Académique Documents
Professionnel Documents
Culture Documents
Executive
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. The Commission previously approved $14.65M of the funding, which
has been reimbursed. Under NURFC’s current operating structure, sustainability
is an issue. The Commission is holding $462K in escrow in the event 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 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 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 been approved, but the
Freedom Center anticipates that will be approved in 2011. Commission staff
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 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.
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
Project
2
Construction and soft costs $ 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
1
Due to the bond settlement transaction, the future investment income projection was never realized
2
The original estimated construction cost was adjusted to reflect the value of the building used in the audited financial staements. The
building value originally reported at $78M, included some capitalized costs. The current value of the building is $32M after the
impairment charge of $42M.
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 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, 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
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.
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)
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)
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.
Federalization would result in the Facility being gifted to the Federal Government (free and clear of any
liens, including the Commission’s current lien on the facility), and 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 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. According to the Sponsor, the most updated information
currently available indicates that 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 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 as indicated by 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 bond 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.
However, Commission staff recommends such an approval only conditionally, to eliminate any additional
risk. Commission staff recommends the Commission approve the Project contingent on execution of a
guarantee 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
guarantee. Such a guarantee would ensure the Commission is not placing the new state funds at risk; in
addition, this contingent approval reduces the state’s risk associated with $14.5M of appropriations
previously approved because the Freedom Center will have time to continue to seek federalization.
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.
The Commission holds approximately $460K in an escrow fund for a “management transition” in the event
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. 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. 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.. Also, prior to releasing the liens
the Commission will have to weigh the benefit of maintaining a first lien position without federalization
against the benefit of gaining federalization and releasing the first lien position. Staff believes at this point
in time the best probability of the Freedom Center continuing to provide culture for the next fifteen years
requires the funding which federalization will secure. 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 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
sustained period of time in accordance with Section 3383.07 of the ORC.
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.
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 Architectual 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 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:
• The Sponsor provides a guarantee by John and Frances Pepper in conformance with the
Commission’s standard form guaranty document, guaranteeing the $850,000 appropriation; The
• 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;
• [The Sponsor provide opinion from Nationally Recognized Bond Counsel regarding release of the
first lien as required by federalization and currently held under the base lease with any potential
conflict involving the bond documents.
Executive Director
□ A Provision of Culture
E Financial Statements