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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
Deleted:
Executive
Formatted: Font: (Default) Arial, 11 pt
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 Formatted: Font: (Default) Arial, 11 pt
explore a range of freedom issues. The center offers lessons and reflections on Deleted: is (
the struggle for freedom and features three pavilions celebrating courage, Comment [kf1]: Need intro sentence about the
cooperation, and perseverance.. The facility opened in August of 2004. The organization
state has appropriated $15.5M, and the Commission has previously approved Deleted: complete a brief summary here)
$14.65M for the facility. $14.65M has also been reimbursed to the Freedom Deleted: XXXX
Center. Under NURFC’s current operating structure, sustainability is an issue.
Formatted: Font: Italic
The Commission is holding $462K in escrow in the event that the Sponsor is
Deleted: XXX
unable to continue to operate the facility. In May 2009, the Commission
authorized a Memorandum of Understanding, spelling out the conditions under Deleted: XXX
which full approval could be granted to the Freedom Center for the most recent Deleted: for the facility. $XXX in state funding
appropriation of $850,000. The MOU contemplates that the Freedom Center will has been
obtain Congressional approval to federalize the facility and federal funding will be Deleted: XXX
provided for a portion of the operating costs. NURFC’s vision is that the federal Deleted: XXX
government will establish a federal museum and oversight commission to Deleted: Under NURFC’s current operating
commemorate the ending of chattel slavery in the United States. A discussion structure, sustainability is an issue.
draft of this legislation was completed in October 2009. Preliminary terms include Deleted: is working with the
the “gifting” of the facility to the United States government and the United States
Deleted: to
government, via an appointed board of trustees, operating the facility in
cooperation with the Secretary of the Interior and other federal agencies. The Comment [kf2]: Complete this sentence after we
have a staff recommendation
federal legislation has not yet been approved, but the Freedom Center
Deleted: This legislation
anticipates that will be approved in 2011. Commission staff recommends XXX
Deleted: is expected to pass

Ohio Cultural Facilities Commission Stan Hywet Hall and Gardens


3rd Quarter 2010 Meeting Page 1 of 10
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, Deleted: XXXX
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 Deleted: as
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 Deleted: The Freedom Center facility
previously incurred but not yet reimbursed (the “Project”). The project consists of Deleted: has recently been written down to a
reimbursing $850,000 on an appropriation awarded in H,B. 562 and release of a portion value of $32M at FYE09. It was
of the approximately $462,000 of escrow monies held under prior agreements with the Deleted: opened in August 2004,
Commission.. As described further in the financial section of this report, the value of the Deleted: and features three pavilions
facility has recently been written down to $32M (from $78M) at FYE09. celebrating courage, cooperation, and
perseverance.
Deleted:
Regional Support
Deleted: the original base lease
Deleted: XX
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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3rd Quarter 2010 Meeting Page 2 of 10
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 Formatted: Left
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.

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3rd Quarter 2010 Meeting Page 3 of 10
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")
• 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

Ohio Cultural Facilities Commission Stan Hywet Hall and Gardens


3rd Quarter 2010 Meeting Page 4 of 10
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:


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

Operating Pro Forma Summary

Ohio Cultural Facilities Commission Stan Hywet Hall and Gardens


3rd Quarter 2010 Meeting Page 5 of 10
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
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 federalization is passed prior to September 30, 2011 $3M will be remitted by the federal government to the Formatted: Font: 8 pt
Freedom Center immediately. For purposes of the pro forma staff reported the federalization income on the accrual basis and recognized only
three/twelfths in FYE11 of the projected remittance. Formatted: Font: 8 pt
Formatted: Font: 8 pt
The Commission staff believes the Freedom Center is in danger of not continuing as a going concern. Comment [kf4]: Did the Auditor’s make this
Accordingly, the consortium of banks that previously held the debt for the Freedom Center have exchanged statement or is it our staff opinion? Identify whose
$47M in local bond debt for approximately $24M the Freedom Center was holding in investments. The net opinion this is.
result of the bond settlement is an extraordinary gain of approximately $24M in YTD10. Deleted: e
Comment [t5R4]: It is our opinion however you
Also material to the Freedom Center’s financial position is the adjustment of the carrying value of the raise a good point.. if NURFC were to have a
building on the FYE09 financial statement. The previous building balance of $78M in FYE08 was written 12/31/10 audit there is a good chance (in my
opinion) they would not get an unqualified “clean”
down to $32M in FYE 09 as a result of FAS 144, the GAAP pronouncement applicable to Accounting for the opinion. They may get a qualified opinion based on
Impairment or Disposal of Long-Lived Assets. going concern issues. I think it would be
unreasonable to require a 12/31/10 audit before the
February meeting but we may want to consider
Additionally, the Freedom Center continues to operate at a deficit, as is evidenced by a pre-depreciation, requiring the freedom center get from their auditiors
pre-extraordinary gain, operating deficit of ($670K) at YTD10, a pre-depreciation loss of ($3.9M) at FYE09, a a special management report attesting the going
concern issue prior to the February meeting.???let
operating deficits in previous years, and the Sponsor-prepared pro forma indicating pre-Federalization me know your thoughts.
losses exceeding ($1.8M) for the out years.
Comment [kf6]: Need TC & CB assistance to
understand this
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.
Deleted: F

According to the sponsor, if federalization takes place, the Freedom Center expects to receive Deleted: should
approximately $3M/year in operating revenues on a permanent basis, enabling the Freedom Center to Deleted: opening
generate operating surpluses starting at $1.15M for each twelve month period beginning with October 1, Deleted: beginning
2011, the start of the next Federal fiscal year. Therefore, when reviewing the Freedom Center’s
Deleted: considers
sustainability staff heavily weighed the probability for successful federalization of the Freedom Center.
Deleted: of a
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 Deleted: F
Center management is optimistic that the legislation will be passed. The Sponsor anticipates “that the funds Deleted: we
would be received in the [fourth] quarter of 2011, if [it is] successful in getting the language signed and Deleted: have

Ohio Cultural Facilities Commission Stan Hywet Hall and Gardens


3rd Quarter 2010 Meeting Page 6 of 10
passed prior to [September 30, 2011].” Even if federalization is successful, there remains a pending issue Deleted: F…deralization is successful, there
... [1]
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 Comment [kf7]: enthusiasm?
fundraising outlook may be influenced positively by certain factors including the effect the bond settlement Deleted: perspective
has on donor perspective as well as the prospect of federalization. A recent spike in fundraising has enabled Deleted: also includes positive influences,... [2]
the Freedom Center to close the gap on its operating losses, so much so that the sponsor believes they
Comment [kf8]: Is this both a positive and
may break even by year end. negative factor?
Comment [t9R8]: I believe it can be viewed as
In formulating the recommendation to the Commission, the staff observes that one approach appears to be eboth a positive and negative factor however, given
most likely to enable fulfillment of the overall goal: to have the Freedom Center Facility provide culture to the the fact their fundraising has increased I am viewing
public for at least the next fifteen years. Because operating costs, which have been cut drastically in years as a positive factor as viewed by their current
donors.
past, cannot realistically be cut too much further and because operating revenues have historically been
Deleted: very real …rospect of ... [3]
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 Comment [kf10]: Is this true even if they don’t
receive our funds by 12/31/10?
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 Deleted: staff …ecommendation to the ... [4]
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 Deleted: T
alternative of not approving the Commission funds and thereby exacerbating a dire financial position may
lead to the demise of the Freedom Center before federalization can be approved.. Approval for the Deleted: and the unenviable position of the
$850,000 (“The Project”) and a portion of the $462,000 escrow release appears to be necessary to moving state owning a singular-use building, the use
being a museum in a city that already houses
the Freedom Center closer to federalization. the successful Cincinnati Museum Center… ... [5]
Comment [kf11]: Need to calculate how much if
However, staff recommends such approval only conditionally, to mitigate the risk. Accordingly, staff is any of the escrow is advisable to release.
recommending the Commission approve the Project and release of the escrow funds contingent on Deleted: as…necessary to moving getting... [6]
execution of a guarantee in an amount equal to both the appropriation of $850,000 and the partial escrow
Deleted: ¶
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- However, if the Commission were to approve
approved state funds at no greater risk than they are currently and—in fact—lessens the state’s risk the funds and Federalization did not come to
fruition, the Commission would be responsible
associated with $14.5M of appropriations previously approved as the Freedom Center moves closer to for placing those additional funds at risk. ... [7]
federalization. Also, staff recommends the Commission require a board-approved business plan addressing Comment [kf12]: See note above about
cash flow concerns from fourth quarter 2010 through federalization and until a projected positive cash and calculating the amount. It cannot be the full escrow.
working capital position can be re-established. Finally, noteworthy for the Commission’s deliberations Deleted: $462,000.
regarding the Freedom Center, is the Federal requirement that the Facility be free of all liens in order for
Formatted: Highlight
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 Formatted ... [8]
previously, it appears that the lower risk alternative at this point in time is to release the state funds in Comment [kf13]: need to discuss after TR
reviews Q's from John Pepper's attorney
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. Deleted: in the Commission’s standard form.
Deleted: F…deralization. Also, staff ... [9]
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.

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3rd Quarter 2010 Meeting Page 7 of 10
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

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3rd Quarter 2010 Meeting Page 8 of 10
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 Deleted: project a
Resolution R-10-17, the approval of the Project and authorization of the expenditure of funds, under the Deleted: p
following conditions: Deleted: m
• Guarnatee be provided by John Pepper acceptable to the Executive Director at her sole
Deleted: s
discretion guaranteeing the $850,000 appropriation
• A Guarantee be provided by John Pepper acceptable to the Executive Director at her sole Deleted: e

discretion for the partial release of the escrow funds. Deleted: d


• A cash flow plan approved by the Board of Director’s of the Freedom Center demonstrating the Deleted: and recommend
cash plow form the fourth quarter 2010 through anticipated federalization and until a projected Formatted: Bulleted + Level: 1 + Aligned at:
positive cash and working capital position is established -0.19" + Indent at: 0.06"
• A business plan approved by the Freedom Center board of directors addressing the necessary Formatted: Font: Not Bold
steps the Freedom Center will have to undertake in order to meet the needs projected by a Formatted: Font: Not Bold
possible negative first quarter cash flow.
Formatted: Font: Not Bold

Commission Actions This Meeting: Comment [kf14]: list conditions


In Resolution R-11-XX, the Commission is asked to do the following: determine need for Project; determine Deleted: .
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

Executive Director

Exhibits

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3rd Quarter 2010 Meeting Page 9 of 10
□ 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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3rd Quarter 2010 Meeting Page 10 of 10
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also includes positive influences,
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also includes positive influences,
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very real
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very real
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very real
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staff
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staff
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staff
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staff
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staff
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staff
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staff
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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
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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
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as
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as
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as
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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.
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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.
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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.
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Highlight
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Highlight
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