News: The Convergys Giveaway

City council coughs up cash to keep corporation downtown

Jul 30, 2003 at 2:06 pm
Jymi Bolden

Mayor Charlie Luken (left) championed the benefits of paying Convergys to stay, but City Councilman David Pepper (right) closed the deal.

Cincinnati City Council provided VIP seating to its guests of honor July 25 during a special meeting on a deal to keep the Convergys Corp. downtown. But five front row seats reserved for Convergys officials remained empty during the part of the meeting set aside for public comment.

For those who have criticized the lack of opportunity for public input, the empty seats were full of meaning.

Vice Mayor Alicia Reece expressed her frustration with the process.

"There was no opportunity for public input," she said. "A public hearing did not take place."

Citizens addressing council at the start of the meeting didn't know exactly what they were supporting or attacking, because the full content of the revised proposal wasn't explained until afterward. Even members of council hadn't seen it until the night before.

Marilyn Hyland, an independent council candidate, said both the substance and the symbolism rankled.

"I question the practice of commenting on legislation you've barely seen," she said.

She also said she'd "never seen such a hijacking of public chairs in a city council meeting."

Tamara Harkavy, executive director of Artworks, and Mary McCullough-Hudson, president of the Fine Arts Fund, spoke on Convergys' behalf, citing the company's support of the arts. Keeping the company in Cincinnati would have an "impact beyond dollars," McCullough-Hudson said.

But even after the votes were counted — 8-1 in favor — it's still unclear whether the impact will benefit the city or just the corporation.

Good faith and claw-backs

The package passed by council totals $52.2 million in aid from the city, including $22.5 million in job-creation tax credits. Convergys will receive $29.75 million in cash grants up front: $10 million this year and another $10 million in 2004.

The city has pledged a cash match of 15 cents on the dollar for grants up to $18.75 million. The rest of the money will be paid over the next few years: up to $3 million in 2005 and 2006 and $2.75 million in 2007. Convergys will get an extra $1 million if it attains its goal of 2,125 jobs.

Much of the money will come from the Tax Increment Financing fund, drawn from downtown property taxes. That fund now totals only $9.5 million, so approximately $20 million will be financed by bonds. In essence, the city is taking out a large loan to help Convergys buy the Atrium One building on Fourth Street.

John Schlagetter, a Charter Committee candidate for council, blasted the deal.

"The TIF fund is specific to Atrium One," he said. "Currently there is $32.5 million outstanding debt; this deal adds $37.5 million to that. The annual cash flow is $6.1 million. Thus, it will take 12-15 years to pay off, assuming no other debt is issued against this account."

The deal is "one of the most fiscally irresponsible decisions this council has made," Schlagetter said. "It doesn't make sense to spend $52 million to move 1,000 people four blocks. How much debt can this city afford?"

But Councilman David Pepper said the project would "pay for itself," with a large state investment — $131.5 million in tax credits and a pending $12.7 million in grants and loans — and larger investment from Convergys.

"New jobs and new taxes will give more money into the general fund," he said. "A healthy downtown and the revenues and taxes generated there will help the rest of the city. The only way we lose is if we don't do this."

Pepper described the revised agreement as having "teeth" thanks to the addition of "claw-backs" — requirements that Convergys repay certain amounts of tax credits and grants if it fails to meet its hiring projections.

But should Convergys file for bankruptcy, the city will have to "get in line behind other creditors," Assistant City Manager Timothy Riordan said.

Schlagetter dismissed the safeguards.

"Historically claw-backs are not enforced," he said.

The deal gets even sweeter.

"Should Convergys sell Atrium One after investing $29 million of taxpayer moneys, it is free to keep any gains on the sale and remain merely as a tenant," Schlagetter said.

Convergys employs 1,450 people in the city, with an average salary of $73,000. Cincinnati residents fill approximately 435 of these positions, the company says. Convergys has agreed to make a good-faith effort to hire more Cincinnati residents and minorities.

But Reece, who cast the only vote against the deal, questioned the value of Convergys' commitment. The plan only requires that 10 percent of jobs go to minorities.

"The African-American population of Cincinnati alone is over 40 percent, and that's not including Hispanics and women," she said. "Why only 10 percent? Why don't we put in stronger language before we vote?"

Reece also criticized the minimum employment number Convergys is permitted to reach (with penalties).

"Convergys is a corporation with 48,000 employees worldwide," she said. "If we're going to champion this plan as being because we want to save jobs ... how can we let the number be as low as 500 for a world corporation?"

Hyland is also unconvinced the deal favors the city.

"You have to wonder — with a company that has 48,000 employees worldwide — that one building has so much value they would threaten to leave town if we don't buy it for them," she said. "At what price do you keep something like that? Council is not fulfilling its responsibility to all of its citizens. That kind of leadership on both the corporate end and city council is ludicrous. It enables whatever fill-in-the-blank company to hold a pen as a gun to the heads of city council."

Indeed, city council's reason for hastily drafting the proposals, skipping such formalities as public hearings, was Convergys' threat to accept an offer from Northern Kentucky if Cincinnati didn't act by July 25.

Riordan said he asked to see the terms of Kentucky's offer, but Convergys never provided it.

"I never saw the Kentucky deal," he said. "It put us at a competitive disadvantage."

Reece accused her colleagues of approving the deal without adequate study.

"We have said time and time again we are going to put a process in place, and here we are again without a process in place," she said. "When big corporations are here, the rules are thrown out the window." ©