A ROYAL BARGAIN.

Byline: Sherri Buri McDonald The Register-Guard

From their first meeting with Royal Caribbean executives early last year, local economic development officials knew they'd have to bargain hard to recruit the company to Oregon.

The Miami-based cruise line wanted to build a customer call center in the West. But it said that it was looking at several sites: Spokane Valley, Wash.; Provo, Utah; Salem; and the Eugene-Springfield area, the officials said.

Last spring, Royal Caribbean narrowed its choices to Spokane Valley or Springfield, and the company began to zero in on a site off Interstate 5 in Springfield's Gateway district. Local and state officials scrambled to get the cruise line to dock in Oregon, instead of sailing away to Spokane Valley - or later, to Tempe, Ariz., a backup site where a vacated call center was ready for a new tenant, according to documents recently obtained by The Register-Guard in a public records request.

The documents show how hard the company pushed for additional incentives when costs began to escalate. And they show how far state officials were willing to go to prevent Royal Caribbean - along with the prospect of 1,000 new jobs by 2009 - from slipping through their fingers.

As negotiations progressed, and Royal Caribbean ran into higher-than-expected land and development costs, local economic development officials went to bat for the company, urging the state to pony up more incentives.

In an Oct. 8, 2004, e-mail, a local development official explained to his manager that a public road running through Royal Caribbean's Springfield site needed to be "vacated" by the city before the cruise line could start construction. This was going to cost the company more than it anticipated because Royal Caribbean expected the city to pick up the cost of physical improvements once the road was vacated, Bob Warren wrote in his e-mail. Warren is a business development officer with the economic development department. The city thought that vacating the road simply meant turning it over to the company, he wrote. "The city is requesting an additional $50,000 in special public work grant funds to be used for other public infrastructure costs to help offset that additional cost to (Royal Caribbean) for the vacated street," Warren wrote. "This is the last piece to this deal. I believe if we can do this, we will have this project in the bag. Please."

The state responded with this incentives package:

A $600,000 loan from the Governor's Strategic Reserve fund, which will be forgiven if Royal Caribbean creates and keeps 600 full-time equivalent jobs at its Springfield facility for at least six months between July 1, 2004, and Dec. 31, 2009. The loan amount increased from $500,000 to $600,000 after lobbying by the company and local economic development officials.

A $300,000 special public works fund grant - up from an initial grant of $250,000 - to the city of Springfield to offset the costs to vacate a public road on Royal Caribbean's site.

A pledge to support Royal Caribbean's application for federal training grants worth $400,000 once the call center is established in Oregon for at least 120 days.

The state also relaxed some of its typical requirements for job creation in order to accommodate Royal Caribbean.

In general, the economic development agency wantscompanies that receive incentives to maintain jobs for at least a year, but that requirement was reduced to six months in Royal Caribbean's case.

"Generally, we look for a little bit longer," said Lynn Beaton, interim deputy director of the economic development department.

The governor's staff, in discussion with the company, arrived at the six-month figure, she said.

The e-mails and memos from government and company officials chart the highs and lows of the state's efforts to recruit Royal Caribbean, which was known by the code name "Traveler."

The rockiest point was last July when Royal Caribbean and local businesswoman Carolyn Chambers couldn't agree on a price for the 22.45-acre site the cruise line wanted to buy from Chambers.

"One of the big issues for the company (and for us) has been locating a site in this community," Warren wrote in a July 22, 2004, e-mail to department higher-ups.

"It took Jack Roberts (executive director of the Lane Metro Partnership) over a month of shuttle diplomacy to bring the two sides together for the preferred site, owned primarily by Carolyn Chambers. She was not sure she wanted to sell. She is not interested in negotiating," Warren wrote.

"Traveler is really, really balking at her price...,' he wrote. "The CEO of Traveler has been made an offer by a 'friend' for an available building that would work in Tempe, Ariz."

Warren and Roberts reacted to the impasse by asking for a doubling of the Governor's Strategic Reserve loan to $1 million, which state officials nixed.

"I sincerely believe we need the additional $500,000 to secure this deal," Warren wrote in the July 22, 2004, e-mail.

"It is possible we can still make the deal without it," he wrote. "However, I believe this will provide them with the extra boost they need as they negotiate for the land with a seller that really does not care if she sells or not."

On the same day, Roberts e-mailed Jack Isselmann, then deputy director of the economic development department, to make a personal plea for more money from the Governor's Strategic Reserve. He also offered to drum up support from legislators to replenish the strategic reserve for the next biennium.

"I wanted to put in my two cents on why I think the state should not be penny wise and pound foolish on this," Roberts wrote.

"We need to have the best possible success stories to tell the Legislature in order to get an increased commitment to economic development funding next biennium.

"I don't believe economic development is exclusively, or even primarily, an incentives game," Roberts wrote. "I do know, however, that the most precious coin of the realm in this business is a governor with cash to spend."

Roberts said he could help garner support for more money in the strategic reserve fund if he could share the success stories of Royal Caribbean and Molecular Probes, a Eugene-based biosciences company. Both are recipients of the Governor's Strategic Reserve.

"I can not only help you with some of the Republicans around the state, but also with our Lane County Democrats who for the most part have not been big economic development supporters," Roberts offered Isselmann. "But to do that, we need both of these projects to be successful."

In an early September 2004 e-mail, Warren again notified higher-ups that the delay on the land sale could be a deal breaker.

"Just want to give you all a heads up on the reality that we may lose this project," Warren wrote. "The company and the land owner so far have not been able to work out a deal. The land owner leaves the U.S. tomorrow for a month vacation trip. The company has started to talk about their inability to put the deal together with the property owner. There is even talk about them going back to Spokane. Jack Roberts has been functioning as a direct go-between for some time and has averted any number of crises and breakdowns. However, things have bogged down and there is really little or nothing we can do about this other than hope for the best."

In a recent interview, Warren recalled that moment: "That was a point at which I was worried."

State officials dodged that crisis after Chambers sold the parcel to Royal Caribbean on Jan. 31 for $7 million - $1.6 million more than the price she paid in 2002.

Roberts, who was not directly involved in the land negotiations, said, "my understanding is that she did not budge and she got her price."

Chambers did not return a telephone call from The Register-Guard requesting comment.

The process bogged down again when Royal Caribbean's lawyers reviewed the strategic reserve fund loan agreement. It took six months from the time Royal Caribbean publicly announced its plans to build a call center in Springfield for company and state officials to hammer out and sign the agreement.

Correspondence earlier this year from Royal Caribbean's counsel indicated reluctance to tie job creation or completion of the call center to certain dates.

Royal Caribbean also complained about the state's definition of a full-time employee. The state initially defined a full-time employee as one who works a 40-hour week, or a total of 2,080 hours a year.

A Royal Caribbean representative e-mailed Roberts on Feb. 22, saying that it's common practice in the call center industry to allow employees not to work if activity on a certain day is slow. The employee decides whether or not to work that day, the e-mail said.

The company asked that 1,800 hours per year per employee - or about 34 hours a week, fulfill the definition of a full-time equivalent employee.

So the requirement that Royal Caribbean create 600 full-time equivalent jobs doesn't necessarily mean that 600 individuals will work full-time at the facility. Rather, the company will add up all hours worked at the Springfield center, including overtime put in by salaried workers, and divide that number by 600, to meet the employment level required to have the reserve fund loan forgiven.

The loan agreement defines a full-time-equivalent employee as one who works 910 hours in a six-month period.

That count is used by the Oregon Employment Department, the department that will verify whether Royal Caribbean fulfils the job creation requirement, said Beaton, the interim deputy director of the economic development department.

Royal Caribbean officials argued in correspondence that paid vacation time should be included in the total hours worked, but the state rejected that argument.

Royal Caribbean now is gearing up to open its Springfield call center in December, and local job seekers are already applying for the first group of 240 jobs.

The state and Lane Metro Partnership's struggle to bring Royal Caribbean to Springfield, meanwhile, is quickly fading from memory.

"These take a lot of work," Warren said. "It takes a long time and perseverance.'

Job creation primary purpose of governor's reserve fund

The Governor's Strategic Reserve fund was established in the late 1980s and is funded with Oregon State Lottery dollars.

Over the past decade, the amount in the fund has ranged from $4.25 million in the 1999-2001 biennium to $10.14 million in the most recent biennium. Gov. Ted Kulongoski has recommended funding of $9.84 million for 2005-07.

By law, the strategic reserve is a general fund "that's to be used as the governor sees fit," said Lynn Beaton, interim deputy director of the state economic and community development department.

"Job creation has always been one of the purposes of the fund," she said. "But it's definitely become the primary focus with Gov. Kulongoski."

- Sherri Buri McDonald

CAPTION(S):

The Royal Caribbean Cruises call center in Springfield opens in December.