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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

Summary: The National Underground Railroad Freedom Center (“Freedom Center,”
“NURFC,” or “the Sponsor”) is a museum that explores 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 state appropriated $15.5M to the Freedom Center, which opened in August
of 2004 on the Cincinnati riverfront. The Commission previously approved
$14.65M of the funding, which has been reimbursed to the Sponsor. Under
NURFC’s current operating structure, sustainability is an issue. The Commission
is holding in escrow $462K, provided by the Sponsor, in the event the Sponsor is
unable to continue to operate the facility. In such an unfortunate event, these
escrowed funds would be used to heat, cool, secure and insure the facility until a
new cultural organization user could be identified

On February 11, 2010, the Commission authorized a Memorandum of

Understanding (MOU) 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 annual operating costs. NURFC’s vision is that the federal
government will establish a federal museum and an 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

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gifting 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 been approved, but the Freedom Center anticipates it
will be approved in 2011.

Subsequent to the February 2010 Commission approval of the MOU, the

Freedom Center has eliminated its debt, developed alternate plans for continuing
its operations, and has offered to provide a guaranty to secure the $850K
appropriation. Commission staff recommends approval of the $850K
appropriation, contingent on the Sponsor providing a guaranty for the $850K and
a business plan outlining operational contingencies in the event federalization is

Facility Overview: The Center consists of a 160,000-square-foot facility located on the Cincinnati
riverfront that 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 currently 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.

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.

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
Old Adjustments New
State funding $ 15,500,000 $ - $ 15,500,000
Cash on hand - - -
Private contributions 63,000,000 - 63,000,000
County government - - -
City government 6,000,000 - 6,000,000
Federal government 22,200,000 - 22,200,000
Available funding sources 106,700,000 - 106,700,000
Other (future investment income)1 11,650,000 (11,650,000) -
Total funding sources $ 118,350,000 $ (11,650,000) $ 106,700,000

Construction and soft costs2 $ 62,633,000 $ (30,095,954) $ 32,537,046
Exhibits 17,660,000 - 17,660,000
Fixtures/furnishings/equipment 2,790,000 - 2,790,000
Pre-opening expenses (other) 32,761,000 - 32,761,000
Project cost approved by Commission 115,844,000 (30,095,954) 85,748,046
2004/2005 Operating deficit (other) 1,900,000 - 1,900,000
Total project budget $ 117,744,000 $ (30,095,954) $ 87,648,046

Due to the bond settlement transaction, the future investment income projection was never realized
The original estimated construction cost of $62M shown above reflects the project cost used for past approvals however, the original
construction cost per the audit was $78M and was adjusted to reflect the impairment charge. The current value of the building per the
12/31/09 audit is $32M after the impairment charge of $42M.

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The Project is complete and was previously funded as indicated in 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 in exchange for $24M held in investments (a second
position lien on the facility was held as collateral; the Sponsor states that the lien has been released)
The second event is that, appurtenant to GAAP because the 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, Commission staff reviewed a completed project valued at $32M without any
debt, and calculated that the project is fully funded.

Project Need

Commission staff analyzed the Sponsor’s financial statements, including the following:
• 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")
• five-year pro forma

Statement of Financial Position Summary

YTD10 % Change FYE09 % Change FYE08

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

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

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

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 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

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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 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
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)
(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.

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Operating Pro Forma Summary

Revised - Private Support Escalating


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


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 $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576)
Post-Depreciation Surplus/(Deficit) $ (4,627,076) $ (2,683,576) $ (2,140,576) $ (2,147,576) $ (2,155,576)

Footnote: According to the sponsor, if legislation approving federalization is passed prior to September 30, 2011, $3M will be remitted by the federal
government to the Freedom Center immediately. For purposes of the pro forma, Commission staff reported the federalization income on the accrual
basis and recognized only three-twelfths of the projected remittance in FYE11.

The consortium of banks that previously held the debt for the Freedom Center have exchanged $47M in
local bond debt for approximately $24M the Freedom Center was holding in investments. The difference
between the amount owed and the amount paid must be shown as revenue. This is a one-time gain and is
not operating revenue. The net result of the bond settlement is an extraordinary gain of approximately $24M
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 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. It appears that the Freedom Center is in danger of not continuing is a
going concern unless federalization is realized or an extraordinary set of sponsorships or gifts are received.

Federalization would result in the Facility being gifted to the Federal Government (free and clear of any
liens; it is not yet clear what will be required regarding the Commission’s property interest in the facility. The
Commission has a leasehold interest, which was required under the “old” Ohio Building Authority bonds.)
Under the federalization scenario, the U.S. Government would operate the 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 federal 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,

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2011, the start of the next Federal fiscal year. According to the Sponsor, Senator Sherrod Brown supports
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 the effort to secure federalization is successful, there remains a challenge in meeting operating cash
flow needs until such time as 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.
Commission staff requested and reviewed a Sponsor-prepared cash flow schedule that starts in the fourth
quarter of 2010 and ends at the fourth quarter 2011. The cash flow assumes Commission funding of $850K
in February of 2011 and indicates positive cash balances until federalization is anticipated to take place in
October of 2011, at which time the Freedom Center would possibly receive $3M in federal funding.

In reviewing the projected cash flow, Commission staff notes that projected operating cash outflows are
significantly less than recent actual operating costs shown in the prior year audit and the YTD financial
statements. The projected decreases are due to cuts in fundraising and professional lobbying expenses. In
response to inquiries as to how projected fundraising cash inflows will be achieved when cutting fundraising
expenses, the sponsor responded that they hired a new director of development, which should enable the
Freedom Center to cut fundraising costs while achieving their fundraising goals. The Sponsor’s response
regarding the impact of cutting professional lobbying expenditures before federalization is secured: the
lobbyist will be working pro bono. In order to achieve the positive cash balances anticipated in the projected
cash flow, fundraising cash inflows must continue to be realized at a level which has only recently been
accomplished, as indicated by the year to date financials, but which is substantially higher than years past.
In evaluating the Freedom Center’s ability to achieve the fundraising cash inflow, Commission staff notes
the Freedom Center and new director of development 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. Also, the fundraising outlook may be influenced positively
by certain factors including the effect the debt settlement has on donor perspective as well as the prospect
of federalization. Commission staff concludes that, there remain formidable uncertainties regarding
achieving the fundraising levels necessary to create the projected positive cash balances.

In formulating its recommendation, the Commission staff observes that only one alternative is available to
potentially enable fulfillment of the overall goal that the Freedom Center facility continue to operate. Since
operating costs have been cut drastically in years past and cannot realistically be cut much further, and
because operating revenues have historically been insufficient to cover costs, it appears that the most
promising alternative is federalization as contemplated by the Sponsor. Commission staff calculated the
dollar amount of outstanding bonds allocated to the Freedom Center to be $7.4M as of October 2010 out of
$14.7M. The outstanding bonds will be paid off by the state over the next 10 years. These calculations do
not include the $850K currently being considered for approval by the Commission. Commission staff
evaluates the risk to the state as ‘high’ if the sponsor were to stop operating in 2011. Therefore, the
alternative of not approving the $850K in state funds and thereby exacerbating a very difficult financial
position may lead to closure of the Freedom Center before federalization can be approved. Approval for the
$850,000 Project appears to be necessary to keeping the Freedom Center open while they continue to
pursue federalization. Comment [jd1]: TC & KF to revisit on 1/10/11
Comment [kf2]: Discuss w/ KF rewriting this
However, Commission staff recommends such an approval only conditionally in order to eliminate any paragraph
additional risk. Commission staff recommends the Commission approve the Project contingent on execution
of a guaranty in an amount equal to the current appropriation of $850,000. John Pepper, a founding board
member of the Freedom Center and Chairman-emeritus of Proctor & Gamble, has agreed to sign the
guaranty. Such a guaranty would ensure the Commission is not placing the new state funds at risk; in

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addition, this contingent approval reduces the state’s risk associated with state funds previously paid out
because the Freedom Center will have time to continue to seek federalization or another long term
operating strategy. Commission staff also recommends the Commission require a business plan, approved
by the Freedom Center board, with fallback arrangements in the event the Sponsor-prepared cash
projections prove infeasible. Comment [kf3]: Need to revisit in light of new
information just received.

The Commission holds approximately $460K in an escrow fund for a “management transition” in the event Comment [jd4]: TC & KF to revisit on 1/10/11
the Freedom Center is unable to continue to operate. The escrowed funds would be used to pay costs of
heating, cooling, insuring, and securing the building until such time as another organization could be
identified to operate the building as a cultural facility.

Finally, noteworthy for the Commission’s deliberations regarding the Freedom Center, is the apparent
Federal requirement that the Facility be free of all liens in order for federalization to take place. As we
understand it, this criterion would require the Commission to release its first lien position on the facility at the
point in time when the federal government takes ownership and commits to providing operating funds. The
Commission may be prohibited, by the bond documents pertaining to the bond money which funded the
original appropriations, from releasing its property interest in the facility. Therefore, Commission staff is
recommending the Sponsor be required to provide an opinion from nationally recognized bond counsel on
this issue prior to federalization and prior to the Commission releasing or subordinating its property interest.
As stated previously, it appears that the lower risk alternative at this point in time is to approve the release
the state funds in exchange for a guaranty in an equal amount. The issue of the release of the
Commission’s first lien position on the facility is a decision for a future point in time.

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 Deleted:
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.

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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
National Am. Sub. 12/28/2006 126 $2,000,000 Funded construction of the
Underground H.B. 699 freedom center.
Railroad Freedom
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
National Am. Sub. 6/15/2000 123 $3,500,000 Funded construction of the
Underground H.B. 640 freedom center.
Railroad Freedom
National Am. Sub. 3/18/1999 122 $500,000 Funded construction of the
Underground H.B. 850 freedom center.
Railroad Freedom
Cincinnati Riverfront Am. H.B. 9/17/1996 121 $166,668 Architectural fees and
Development 748 continuing development
work on the freedom
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 financial analyst, chief project manager, and executive director recommend approval of
Resolution R-11-06, the approval of the Project and authorization of the expenditure of funds, subject to the
following conditions:

1) The Sponsor provides a guaranty by John and Frances Pepper in

conformance with the Commission’s standard form guaranty document,
guaranteeing the $850,000 appropriation;

2) The Sponsor provides 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 potential needs should the Sponsor-
prepared projected cash flow positive balances not be met; Comment [jd5]: TC & KF to revisit on 1/10/11
Comment [kf6]: Need to revisit given recently
3) Prior to federalization the Sponsor provides to the Ohio Public Facilities provided info?
Commission (the “OPFC”), the Treasurer of State and the Commission an
opinion of nationally recognized bond counsel, acceptable to the Treasurer of

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State, and addressed to the OPFC, the Treasurer of State and the
Commission, stating that the financing structure, ownership and/or
operational/management structure will not a) adversely affect the validity of
the state-issued tax-exempt bonds; and b) will not adversely affect the
exclusion of the interest on the state-issued tax-exempt bonds from the gross
income of the holders of the state-issued tax-exempt bonds for federal
income tax purposes;

4) Prior to federalization, the new financing structure, ownership and/or

operational/management structure for the project and Sponsor organization is
approved as acceptable to the Commission Secretary-Treasurer, in his/her
sole discretion; and

5) Provide evidence that the bank lien on the facility has been released.

Commission Actions This Meeting:

In Resolution R-11-06, the Commission is asked to do the following: confirm need for Project; confirm
substantial regional support; confirm the provision of general building services; approve the project and
authorize the expenditure of funds, pending certain requirements; and authorize the execution of legal

Chief Analyst Chief Project Manager

Executive Director


□ 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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