Tuesday, July 22, 2003

City, Convergys cut new deal

Mayor is cautious about final vote

By Gregory Korte
The Cincinnati Enquirer

Convergys Corp. appears poised to accept Cincinnati's latest tax incentive offer and keep its company headquarters downtown.

"They say they are '99.9 percent' done on a deal that (Councilman David) Pepper has negotiated, and they believe, based on his statements, that at least five members of council are in support," Mayor Charlie Luken reported to council members in an e-mail Monday afternoon.

Efforts to reach Convergys executives throughout the day were not successful. Luken said company officials shared their support with him in a telephone conversation earlier Monday.

That support, however, did not diminish Luken's call for caution on Pepper's proposed package of tax incentives, which - depending on who's talking - is worth $52 million or $76 million.

"It's not that it's not doable. It is doable," Luken said of the Pepper plan. "There are just considerations they have to think about. I urge council to keep an open mind until they receive the reports of the city's financial experts and outside financial adviser."

The latest proposal will leave Cincinnati City Council with three options:

• Accept the Pepper plan, which would borrow $18 million and pay it back from property taxes earmarked specifically for downtown development. But Luken says that would bankrupt development plans for Fountain Square and the stretch of riverfront west of Great American Ball Park.

• Go with a modified version of the original Luken plan, which would use job retention tax credits over 15 years. However, critics on council complain that would come at the cost of neighborhood services.

• Do nothing and risk losing Convergys and its 1,450 jobs to the suburbs, Northern Kentucky, or elsewhere.

Luken said he will make sure council has all three options when it meets in special session, probably on Thursday. By that time, city officials should have a more detailed accounting of the costs and benefits of both plans.

The math can be "dizzying," Luken said.

He estimates the value of his plan at $67 million over 15 years, and Pepper's at $76 million over 20 years. Pepper put his price tag at $52 million and Luken's at $63 million.

Both plans include job creation tax credits and $11 million in grants for Convergys to buy and renovate the 20-story Atrium One building on East Fourth Street.

The difference in the figures can be explained by how the city accounts for inflation and borrowing costs. A dollar today, for example, is worth more than a dollar in 2018. For its part, Convergys considers the present-day value of both plans to be similar.

But the differences in the two plans go well beyond dollar figures.

Pepper said his plan has the benefit of putting the cost for downtown development where it belongs - on downtown property owners.

"We're not using neighborhood funds to support downtown projects," Pepper said. "And because we're actually growing the income tax, the result of this project is that there is actually going to be more money in the general fund then there was a year ago."

If the city does that, Luken said, money to develop the riverfront site known as the Banks will have to come from the general fund - and the very services Pepper said he's trying to protect. And because the city will have to borrow money to give Convergys $18 million in "matching grants," the long-term cost is much greater, he said.

"There is no free lunch here, and that is what people are finding out," Luken said.

Councilman James R. Tarbell said the Pepper plan would handcuff the city's economic development reforms even before they begin.

Many council members say that with or without the city money, the Banks project has fallen off the city's list of immediate downtown priorities.

Said Councilman Pat DeWine: "That's the first time I've heard the mayor talk about the Banks in three years."

While council members said the new deal was encouraging, they also insisted that it was subject to tinkering before a final vote. Convergys has said it needs council to vote no later than Thursday.

"At this point, I just want a deal," Councilman John Cranley said. "What we end up voting on could combine the best elements of both plans. Who knows?"

One week after their public criticism of the mayor's deal helped force a delay in council approval of the tax incentive package, DeWine and fellow Republican Chris Monzel are lining up behind the Pepper proposal.

They say it strengthens the "claw-back" provisions of the deal, which would force Convergys to repay all or part of the grants if it leaves town before 2018 or fails to meet employment targets.

"You never know what could happen in this economy," Pepper said. "If they get bought out, or if someone else gives them a lot of money to leave town, we're protected."

Adding to City Council's pressure to approve a deal is Ohio Gov. Bob Taft. The state had previously told Convergys that its $144.2 million package of tax credits wasn't necessarily transferable if the company did not locate in downtown Cincinnati.

Monday, Taft said keeping Convergys in Ohio - inside or outside of Cincinnati's city limits - was his top priority.

"The governor told the mayor that he's hopeful Convergys stays in Cincinnati," said Taft spokesman Orest Holubec. "But his obligation is to the entire state, and the bottom line is that he wants to keep Convergys in Ohio. If the package is not approved, he will do what he can to make sure Convergys stays in Ohio."

What's in the deal

Key provisions to Cincinnati's offer to Convergys:

• Job retention tax credits eliminated.

• $10 million in grants, with $1 million more if the company reaches 2,125 jobs.

• "Matching grants" of up to $18.7 million if Convergys invests $125 million in the Atrium One building.

• "Claw-back" provisions requiring Convergys to repay grants if it drops below 500 jobs.

• Funding to come from downtown property taxes.


E-mail gkorte@enquirer.com

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