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: The National Underground Railroad Freedom Center (“Freedom Center,”
“NURFC,” or “the Sponsor”) is a museum which is designed to act as a lens to
explore a range of freedom issues. The center offers lessons and reflections on
the struggle for freedom and features three pavilions celebrating courage,
cooperation, and perseverance.. The facility opened in August of 2004. The Comment [kf1]: Need intro sentence about the
state has appropriated $15.5M, and the Commission has previously approved organization

$14.65M for the facility. $14.65M has also been reimbursed to the Freedom
Center. Under NURFC’s current operating structure, sustainability is an issue.
The Commission is holding $462K in escrow in the event that the Sponsor is
unable to continue to operate the facility. In May 2009, the Commission
authorized a Memorandum of Understanding, spelling out the conditions under
which full approval could be granted to the Freedom Center for the most recent
appropriation of $850,000. The MOU contemplates that the Freedom Center will
obtain Congressional approval to federalize the facility and federal funding will be
provided for a portion of the operating costs. NURFC’s vision is that the federal
government will 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. The
federal legislation has not yet been approved, but the Freedom Center
anticipates that will be approved in 2011. Commission staff recommends XXX Comment [kf2]: Complete this sentence after we
have a staff recommendation

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 Facility Overview: The Center consists of a 160,000-square-foot facility located on the Cincinnati
riverfront, which opened in 2004. 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, 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
Underground Railroad to contemporary times, challenging and inspiring everyone
to take courageous steps for freedom today.”

Project Information

Scope: 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 a portion
of the approximately $462,000 of escrow monies held under prior agreements with the
Commission.. As described further in the financial section of this report, the value of the
facility has recently been written down to $32M (from $78M) at FYE09.

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.

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 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

Funding Model

Source Amount Substantiation Comment [kf3]: Will need to add some notes to
explain how they arrived at full funding and refer to
State Funding $15,500,000 the recent changes noted later in our analysis.
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

“The Project” is complete and was previously funded as is indicated by the table above. However, two
significant events have since transpired affecting the value of the project. The first is that the
consortium of banks settled $47M bond debt (which the facility was held as collateral) in exchange for
$24M held in investments. The second event is that appurtenant to GAAP when an asset’s value is
‘impaired’ management wrote down the carrying value of the facility from $78M to $32M at FYE09.
Therefore, when analyzing the funding for the project staff reviewed a completed project valued at
$32M with no debt and concluded the project is fully funded.

Project Need

Financial Assessment

Commission staff analyzed the Sponsor’s financial statements, including:

• Internally generated financial statements for year-to-date September 30, 2010 ("YTD10")
• Audited financial statements for fiscal-years-ending December 31, 2009 and 2008 (“FYE09”
and "FYE08")

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 • Five-year pro forma

Statement of Financial Position Summary

YTD10 % Change FYE09 % Change FYE08

ASSETS:
Current Assets
Unrestricted $ 3,248,185 9.21% $ 2,974,206 -61.47% $ 7,718,885
Restricted $ - NC $ - NC $ -
Long-Term Assets $ 32,639,131 -16.09% $ 38,897,769 -62.27% $ 103,096,322
TOTAL ASSETS $ 35,887,316 -14.29% $ 41,871,975 -62.21% $ 110,815,207

LIABILITIES:
Total Current Liabilities $ 618,721 0.58% $ 615,126 -42.85% $ 1,076,256
Total Long-Term Liabilities $ - -100.00% $ 27,000,000 -41.30% $ 46,000,000
TOTAL LIABILITIES $ 618,721 -97.76% $ 27,615,126 -41.34% $ 47,076,256

NET ASSETS:
Unrestricted $ 33,357,286 147.29% $ 13,489,393 -78.44% $ 62,563,238
Temporarily Restricted $ 954,643 27.72% $ 747,456 -35.33% $ 1,155,713
Permanently Restricted $ 956,666 4683.33% $ 20,000 0.00% $ 20,000
TOTAL NET ASSETS $ 35,268,595 147.38% $ 14,256,849 -77.63% $ 63,738,951

TOTAL LIABILITIES AND NET ASSETS $ 35,887,316 -14.29% $ 41,871,975 -62.21% $ 110,815,207

Solvency:
An organization is solvent when assets are greater than liabilities. The Sponsor is solvent because net assets
are positive (YTD10 total assets are $35.9M; total liabilities are $0.6M).

YTD10, the Sponsor had no debt; therefore, a viability ratio was not calculated.

Liquidity:
Liquidity relates to availability of, access to or convertibility to cash. A test of liquidity is current ratio (current
assets divided by current liabilities), which indicates how many times over the entity can pay its current
liabilities with its current assets. (Note: Restricted current assets were not used to calculate the current ratio
because they generally are not available to service current liabilities. Including restricted current assets in the
calculation could have the effect of artificially inflating the current ratio.) A current ratio of greater than 1:1 is
considered acceptable.
YTD10 % Change FYE09 % Change FYE08
Current Ratio 5.25 8.58% 4.84 -32.58% 7.17

The Sponsor’s YTD10 working capital is $2.7M). Days of cash-on-hand (an indication of how many days an
organization can pay expenses if its revenue stream ceases) at 22 is lower than the 30-day norm.

Leverage:
Leverage is the degree to which a sponsor is borrowing money. A measure of leverage is debt ratio (debt
divided by total assets).

YTD10, the Sponsor has no debt; therefore, a debt ratio is not calculated.

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 Change in Net Assets:
Change in net assets examines changes over several years to see where an entity is headed.

Operating Change in Net Assets Summary

YTD10 % Change FYE09 % Change FYE08

Total Revenues (net of capital income raised) $ 5,000,030 17.17% $ 4,267,276 -45.19% $ 7,785,726
Total Expenses (net of capital expenses) $ 5,670,869 -30.48% $ 8,157,132 -22.94% $ 10,584,822
OPERATING CHANGE IN NET ASSETS (pre-
depreciation and pre-realized/unrealized
gain/(loss) on investments) $ (670,839) -82.75% $ (3,889,856) 38.97% $ (2,799,096)
Impairment loss (FAS-144 adjustment) $ - -100.00% $ (42,200,000) NC $ -
Extraordinary income (debt settlement) $ 24,150,000 NC $ - NC $ -
Realized/Unrealized Gain/(Loss) on
Investments $ 26,517 -94.22% $ 458,825 P $ (2,447,546)
  Depreciation $ (2,494,182) -35.23% $ (3,851,071) -11.24% $ (4,338,937)
OPERATING CHANGE IN NET ASSETS
(post-depreciation and post-
realized/unrealized gain/(loss) on $ 21,011,496 P $ (49,482,102) 416.21% $ (9,585,579)

Pro Forma Review:

A pro forma review is a projection showing anticipated expenses and revenues for the period.

Operating Pro Forma Summary

Revised - Private Support Escalating

FYE11 FYE12 FYE13 FYE14 FYE15

Total Revenues (net of capital income raised) $ 3,816,900 $ 3,870,000 $ 4,523,000 $ 4,627,000 $ 4,731,000
Federalization Revenue $ 750,000 $ 3,000,000 $ 3,000,000 $ 3,000,000 $ 3,000,000
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 $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576)
Post-Depreciation Surplus/(Deficit) $ (4,424,076) $ (2,177,576) $ (1,581,576) $ (1,535,576) $ (1,490,576)

Revised - Private Support Flat

FYE11 FYE12 FYE13 FYE14 FYE15

Total Revenues (net of capital income raised) $ 3,613,900 $ 3,364,000 $ 3,964,000 $ 4,015,000 $ 4,066,000
Federalization Revenue $ 750,000 $ 3,000,000 $ 3,000,000 $ 3,000,000 $ 3,000,000
Comment [kf4]: Did the Auditor’s make this
Total Expenses (net of capital expenses) $ 5,665,400 $ 5,722,000 $ 5,779,000 $ 5,837,000 $ 5,896,000
statement or is it our staff opinion? Identify whose
Pre-Depreciation Surplus/(Deficit) $ (1,301,500) $ 642,000 $ 1,185,000 $ 1,178,000 $ 1,170,000 opinion this is.
Depreciation $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576) Comment [t5R4]: It is our opinion however you
Post-Depreciation Surplus/(Deficit) $ (4,627,076) $ (2,683,576) $ (2,140,576) $ (2,147,576) $ (2,155,576) raise a good point.. if NURFC were to have a
12/31/10 audit there is a good chance (in my
opinion) they would not get an unqualified “clean”
Footnote: According to the sponsor, if federalization is passed prior to September 30, 2011 $3M will be remitted by the federal government to the opinion. They may get a qualified opinion based on
Freedom Center immediately. For purposes of the pro forma staff reported the federalization income on the accrual basis and recognized only going concern issues. I think it would be
three/twelfths in FYE11 of the projected remittance. unreasonable to require a 12/31/10 audit before the
February meeting but we may want to consider
The Commission staff believes the Freedom Center is in danger of not continuing as a going concern. requiring the freedom center get from their auditiors
a a special management report attesting the going
Accordingly, the consortium of banks that previously held the debt for the Freedom Center have exchanged concern issue prior to the February meeting.???let
me know your thoughts.

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 $47M in local 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 $24M in YTD10. Comment [kf6]: Need TC & CB assistance to
understand this

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 building 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 ($670K) at YTD10, a pre-depreciation loss of ($3.9M) at FYE09,
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 Federal Government (free and clear of any
liens), and the U.S. Government will use the Freedom Center to operate a museum commemorating the
ending of chattel slavery in the United States.

According to the sponsor, if federalization takes place, the Freedom Center expects to 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 beginning with October 1,
2011, the start of the next Federal fiscal year. Therefore, when reviewing the Freedom Center’s
sustainability staff heavily weighed the probability for successful federalization of the Freedom Center.
According to the Sponsor, the most updated information currently available indicates that Senator Sherrod
Brown is backing the legislation that was discussed in draft form in October of 2009, and the Freedom
Center management is optimistic that the legislation will be passed. The Sponsor anticipates “that the funds
would be received in the [fourth] quarter of 2011, if [it is] successful in getting the language signed and
passed prior to [September 30, 2011].” Even if federalization is successful, there remains a pending issue
regarding cash flow needs being met until the Federal funds are received. A review of the liquidity position
calls into question the ability of the Freedom Center to meet its obligations in the first quarter of 2011 and
beyond. Currently, Commission staff is waiting for a cash flow schedule from fourth quarter 2010 through
the period when Federal funds would be received. Correspondence from the Sponsor indicates their cash
may be depleted in the first quarter of 2011. Part of the solution to the sponsor’s anticipated cash flow
problem may lie with the Freedom Center’s renewed ability to raise funds. Although the Freedom Center
must contend with a challenging environment for fundraising, including an uncertain economy, possible
donor fatigue, and the effect the write down of the building may have on potential donor enthusiasm, the
fundraising outlook may be influenced positively by certain factors including the effect the bond settlement
has on donor perspective as well as the prospect of federalization. A recent spike in fundraising has enabled Comment [kf7]: Is this both a positive and
the Freedom Center to close the gap on its operating losses, so much so that the sponsor believes they negative factor?

may break even by year end. Comment [t8R7]: I believe it can be viewed as
eboth a positive and negative factor however, given
the fact their fundraising has increased I am viewing
In formulating the recommendation to the Commission, the staff observes that one approach appears to be as a positive factor as viewed by their current
most likely to enable fulfillment of the overall goal: to have the Freedom Center Facility provide culture to the donors.
public for at least the next fifteen years. Because operating costs, which have been cut drastically in years Comment [kf9]: Is this true even if they don’t
past, cannot realistically be cut too much further and because operating revenues have historically been receive our funds by 12/31/10?
insufficient to cover costs, it appears that the most promising option is successful federalization as
contemplated by the Sponsor. Staff calculated the portion of unpaid total bonds which is allocated to the
Freedom Center to be $7.4M as of October 2010 out of $14.7 originally appropriated and issued. The
unpaid bonds will be paid by the state in a time frame ranging from now until 2020. These calculations do
not include the appropriation of $850K currently being considered by the Commission. Therefore, staff
evaluates the risk to the state as ‘high’ if the sponsor were to stop providing culture in 2011. Therefore, the
alternative of not approving the Commission funds and thereby exacerbating a dire financial position may

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 lead to the demise of the Freedom Center before federalization can be approved.. Approval for the
$850,000 (“The Project”) and a portion of the $462,000 escrow release appears to be necessary to moving Comment [kf10]: Need to calculate how much if
the Freedom Center closer to federalization. any of the escrow is advisable to release.

However, staff recommends such approval only conditionally, to mitigate the risk. Accordingly, staff is
recommending the Commission approve the Project and release of the escrow funds contingent on
execution of a guarantee in an amount equal to both the appropriation of $850,000 and the partial escrow
release of approximately XXXXXXXXXXX This guarantee would need to be acceptable to the executive
director in her sole discretion Such a guarantee would ensure the Commission is placing the yet-to-be-
approved state funds at no greater risk than they are currently and—in fact—lessens the state’s risk
associated with $14.5M of appropriations previously approved as the Freedom Center moves closer to
federalization. Also, staff recommends the Commission require a board-approved business plan addressing
cash flow concerns from fourth quarter 2010 through federalization and until a projected 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 criterion would require the Commission to release its first lien position on
the facility at the point in time when the federal government commits to providing operating funds. As stated
previously, it appears that the lower risk alternative at this point in time is to release the state funds in
exchange for a guaranty in an equal amount. The future release of the state’s first lien position at the time
of federalization was approved by the Commission in May 2009.

A review of the Sponsor’s solvency, liquidity, leverage, change in net assets and pro forma indicates it is
marginally likely the Sponsor will be able to operate the Facility and present culture to the public over a
sustained period of time in accordance with Section 3383.07 of the ORC.

See Exhibit E for a summary of the Sponsor’s financial statements.

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

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 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
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 Chief Analyst, Chief Project Manager, and Executive Director recommend approval of
Resolution R-11-XX, the approval of the Project and authorization of the expenditure of funds, under the
following conditions:

• Guarantee be provided by John Pepper acceptable to the Executive Director at her sole
discretion guaranteeing the $850,000 appropriation
• A Guarantee be provided by John Pepper acceptable to the Executive Director at her sole
discretion for the partial release of the escrow funds.
• A cash flow plan approved by the Board of Director’s of the Freedom Center demonstrating the
cash plow form the fourth quarter 2010 through anticipated federalization and until a projected
positive cash and working capital position is established
• A business plan approved by the Freedom Center board of directors addressing the necessary
steps the Freedom Center will have to undertake in order to meet the needs projected by a
possible negative first quarter cash flow. Comment [kf11]: list conditions

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 Chief Project Manager

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 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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