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

Financial Assessment

Commission staff analyzed the Sponsor’s financial statements, including

• Internally generated financial statements for year-to-date September 30, 2010 ("YTD10")
and for year-to-date July 31, 2009 ("YTD09"), and
• Audited financial statements for fiscal-years-ending December 31, 2008, and 2007 ("FYE08"
and "FYE07").

Statement of Financial Position Summary

YTD10 % Change FYE09 % Change FYE08

ASSETS:
Current Assets
Unrestricted $ 3,811,937 28.17% $ 2,974,206 -61.47% $ 7,718,885
Restricted $ - NC $ - NC $ -
Long-Term Assets $ 32,075,379 -17.54% $ 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:

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 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 6.16 27.42% 4.84 -32.58% 7.17

The Sponsor’s YTD10 working capital is $3.2M). 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.

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)
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 investments) $ 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

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 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 $ - $ - $ - $ - $ -
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) $ 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
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. 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
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 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 beginning of the next 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.

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 In formulating the staff recommendation to the Commission staff bases its rationale on the strategy we
believe will most likely enable the Commission to meet its ultimate objective, 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 “The 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 “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. Such a guarantee would ensure the Commission is placing the state funds at no greater risk than
they are currently in and, in fact the state’s risk lessens 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 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.

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.

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 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
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.

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 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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