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 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 and the Sponsor Deleted: s
is seeking approval of the $850K appropriation and release of a $462K escrow
currently held by the Commission.
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.
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. In addition, the
Sponsor is requesting return of the $462K in escrowed funds, in exchange for a
guaranty in an equal amount.
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). On October 9, 2001, Substantial
Regional Support was confirmed by the Commission in resolution R-01-26. Matching resources were
again substantiated in November 2008. The following table is provided for informational purposes.
Funding Model
Old Adjustments New
Funding
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
Project
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
1
Due to the bond settlement transaction, the future investment income projection was never realized
2
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.
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")
• four-year pro forma covering the periods from 2011 through 2014
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 are not used to calculate the current ratio
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) $ 4,811,900 $ 4,198,000 $ 4,271,000 $ 4,419,000
Total Expenses (net of capital expenses) $ (5,132,416) $ (4,192,589) $ (4,263,000) $ (4,335,000)
Pre-Depreciation Surplus/(Deficit) $ (320,516) $ 5,411 $ 8,000 $ 84,000
Depreciation $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576)
Post-Depreciation Surplus/(Deficit) $ (3,646,092) $ (3,320,165) $ (3,317,576) $ (3,241,576)
In assessing the Freedom Center’s sustainability, Commission staff reviewed the impact of several events
that occurred over the last several years, and which affect the Freedom Center’s current financial position.
Arguably, the most significant event was: The consortium of banks that previously held the debt for the
Freedom Center has 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 is shown as
extraordinary 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 and the elimination of interest expense
and bank fees going forward.
The Freedom Center is actively asking Congress to pass legislation whereby the Freedom Center would be
gifted to the Federal Government and the Federal Government would contribute $3M of annual operating
revenue . The Sponsor’s projections indicate that federalization would result in a net annual operating
surplus of approximately $1.5M, assuming their other fundraising activities meet the goals specified.
However, due to the uncertainty of such legislation passing, Commission staff analyzed the Freedom
Center’s sustainability as if federalization will not occur and included for the Commission’s review only the
Sponsor’s latest pro forma, which does not assume federalization.
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. The $42M write down increased the FYE 09 deficit to ($49M).
Although the Commission staff is hopeful the sponsor will meet its objectives regarding the approved 2011
and 2012 budgets and cash flows from the Freedom Center Executive Committee, Commission staff has its
Although Commission staff based its recommendation on the most conservative projections, which do not
include federalization, if federalization were to be approved it 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 $1.5M and increasing slightly for each fiscal year end.
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 hopeful that the legislation will be passed. The
Sponsor anticipates “that the funds would be received in the [fourth] quarter of [calendar] 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 and another cash flow for fiscal year 2012. The cash
flows exclude federalization funds and assume Commission funding of $850K and the return of the $462K
escrow in February of 2011. Each cash flow projection indicates positive cash balances throughout 2011
and 2012 if financial projections are met and the state funds and escrow are disbursed.
Operating Revenues
Private Support
Board Support 750.0 880.0 900.0 950.0 Revenue ($000)
Individuals 303.0 305.0 308.0 311.0
Corporations 625.0 705.0 720.0 730.0 6,000.0
Trust/Foundations/Charities 650.0 948.0 963.0 973.0
MLK 38.9 20.0 20.0 125.0 5,000.0
IFCA, net 150.0
Total Private Support 1,159.3 3,083.8 2,366.9 3,008.0 2,911.0 3,089.0 4,000.0
Year-over-year change 166% -23% 27% -3% 6%
3,000.0 Total Earned Income
Government Total Government
Department of Education 275.0 50.0 200.0 150.0 2,000.0
Total Private Support
OCFC 850.0 0.0
City of Cincinnati 300.0 100.0 100.0 100.0 1,000.0
Total Government 1,182.4 744.4 1,425.0 150.0 300.0 250.0
Year-over-year change -37% 91% -89% 100% -17% 0.0
Earned Income
Admissions 595.0 600.0 619.0 631.0
Facility Rental 190.0 200.0 198.0 202.0
Retail 140.0 140.0 146.0 149.0
Membership 40.0 40.0 42.0 43.0 Expenses ($000)
Café 15.0 20.0 15.0 15.0
Total Earned Income 3,107.9 1,171.9 980.0 1,000.0 1,020.0 1,040.0 9,000.0
Year-over-year change -62% -16% 2% 2% 2%
8,000.0
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 planned cuts in expenses for fundraising and professional
lobbying. 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 was to clarify that the lobbyist will not stop working, but 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 its
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
In formulating its recommendation, the Commission staff observes that if federalization is not successful the
Freedom Center must achieve elevated fundraising levels while further reducing payroll and other operating
costs. Because operating costs have been cut drastically in years past, they may not realistically be cut
much further. Nationally-recognized bond council created an amortization schedule for the outstanding
principal related to the Freedom Center. A schedule of the outstanding unamortized state bonds was
included as an appendix in the Second Amendment to the Base Lease dated July 1, 2008. According to this
schedule, the dollar amount of outstanding bonds allocated to the Freedom Center is $6.6M as of February
2011 out of an original balance of $14.7M. The outstanding bonds will be paid off by the state over the next
9 years. The unamortized balance of the state bonds decreases by approximately $1M per year for the next
several years. Therefore, the state’s exposure decreases rather substantially each of the next several years.
These calculations do not include the $850K currently being considered for approval by the Commission
because this new $850K would be guaranteed to be returned if the Freedom Center fails to continue
operations. Commission staff evaluates the risk to the state as ‘high’ if the Sponsor were to stop operating in
2011 or 2012. Therefore, the alternative of not approving the $850K in state funds or the $462K in escrow
funds, and thereby exacerbating a very difficult financial position, may lead to closure of the Freedom
Center before federalization can be approved or the new business plan can be implemented. Approval for
release of the $850K state appropriation and return of the $462K escrow appears to be necessary to keep
the Freedom Center open while they continue to pursue federalization or the implementation of their new
business plan. Since these two amounts would be guaranteed under the Freedom Center’s proposal,
release of these funds does not increase the risk to the State.
Because the state’s exposure regarding the unamortized amount of the bonds decreases substantially over
the next several years, risk to the state is reduced if the Commission’s actions assist the Freedom Center in
continuing its operations. Accordingly, Commission staff recommends the approval of the $850K Project
and return of the $462K escrow; however, Commission staff recommends making these approvals under
certain conditions in order to mitigate any additional risk. Commission staff recommends the Commission
approve the Project contingent on execution of a guaranty in an amount equal to the proposed project
approval for the release of the most recent appropriation of $850,000. John and Frances Pepper have
agreed to sign the guaranty. Mr. Pepper is a founding board member of the Freedom Center and Chairman-
emeritus of Proctor & Gamble. Such a guaranty 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 state funds
previously paid out because the Freedom Center will have time to continue to seek federalization or another
long term operating strategy. Should the Freedom Center cease operations before the unamortized amount
of bonds decreases to zero, the state would either 1) identify a new non-profit or local government cultural
or educational organization to provide programming in the building, or 2) utilize the state’s first lien position
and sell the facility (recently written down to $32M by the auditors) to repay the unamortized bonds.
The Commission holds approximately $462K in an escrow fund for a “management transition” in the event
the Freedom Center is unable to continue to operate. The Sponsor is requesting return of the $462K in
escrowed funds, in exchange for a second guaranty, signed by John and Frances Pepper. The guaranty
would be called in if the Freedom Center defaults under its legal agreements with the Commission and the
guaranty funds would be used to pay costs of heating, cooling, insuring, and securing the building until such
time as another appropriate organization could be identified to operate the building. Commission staff notes
that return of the $462K in escrowed funds in exchange for a guaranty places the Commission in a position
equitable to the current position, so long as the guaranty provides that the guaranty amount account for the
accrual of interest, approximately equal to the earnings that would be accrued were the escrowed funds to
remain in the state treasury.
A review of the Sponsor’s solvency, liquidity, leverage, change in net assets and pro forma indicates that
without federalization 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 or fully
implementing its new business plan, Commission staff 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
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, authorization of the expenditure of funds and return of the
escrowed funds, subject to the following conditions:
3) The legal agreements for this project are amended to require that prior to
federalization, the Sponsor provides to the Ohio Public Facilities Commission
(the “OPFC”), the Treasurer of State and the Commission an opinion of
nationally recognized bond counsel, acceptable to the Treasurer of 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;
5) Provide evidence that the bank lien on the facility has been released.
Executive Director
Exhibits
□ A Provision of Culture
E Financial Statements