Sunday, July 20, 2003

Convergys may leave scars on council

By Gregory Korte
The Cincinnati Enquirer

Dressed in shorts and sunglasses Friday - his 52nd birthday - Charlie Luken took a couple of phone calls and spoke with a reporter before heading off to the horse track with his son, Sam.

Special section in Sunday Forum:
Are cities at a disadvantage?
Cities face hard work trying to keep firms
Expert: Reform incentive policies
How city can cope
Convergys I: Make the deal
Convergys II: Incentives
Greg Harris: Regionalism must be our new focus
James Orr: Convergys deal is a defining moment
The city's latest tax-incentive proposal to Convergys Corp., Cincinnati's first modern "strong mayor" announced, was dead "even before it got out of the gate."

Luken spoke briefly about the economics and the politics of the deal, which would be by far the largest tax-incentive package the city has ever offered. He promised to keep trying to keep the Fortune 1000 company growing downtown. But he also conceded he was no longer controlling the race to keep Convergys.

"Originally, my role was to put together the package," he said. "Now, my role is to communicate where we are with Convergys."

The mayor's self-declared demotion from the city's chief deal-maker to the city's chief spokesman underscores what a topsy-turvy week it was in the power dynamic at City Hall. And next week's events - leading up to the company's Thursday deadline for a City Council vote - could make or break political fortunes just 15 weeks before a City Council election.

Luken's antagonist in this unfolding City Hall power play has been Councilman David Pepper, a 32-year-old first-term fellow Democrat who disagrees with Luken more often about the role of City Council than on politics or policy.

Pepper is as comfortable on Fourth Street as anyone. He's the son of retired Procter & Gamble Chairman John Pepper, and raises a considerable amount of money from the city's corporate elite. The Convergys Political Action Committee gave $1,000 to Pepper's campaign in 2001. Convergys Chairman James F. Orr, who didn't give to anyone else, personally contributed $500.

Pepper is also an activist. His colleagues complain that his earnestness can be off-putting, but praise his work ethic. One of his first acts as a councilman was to personally renegotiate an Over-the-Rhine development deal (writing his own legal opinion directly challenging the city solicitor's), and he has helped lead an effort to reject a police union contract supported by the mayor and city manager.

Now, Pepper is City Council's point man in renegotiating the Convergys deal - a move as fraught with danger as with difficulty.

To Luken, Pepper's efforts reflect an increasing tendency to micro-manage the administration. At least, that's what Luken has said before. Last week, Luken said he'd prefer not to ponder the long-term political ramifications of the Convergys deal until after the ink is dry.

"I think everybody has to feel out their roles. I have a different view of what council's role is than David Pepper, who has a different view than Pat DeWine," Luken said. "This issue, at least, is more about policy. That's their job. They get to set policy. That's fine."

Many council members were unwilling to use job retention tax credits, a form of direct subsidy to the company that would come directly from the city's general fund. To them, that policy question was even more important than the deal's $63.4 million price tag.

Concerned about setting a bad precedent and with public opinion awakening last weekend, council members started lining up against the plan on Monday. First was Y. Laketa Cole, followed by David Crowley and DeWine. When Chris Monzel called the mayor Tuesday morning, the likelihood of passage was, at best, uncertain.

The situation was so precarious that the mayor's office called the Clerk of Council to check the order of the vote. Under new rules, it was Pepper's turn to vote first, meaning Vice Mayor Alicia Reece was second. If Reece - officially undecided - voted no, she could take several other votes with her as council members worried about being on the losing end of an unpopular deal.

Luken called off the vote. In retrospect, both Orr and Luken think they could have gotten the votes had they pressed forward with the meeting. But Luken said, "It would have been a bloodbath and such an unnecessarily divisive issue."

Indeed, Convergys executives seemed to be blindsided by the intensity of the council reaction.

"I can't speak for the votes, because to be frank, we weren't trying to push our political efforts in such a way as to suggest we were vote-counting," said Orr, who didn't speak publicly about the deal until two days after it fell apart.

Orr's "we're-not-politicians" remark wasn't so much in ignorance of how things work at City Hall, but a misunderstanding that things don't always work as they're designed. After all, Convergys - and its corporate parent, Cincinnati Bell, from which Convergys spun off in 1998 - were a significant part of the corporate-led campaign to strengthen the mayor's office and thus fast-track development.

"We were working on the assumption that the council would support the mayor and the city manager's proposal," Orr said.

With the objectionable tax credits removed, the city needed about $21 million to make up the difference. Pepper wasn't willing to accept that. Bypassing the mayor and working with the administration, Pepper sent Assistant City Manager Timothy H. Riordan back to Convergys Friday with a deal the company said was $18 million short.

Orr called the lowball offer "disappointing and discouraging" - and Luken agreed. He said the only reason Convergys is still talking to the city is because city officials, including Pepper, promised any new deal would simply be "restructured."

There was no such promise, said Pepper, who insists the city start over to negotiate a new package.

It's a position backed up, Pepper says, by the mayor's own statements after the first deal fell apart.

"At least as of today, Convergys' position is that they don't care how we get there, as long as it's the same amount of money," Luken said Tuesday "We're not going to accept that. We're going to drive the hardest bargain we can for the taxpayers."

But Luken said there's a difference between getting a better deal - particularly in strengthening the provisions to enforce the company's job-creation promises - and bargaining in bad faith.

Meanwhile, Convergys lobbyists and real estate managers are waiting impatiently for the city's next offer. With City Hall divided, people on both sides have lost track of who's in charge of negotiating for the city.

DeWine, an architect of the new mayoral system and a possible Republican rival for the job in 2005, has cast his lot with Pepper. He said it's no time for fractured leadership.

"In this case it's probably more about personalities than the system," he said. "Everyone ought to be advocating for the best deal we can get for the taxpayers."


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