Project Analysis and Staff Recommendation

National Underground Railroad Freedom Center

Commission Assessment Team: Tony Capaci, chief analyst and Amy Rice, chief project manager

National Underground Railroad Freedom Center 50 E. Freedom Way

Cincinnati, Hamilton County
Facility and Project Sponsor Information

Executive
Summary: Under NURFC’s current operating structure, sustainability is an issue. NURFC is
working with the federal government to establish a federal museum and oversight
commission to commemorate the ending of chattel slavery in the United States.
A discussion draft of this legislation was completed in October 2009. Preliminary
terms include the “gifting” of the facility to the United States government and the
United States government, via an appointed board of trustees, operating the
facility in cooperation with the Secretary of the Interior and other federal
agencies. This legislation is expected to pass in 2011.

Facility Overview: The Center consists of a 160,000-square-foot facility located on the Cincinnati
riverfront. Features of the facility include a museum, interactive story theaters,
computer networking to other Underground Railroad sites, arts and education
facilities, and a public forum space.

The Center is owned and operated by the Sponsor, as an Ohio nonprofit

corporation since 1995.

Culture Presented: The preservation and presentation of features of historical interest or significance.

Sponsor
Background: The Sponsor states, “The mission of the National Underground Railroad
Freedom Center is to reveal stories about freedom's heroes, from the era of the

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 Underground Railroad to contemporary times, challenging and inspiring everyone
to take courageous steps for freedom today.”

Project Information

Scope: The Freedom Center has recently been written down to a value of $32M. It was
opened in August 2004, and features three pavilions celebrating courage, cooperation,
and perseverance. The current appropriation will reimburse the Sponsor for
construction expenses previously incurred but not yet reimbursed (the “Project”). The
project consists of reimbursing $850,000 on an appropriation awarded in H,B. 562 and
release of approximately $460,000 of escrow monies held under the original base
lease.

Regional Support

Matching Resources
The Sponsor demonstrated a minimum of non-state matching resources equal to at least 50 percent of
the total state funding of $15,500,000 (a minimum of $7,750,000). Matching resources were
substantiated in November 2008. On October 9, 2001, Substantial Regional Support was confirmed by
the Commission in resolution R-01-26. The following table is provided for informational purposes.

Source Amount
Cash-on-Hand $0
Funds Already Expended on Project $0
Irrevocable Written Pledges $0
In-Kind Contributions (up to 50%) $0
Operating Endowment $0
Private Contributions $34,000,000
County Government $0
City Government $4,500,000
Federal Government $12,000,000
Site Valuation $0
Other $0
Total Matching Resources $50,500,000
Minimum Match $7,750,000

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 Funding Model

Source Amount Substantiation

State Funding $15,500,000
Cash-On-Hand $0
Private Contributions $63,000,000
County Government $0
City Government $6,000,000
Federal Government $22,200,000
Other (future investment $11,650,000 $7,750,000 not substantiated
income)
Total Funding Sources $106,700,000
Total Project Budget $117,744,000

Project Need

Operating Pro Forma Summary

Revised - Private Support Escalating

FYE11 FYE12 FYE13 FYE14 FYE15
Total Revenues (net of capital income raised) $ 4,566,900 $ 6,870,000 $ 7,523,000 $ 7,627,000 $ 7,731,000
Total Expenses (net of capital expenses) $ 5,665,400 $ 5,722,000 $ 5,779,000 $ 5,837,000 $ 5,896,000
Pre-Depreciation Surplus/(Deficit) $ (1,098,500) $ 1,148,000 $ 1,744,000 $ 1,790,000 $ 1,835,000
Depreciation $ - $ - $ - $ - $ -
Post-Depreciation Surplus/(Deficit) $ (1,098,500) $ 1,148,000 $ 1,744,000 $ 1,790,000 $ 1,835,000

Revised - Private Support Flat

FYE11 FYE12 FYE13 FYE14 FYE15
Total Revenues (net of capital income raised) $ 4,363,900 $ 6,364,000 $ 6,964,000 $ 7,015,000 $ 7,066,000
Total Expenses (net of capital expenses) $ 5,665,400 $ 5,722,000 $ 5,779,000 $ 5,837,000 $ 5,896,000
Pre-Depreciation Surplus/(Deficit) $ (1,301,500) $ 642,000 $ 1,185,000 $ 1,178,000 $ 1,170,000
Depreciation $ - $ - $ - $ - $ -
Post-Depreciation Surplus/(Deficit) $ (1,301,500) $ 642,000 $ 1,185,000 $ 1,178,000 $ 1,170,000

The Freedom Center is in danger of not continuing as a going concern and, accordingly, the consortium of
banks which previously held the debt for the Freedom Center have exchanged $47M in bond debt for
approximately $24M the Freedom Center was holding in investments. The net result of the bond settlement
is an extraordinary gain of approximately $23M in YTD10. Also, material to the Freedom Center’s financial
position is the adjustment of the carrying value of the building on the FYE09 financial statement. The
previous balance of $78M in FYE08 was written down to $32M in FYE 09 as a result of FAS 144, the GAAP
pronouncement applicable to Accounting for the Impairment or Disposal of Long-Lived Assets. Additionally,
the Freedom Center continues to operate at a deficit, as is evidenced by a pre-depreciation, pre
extraordinary gain, operating deficit of ($700K) at YTD10, a pre-depreciation loss of ($3.9M) at FYE 09,
operating deficits in previous years and the sponsor prepared pro-forma indicating pre-federalization losses
exceeding ($1.8M) for the out years. Federalization is the prospect that the facility will be gifted to the

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 Federal Government (free and clear of any liens) and use the Freedom Center to operate a museum
commemorating the ending of chattel slavery in the United States. And, according to the sponsor, if
Federalization takes place the Freedom Center should receive approximately $3M/year in operating
revenues on a permanent basis enabling the Freedom Center to generate operating surpluses starting at
$1.15M for each twelve month period opening October 1, 2011, the Federal fiscal year. Therefore, when
reviewing the Freedom Center’s sustainability staff heavily considers the probability of a successful
Federalization of the Freedom Center. According to the sponsor, the most updated information we currently
have available indicates that Senator Sherrod Brown is backing the legislation which was discussed in draft
form in October of 2009 and the Freedom Center management is optimistic that the legislation will be
passed. However, if Federalization is successful there remains a pending issue regarding cash flow needs
being met until Federal funds are received. A review of the liquidity position calls into question the ability of
the Freedom Center to meet its obligations into the first quarter 2011 and beyond. Currently, staff is waiting
for a cash flow schedule from fourth quarter 2010 through the period when Federal funds would be received.
However, correspondence from the sponsor indicates cash may be depleted in the first quarter of 2011.
Part of the solution to the sponsor’s anticipated cash flow concerns may lie with the Freedom Center’s
renewed ability to raise funds. Although the Freedom Center must contend with negative influences
affecting fundraising, including an uncertain economy, possible donor fatigue and the affect the write down
of the building may have on potential donor perspective the fundraising outlook also includes positive
influences, including the effect the bond settlement has on donor perspective as well as the very real
prospect of Federalization. A recent spike in fundraising has enabled the Freedom Center to close the gap
on its operating losses, so much so that the sponsor believes the Freedom Center may break even by year
end.
In formulating the staff recommendation to the Commission staff bases its rationale focusing on the
ultimate objective of the Commission, that is to have the Freedom Center facility provide culture for the next
fifteen years. Since operating costs, which have been cut drastically in years past cannot realistically be cut
too much further and because operating revenues have historically been insufficient to cover costs, staff
believes the most promising option to achieve the Commission’s objective relies on successful
Federalization. The alternative of not approving the Commission funds and thereby exacerbating a dire
financial position may lead to the demise of the Freedom Center and the unenviable position of the state
owning a singular use building, the use being a museum in a City that already has the successful Cincinnati
Museum Center. Staff views the approval for the $850,000 ‘project’ and $460,000 escrow release as
getting the Freedom Center closer to Federalization and ultimately closer to the Commission realizing its
objective. However, if the Commission were to approve the funds and Federalization not succeed the
Commission would be responsible for placing those additional funds at risk. Accordingly, staff is
recommending the Commission approve the ‘project’ and release of the escrow funds contingent on a
guarantee, acceptable to the executive director at her sole discretion on both the appropriation of $850,000
and the escrow release of approximately $462,000. Also staff recommends the Commission require a
board approved business plan addressing cash flow concerns from fourth quarter 2010 through
Federalization and until a positive cash and working capital position can be re-established. Finally,
noteworthy for the Commission’s deliberations regarding the Freedom Center is the Federal requirement
that the facility be free of all liens in order for Federalization to take place. This criteria would require the
Commission release its first lien position on the facility. However, as stated previously, staff believes the
best option to the facility providing culture for the next fifteen years relies on Federalization and the
exchange of the first lien position for Federalization is a worthy one.

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 Provision of General Building Services

Although experienced in the provision of general building services at the Facility, the Sponsor has
marginal financial capacity to continue providing general building services at the Facility. In
anticipation of the Sponsor completing the proposed Facility transfer to the federal government,
Commission staff conditionally confirms the Sponsor continue to provide these services as permitted
by section 3383.07 of the ORC.

Approval of the Project and Authorization of the Expenditure of Funds

Appropriation History:
 
Appropriation Bill Appropriation G.A. Appropriation Comments
Name Number Date Amount
National Am. Sub. 6/24/2008 127 $850,000 Funding this project.
Underground H.B. 562
Railroad Freedom
Center
National Am. Sub. 12/28/2006 126 $2,000,000 Funded construction of the
Underground H.B. 699 freedom center.
Railroad Freedom
Center
NURFC H.B. 16 5/4/2005 126 $4,150,000 Funded construction of the
freedom center.
National H.B. 675 12/13/2002 124 $4,000,000 Funded construction of the
Underground freedom center.
Railroad Freedom
Center
National Am. Sub. 6/15/2000 123 $3,500,000 Funded construction of the
Underground H.B. 640 freedom center.
Railroad Freedom
Center

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 National Am. Sub. 3/18/1999 122 $500,000 Funded construction of the
Underground H.B. 850 freedom center.
Railroad Freedom
Center
Cincinnati Riverfront Am. H.B. 9/17/1996 121 $166,668 Architectural fees and
Development 748 continuing development
work on the freedom
center.
Cincinnati Riverfront Am. H.B. 9/17/1996 121 $333,332 Funded construction of the
Development 748 freedom center.
Total $15,500,000

Recommendation: The materials submitted by the Sponsor were reviewed and analyzed, and the
Commission project analyst, project managers, and executive director recommend approval of Resolution R-
10-17 and recommend the approval of the Project and authorization of the expenditure of funds.

Commission Actions This Meeting:

In Resolution R-11-XX, the Commission is asked to do the following: determine need for Project; determine
substantial regional support; determine the provision of general building services; approve the project and
authorize the expenditure of funds, pending certain requirements; and authorize the execution of legal
agreements.

Chief Analyst Project Manager

Executive Director

Exhibits

□ A Provision of Culture

□ B Detailed Project Budget

□ C Facility Project Info

□ D Project Team Resumes and qualifications

□ E Financial Statements

□ F Evidence of Local Match

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