.

"The problem is, what he said he would do, he found out he couldn't do," Luken said.

Pepper said he remains optimistic and said the mayor shouldn't publicly undercut the city's bargaining position before talks even get going. "To have us negotiating among ourselves isn't going to help," he said.

Though Convergys is pushing for a new vote next week - or at least a reasonable assurance that a yes vote is forthcoming - Luken said he's unwilling to set a new "drop-dead" deadline. After all, he said, the negotiations survived the passing of the first deadline last Tuesday.

Still, the mayor said there should be some progress in the coming days.

"I have a feeling this will work out," he said. "I don't know how."

Old versus new

A letter from Convergys Corp. to the city late Friday outlined the company's understanding of a handshake deal reached Tuesday, just before Mayor Charlie Luken canceled a vote on a $63.4 million package of tax incentives.

Old proposal

• $33 million in job retention tax credits, which give Convergys a 75 percent refund on city earnings taxes paid by its current 1,450 employees over the next 15 years.

• $22.4 million in job creation tax credits, which give an 80 percent refund on 1,450 new jobs created over 15 years.

• $8 million in business development grants paid out of a downtown property tax fund, to help Convergys invest at least $100 million in the Atrium One building downtown.

Total value: $63.4 million over 15 years.

New proposal

• Job retention tax credits eliminated.

• $22.4 million in job creation tax credits remain.

• Business development grants increased from $8 million to $11 million.

• $18 million in "matching grants" of 15 cents for every dollar invested by Convergys in its new headquarters, payable over three years. Convergys would invest $115 million to $125 million in the property.

• A "recapture" clause to require Convergys to repay the grant money if the company fails to keep at least 1,000 employees in Cincinnati for 15 years.

Total value: $51.4 million, with most of the money payable in the first three years.


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