My main question is: If you are in the Reds front office, why would you even be considering a move like this?
Phillips is going to make $12.5 million this year, and if an extension is given Brandon himself has even stated that there is no guarantee of a hometown discount being applied. This would imply that any deal he may be seeking would be more in the $13 to $15 million per year range.
Baseball Prospectus projects Phillips to post a 1.9 WAR this season, with slightly below average defense and a 23 HR, .277/.326/.443 slash line. If this were held true, the Reds would be overpaying for his services.
Next year, Phillips will be 32 years old, and his projections go down hill from there. Even if you were to extend him to the point that he becomes a replacement player (age 35 season according to BP) that would mean a 3 year extension at about 3/25-26. This isnt necessarily a bad amount to pay a slightly below average player, but for a small market team like the Reds, the money is probably spent better some place else. Phillips would never accept a deal like this anyway.
Phillips' closest comp according to Baseball Reference is Bobby Grich. Grich actually had 3 really good seasons in his age 32 through 35 seasons, but the big difference between the two was that Grich was an outstanding defender, and he got on base at a very good clip. I would not expect Phillips to repeat the numbers that Grich put up in those seasons past his prime.
Phillips has had a very nice career with the Reds, 3 Gold Gloves, a couple of all star appearances, and has been a valuable part of the rebuild that went on in the late 2000's, but when the season ends, it is probably in the best interest of the organization to move on.
The team will still most likely be in contender mode next season with Joey Votto and Mat Latos still on the roster, but a suitable place holder for 2B can most likely be found in Tood Frazier or among the Free Agent ranks until Billy Hamilton is ready for the 2015 season.