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 at FYE09. 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 $462,000 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")
• 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

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

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 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.

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:

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

Operating Pro Forma 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)

The Freedom Center is danger of not continuing as a going concern. Accordingly, the consortium of banks
that 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 $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.

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 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, staff is waiting for a cash flow schedule from fourth quarter 2010 through the period when Federal

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 funds would be received. 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 problem 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 affect 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 on the strategy we
believe will most likely enable the Commission to meet its ultimate objective: to have the Freedom Center
Facility provide culture for the next fifteen years. Because 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 houses the successful Cincinnati Museum Center. Staff views the approval for the $850,000 (“The
Project”) and $462,000 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 did not come to fruition, 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. 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. As stated previously, staff believes the best option to ensure the Facility provides
culture for the next fifteen years relies on Federalization, and the exchange of the first lien position for
Federalization is a worthy one.

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

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 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
National Am. Sub. 3/18/1999 122 $500,000 Funded construction of the
Underground H.B. 850 freedom center.
Railroad Freedom
Center

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 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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