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Ohio Cultural Facilities Commission National Underground Railroad Freedom Center1st Quarter 2011 Meeting Page 1 of 12

Project Analysis and Staff RecommendationNational Underground Railroad Freedom CenterCommission Assessment Team: Tony Capaci, chief analyst and Amy Rice, chief project manager

National Underground Railroad Freedom Center 50 E. Freedom WayCincinnati, Hamilton County

Facility and Project Sponsor Information

ExecutiveSummary: The National Underground Railroad Freedom Center (Freedom Center,

NURFC, or the Sponsor) is a museum that explores a range of freedomissues. The center offers lessons and reflections on the struggle for freedom andfeatures three pavilions celebrating courage, cooperation, and perseverance.

The state appropriated $15.5M to the Freedom Center, which opened in Augustof 2004 on the Cincinnati riverfront. The Commission previously approved$14.65M of the funding, which has been reimbursed to the Sponsor. UnderNURFCs current operating structure, sustainability is an issue. The Commissionis holding in escrow approximately $462K, provided by the Sponsor, in the eventthe Sponsor is unable to continue to operate the facility. .The Sponsor isrequesting return of the escrowed funds in exchange for a guaranty in an equalamount. The guaranty funds would be used to heat, cool, secure and insure thefacility until a new cultural organization user could be identified, or the buildingsold to satisfy the Freedom Centers obligation to return to the Commission theamount of any outstanding unamortized bonds.

On February 11, 2010, the Commission authorized a Memorandum ofUnderstanding (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 Congressionalapproval to federalize the facility, and federal funding will be provided for aportion of the annual operating costs. NURFCs vision is that the federal

Deleted: In such an unfortunate event, escrowed funds would be used to heat, csecure and insure the facility until a neworganization user could be identified

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government will establish a federal museum and an oversight commission to

commemorate the ending of chattel slavery in the United States. A discussiondraft of this legislation was completed in October 2009. Preliminary terms includegifting the facility to the United States government and the United Statesgovernment, via an appointed board of trustees, operating the facility incooperation with the Secretary of the Interior and other federal agencies. Thefederal legislation has not been approved, but the Freedom Center anticipates itwill be approved in 2011.

Subsequent to the February 2010 Commission approval of the MOU, theFreedom Center has eliminated its debt, developed alternate plans for continuingits operations, and has offered to provide a guaranty to secure the $850Kappropriation. Commission staff recommends approval of the $850Kappropriation, contingent on the Sponsor providing a guaranty for the $850K anda business plan outlining operational contingencies in the event federalization isdelayed.

Facility Overview: The Center consists of a 160,000-square-foot facility located on the Cincinnatiriverfront that opened in 2004. Features of the facility include a museum,interactive story theaters, computer networking to other Underground Railroadsites, arts and education facilities, and a public forum space.

The Center is currently owned and operated by the Sponsor, an Ohio nonprofitcorporation since 1995.

Culture Presented: The preservation and presentation of features of historical interest or significance.

SponsorBackground: The Sponsor states, The mission of the National Underground Railroad

Freedom Center is to reveal stories about freedom's heroes, from the era of theUnderground 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 expensespreviously incurred but not yet reimbursed (the Project). The Project consists ofreimbursing $850,000 on an appropriation awarded in H.B. 562. In addition, theSponsor is requesting return of the $462K in escrowed funds, in exchange for aguaranty in an equal amount.

Regional Support

Matching ResourcesThe 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 weresubstantiated in November 2008. On October 9, 2001, Substantial Regional Support was confirmed bythe Commission in resolution R-01-26. The following table is provided for informational purposes.

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Amount

$0

$0

$0

$0

$0

$34,000,000

$0

$4,500,000

$12,000,000

$0

$0

$50,500,000

$7,750,000

Federal Government

Site Valuation

Other

Total Matching Resources

Minimum Match

Irrevocable Written Pledges

In-Kind Contributions (up to 50%)

Operating Endowment

Private Contributions

County Government

City Government

Source

Cash-on-Hand

Funds Already Expended on Project

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 - 6,000,000Federal 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 - 2,790,000Pre-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 def icit (other) 1,900,000 - 1,900,000Total project budget 117,744,000$ (30,095,954)$ 87,648,046$

1Due to the bond settlement transaction, the future investment income projection was never realized

2The 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 theconsortium of banks settled $47M bond debt in exchange for $24M held in investments (a secondposition 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 assets value is impaired, managementwrote down the carrying value of the facility from $78M to $32M at FYE09. Therefore when analyzingthe funding for the project, Commission staff reviewed a completed project valued at $32M without anydebt, and calculated that the project is fully funded.

Project Need

Commission staff analyzed the Sponsors 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

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 assetsare 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 (currentassets divided by current liabilities), which indicates how many times over the entity can pay its currentliabilities with its current assets. (Note:Restricted current assets were not used to calculate the current ratiobecause 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 Sponsors YTD10 working capital is $2.7M). Days of cash-on-hand (an indication of how many days anorganization 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 (debtdivided 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% $ 10,584,822OPERATING 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) onInvestments $ 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.

Deleted: sponsor

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Operating Pro Forma Summary

Revised - 01/14/2011

FYE11 FYE12 FYE13 FYE14

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)Sp

onsor

In assessing the Freedom Centers sustainability staff reviewed the impact of several events which occurredover the last several years which affect the Freedom Centers current financial position. Arguably, the mostsignificant event was: The consortium of banks that previously held the debt for the Freedom Center hasexchanged $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 extraordinaryrevenue. This is a one-time gain and is not operating revenue. The net result of the bond settlement is anextraordinary gain of approximately $24M in YTD10 and the elimination of interest expense and bank feesgoing forward.

The Freedom Center is lobbying Congress to pass legislation whereby the Freedom Center would be giftedto the Federal Government and the Federal Government would contribute $3M of operating revenue for thecontinued operations. Per a review of one of the Sponsors projections federalization would result in a netoperating surplus of approximately $1.5M. However, due to the uncertainty of such legislation passing,Commission staff analyzed the Freedom Centers sustainability as if federalization will not occur and onlyincluded the Sponsors pro forma which does not account for federalization, for the Commission review.

Also material to the Freedom Centers financial position is the adjustment of the carrying value of thebuilding on the FYE09 financial statement. The previous building balance of $78M in FYE08 was writtendown to $32M in FYE 09 as a result of FAS 144, the GAAP pronouncement applicable to Accounting for the

Impairment or Disposal of Long-LivedAssets.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 deficit of ($3.9M) at FYE09,and operating deficits in previous years. However, the Executive Committee has approved a new budgetand business plan for FYE 2011 and FYE 2012 whereby small pre-depreciation surpluses are projected inthe out years, although the pro forma indicatesa pre-depreciation deficit of ($320K) for FYE11 Thisbusiness model, which indicates the Freedom Center can be sustainable without federalization, relies onfurther operating cost cuts and maintaining elevated levels of private support (as compared to FYE 09) inFYE 2011 and FYE 2012. Actual results of private support increased from 2009 to YTD10 by substantialmargins, approximately 160% at YTD 10 (nine months of actual activity) and this increased level of privatesupport is projected to drop in 2011 and rise again in 2012 to approximately the 2010 results. Also,projected total operating costs in 2012 are about half of actual total operating costs in FYE09. Although thestaff is cautiously optimistic regarding the approved 2011 and 2012 budgets and cash flows from theExecutive Committee, Commission staff has its reservations as to whether fundraising levels can continue

to be maintained and operating costs reduced further. Noteworthy to staffs assessment regardingfundraising projections is the Board Support projection of $750K for FYE 2011, $880K for FYE 2012 andincreased levels for the remaining years. Such support by the Board indicates confidence in the businessplan; however, staffs reservations are primarily due to the affect the economy typically has on non profits. Inorder to reach and maintain projected fundraising levels, funds from the Federal Government (Dept of

Deleted:

Deleted:

Revised - Private Support

Total Revenues (net of cap

Federalization Revenue

Total Expenses (net of capi

Pre-Depreciation Surplus/

Depreciation

Post-Depreciation Surplus

Revised - Private Support

Total Revenues (net of capFederalization Revenue

Total Expenses (net of capi

Pre-Depreciation Surplus/

Depreciation

Post-Depreciation Surplus

Comment [CB1]: LPS provided updated

forma on 01/14/11: it does not include

Deleted:

Deleted: , if legislation approving federa

Deleted: has

Deleted: ve

Deleted:

Deleted: must be

Deleted: S

Deleted: sponsorDeleted: Federalization

Deleted: Federalization

Deleted: sponsor

Deleted: pro-forma


Deleted: loss

Deleted: , and the Sponsor-prepared

Deleted: ing

Deleted: pre-federalization

Deleted: losse

Deleted: s exceeding ($1.8M) for the ou

Deleted: balances

Deleted: if

Deleted: d

Deleted: effect

Deleted: ..

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Education), the City Government, Corporations, Board members and individuals would have to be

contributed. In a slow growing or uncertain economy this may not be plausible to the extent the FreedomCenter is projecting.SponsorFederalization would result in the Facility being gifted to the Federal Government (free and clear of anyliens; it is not yet clear what will be required regarding the Commissions property interest in the facility. TheCommission 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 theending of chattel slavery in the United States.

According to the Sponsor, if federalization takes place, the Freedom Center expects to receiveapproximately $3M/year in federal operating revenues on a permanent basis, enabling the Freedom Centerto 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, Senator Sherrod Brown supportsthe legislation that was discussed in draft form in October of 2009, and the Freedom Center management ishopeful 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 [September30, 2011].

Even if the effort to secure federalization is successful, there remains a challenge in meeting operating cashflow needs until such time as the Federal funds are received. A review of the liquidity position calls intoquestion 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 schedules that starts in the fourthquarter of 2010 and ends at the fourth quarter 2011 and another cash flow for fiscal year 2012. The cashflowsexclude federalization funds and assumes Commission funding of $850K and the return of the $462Kescrow in February of 2011. Each cash flow indicates positive cash balances throughout 2011 and 2012 iffinancial projections are met.

Deleted:

Deleted: It appears that the Freedom Cin danger of not continuing is a going conunless federalization is realized or anextraordinary set of

Deleted: sponsor

Deleted: ships or gifts are received.

Comment [kf2]: TC/CB evaluate accurasentence based upon new business plan


Deleted: sponsor

Deleted: optimistic

Deleted: a


Comment [kf3]: CB/TC verify

Deleted: and

Deleted: until federalization is anticipattake place in October of 2011, at which tFreedom Center would possibly receive federal funding.

Comment [kf4]: Need to update based upcash flow and business plan

Comment [kf5]: This phrase may no lonrelevant

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Proportion of Revenue

Revenue Category FYE09 YTD10 2011 Est 2012 Est 2013 Est 2014 EstPrivate Support 21% 62% 49% 71% 67% 69%

Government 22% 15% 29% 4% 7% 6%Earned 57% 23% 20% 23% 23% 23%Other 0% 0% 1% 2% 3% 3%

Total 100% 100% 100% 100% 100% 100%

Trends in Operating Results($ Thousands) FYE09 YTD10 2011 Est 2012 Est 2013 Est 2014 Est

Operating Revenues

Private SupportBoard Support 750.0 880.0 900.0 950.0Individuals 303.0 305.0 308.0 311.0

Corporations 625.0 705.0 720.0 730.0Trust/Foundations/Charities 650.0 948.0 963.0 973.0MLK 38.9 20.0 20.0 125.0

IFCA, net 150.0Total Private Support 1,159.3 3,083.8 2,366.9 3,008.0 2,911.0 3,089.0Year-over-year change 166% -23% 27% -3% 6%

Government

Department of Education 275.0 50.0 200.0 150.0OCFC 850.0 0.0

City of Cincinnati 300.0 100.0 100.0 100.0Total Government 1,182.4 744.4 1,425.0 150.0 300.0 250.0Year-over-year change -37% 91% -89% 100% -17%

Earned IncomeAdmissions 595.0 600.0 619.0 631.0Facility Rental 190.0 200.0 198.0 202.0

Retail 140.0 140.0 146.0 149.0Membership 40.0 40.0 42.0 43.0Caf 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 1,040.0Year-over-year change -62% -16% 2% 2% 2%

Other Income 70.0 100.0 115.0 130.0Year-over-year change NC NC 43% 15% 13%

Total Revenues 5,449.7 5,000.0 4,841.9 4,258.0 4,346.0 4,509.0

Year-over-year change -8% -3% -12% 2% 4%

Expenses

Total Personnel Costs 4,078.6 2,835.4 2,453.2 2,085.2 2,127.0 2,170.0Total Non-personnel Costs 4,078.6 2,835.4 2,709.2 2,167.4 2,211.0 2,255.0

Tota l Expenses 8,157.1 5 ,670.9 5,162.4 4 ,252.6 4,338 .0 4,425 .0

Year-over-year change -30% -9% -18% 2% 2%

NET SURPLUS/(DEFICI T) (2,707.4) (670.8) ( 320.5) 5.4 8.0 84.0

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

Revenue ($000)

Total Earned Income

Total Government

Total Private Support

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

9,000.0

Expenses ($000)

Total Non-personnelCosts

Total Personnel Costs

0%

20%

40%

60%

80%

FYE09 YTD10 2011Est

2012Est

2013Est

2014Est

Proportion of Revenue

Private Support

Government

Earned

Other

In reviewing the projected cash flow, Commission staff notes that projected operating cash outflows aresignificantly less than recent actual operating costs shown in the prior year audit and the YTD financialstatements. The projected decreases are due to cuts in fundraising and professional lobbying expenses. Inresponse to inquiries as to how projected fundraising cash inflows will be achieved when cutting fundraisingexpenses, the Sponsor responded that they hired a new director of development, which should enable theFreedom Center to cut fundraising costs while achieving their fundraising goals. The Sponsors responseregarding the impact of cutting professional lobbying expenditures before federalization is secured was toclarify 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 cashinflows must continue to be realized at a level which has only recently been accomplished, as indicated bythe year to date financials, but which is substantially higher than years past. In evaluating the FreedomCenters ability to achieve the fundraising cash inflow, Commission staff notes the Freedom Center and newdirector of development must contend with a challenging environment for fundraising, including an uncertaineconomy, possible donor fatigue, and the effect the write down of the building may have on potential donorenthusiasm. Also, the fundraising outlook may be influenced positively by certain factors including the effectthe debt settlement has on donor perspective as well as the prospect of federalization. Commission staff

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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 if federalization is not successful theFreedom Center must achieve elevated fundraising levels while further reducing payroll and other operatingcosts. Because operating costs have been cut drastically in years past, theymay not realistically be cutmuch further,.. Nationally-recognized bond council created an amortization schedule for the outstandingprincipal related to the Sponsor. It was included as an appendix in the Second Amendment to the BaseLease dated July 1, 2008. According to this schedule, the dollar amount of outstanding bonds allocated tothe Freedom Center is $6.6M as of February 2011 out of an original balance of $14.7M. The outstandingbonds will be paid off by the state over the next 9 years. The unamortized balance of the state bondsdecreases by approximately $1M a year for the next several years. Therefore, the states exposuredecreases rather substantially each of the next several years. These calculations do not include the $850Kcurrently being considered for approval by the Commission. Commission staff evaluates the risk to the stateas high if the Sponsor were to stop operating in 2011 or 2012. Therefore, the alternative of not approvingthe $850K in state funds or the $462K in escrow fund and thereby exacerbating a very difficult financial

position may lead to closure of the Freedom Center before federalization can be approved or the newbusiness plan be implemented. Approval for the $850,000 and the $462,000 appears to be necessary tokeeping the Freedom Center open while they continue to pursue federalization or the implementation oftheir new business plan.

Because the states exposure regarding the unamortized amount of the bonds decreases substantially overthe next several years it behooves the Commission to enable the Freedom Center to continue operations.Accordingly, Commission staff recommends the approval of the $850K project and $462K escrow release.However, Commission staff recommends such an approval only conditionally in order to eliminate anyadditional risk. Commission staff recommends the Commission approve the Project contingent on executionof a guaranty in an amount equal to the current appropriation of $850,000. John Pepper, a founding boardmember of the Freedom Center and Chairman-emeritus of Proctor & Gamble, has agreed to sign theguaranty. Such a guaranty would ensure the Commission is not placing the new state funds at risk; inaddition, this contingent approval reduces the states risk associated with state funds previously paid outbecause 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 bondsdecreases to zero the state would utilize its first lien position and sell the facility (recently written down to$32M by the auditors)

The Commission holds approximately $460K in an escrow fund for a management transition in the eventthe Freedom Center is unable to continue to operate.. The Sponsor is requesting return of the $462K inescrowed funds, in exchange for a guaranty, signed by John and Frances Pepper, in an equal amount. Theguaranty would be called in if the Freedom Center defaults under its legal agreements with the Commissionand the guaranty funds would be used to pay costs of heating, cooling, insuring, and securing the buildinguntil such time as another organization could be identified to operate the building as a cultural facility.Commission staff notes that return of the $462K in escrowed funds in exchange for a guaranty in an equalamount places the Commission in a position equitable to the current position.

Finally, noteworthy for the Commissions deliberations regarding the Freedom Center, is the apparentFederal requirement that the Facility be free of al l liens in order for federalization to take place. As we

understand it, this criterion would require the Commission to release its property interest in the facility at thepoint in time when the federal government takes ownership and commits to providing operating funds. TheCommission may be prohibited, by the bond documents pertaining to the bond money which funded theoriginal appropriations, from releasing its property interest in the facility. Therefore, Commission staff isrecommending the Sponsor be required to provide an opinion from nationally recognized bond counsel on

Deleted: only one alternative is availabpotentially enable fulfillment of the overathat the Freedom Center facility continueoperate


Deleted: Since

Deleted: and

Deleted: can

Deleted: and because operating revenhave historically been insufficient to coveit appears that the most promising alternfederalization as contemplated by the Sp

Deleted: Commission staff calculated

Deleted: to beDeleted: 7.4

Deleted: October

Deleted: 2010

Deleted: 10

Deleted: sponsor

Deleted: Project

Comment [jd6]: TC & KF to revisit on 1

Deleted: implementing

Comment [kf7]: Discuss w/ KF rewritingparagraph

Comment [kf8]: CB/TC to redraft basednew business plan CB to review 1/17/11.

Deleted: Since

Deleted: the

Deleted: Commission staff also recommthe Commission require a business planapproved by the Freedom Center board,fallback arrangements in the event the Sprepared cash projections prove infeasib

Comment [kf9]: Need to revisit in light oinformation just received.

Comment [jd10]: TC & KF to revisit on

Deleted: The escrowed funds would beto pay costs of heating, cooling, insuringsecuring the building until such time as aorganization could be identified to operabuilding as a cultural facility

Deleted: first lien position on

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this subject 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 therelease the state funds in exchange for a guaranty in an equal amount. The issue of the release of theCommissions first lien position on the facility is a decision for a future point in time.

A review of the Sponsors solvency, liquidity, leverage, change in net assets and pro forma indicates it ismarginally likely the Sponsor will be able to operate the Facility and present culture to the public over asustained period of time in accordance with Section 3383.07 of the ORC.

See Exhibit E for a summary of the Sponsors financial statements.

Provision of General Building Services

Although experienced in the provision of general building services at the Facility, the Sponsor hasmarginal financial capacity to continue providing general building services at the Facility. Inanticipation of the Sponsor completing the proposed Facility transfer to the federal government,

Commission staff conditionally confirms the Sponsor continue to provide these services as permittedby section 3383.07 of the ORC.

Approval of the Project and Authorization of the Expenditure of Funds

Appropriation History:Appropriation

NameBill

NumberAppropriation

DateG.A. Appropriation

AmountComments

NationalUnderground

Railroad FreedomCenter

Am. Sub.H.B. 562

6/24/2008 127 $850,000 Funding this project.

NationalUnderground


Am. Sub.H.B. 699

12/28/2006 126 $2,000,000 Funded construction of thefreedom center.

NURFC H.B. 16 5/4/2005 126 $4,150,000 Funded construction of the

freedom center.National

UndergroundRailroad Freedom

Center

H.B. 675 12/13/2002 124 $4,000,000 Funded construction of thefreedom center.

Deleted: issue

Deleted:

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National

UndergroundRailroad Freedom

Center

Am. Sub.

H.B. 640

6/15/2000 123 $3,500,000 Funded construction of the

freedom center.

NationalUnderground


Am. Sub.H.B. 850

3/18/1999 122 $500,000 Funded construction of thefreedom center.

Cincinnati RiverfrontDevelopment

Am. H.B.748

9/17/1996 121 $166,668 Architectural fees andcontinuing development

work on the freedomcenter.

Cincinnati RiverfrontDevelopment

Am. H.B.748

9/17/1996 121 $333,332 Funded construction of thefreedom 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 ofResolution R-11-06, the approval of the Project and authorization of the expenditure of funds, subject to thefollowing conditions:

1) The Sponsor provides a guaranty by John and Frances Pepper inconformance with the Commissions standard form guaranty document,guaranteeing the $850,000 appropriation;

2) The Sponsor provides a guaranty by John and Frances Pepper inconformance with the Commissions standard form guaranty document,guaranteeing an amount equal to the current amount held in escrow, inexchange for return of the escrow funds;

3) Prior to federalization the Sponsor provides to the Ohio Public FacilitiesCommission (the OPFC), the Treasurer of State and the Commission an

opinion of nationally recognized bond counsel, acceptable to the Treasurer ofState, and addressed to the OPFC, the Treasurer of State and theCommission, stating that the financing structure, ownership and/oroperational/management structure will not a) adversely affect the validity ofthe state-issued tax-exempt bonds; and b) will not adversely affect theexclusion of the interest on the state-issued tax-exempt bonds from the grossincome of the holders of the state-issued tax-exempt bonds for federalincome tax purposes;

4) Prior to federalization, the new financing structure, ownership and/oroperational/management structure for the project and Sponsor organization isapproved as acceptable to the Commission Secretary-Treasurer, in his/hersole 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; confirmsubstantial regional support; confirm the provision of general building services; approve the project and

Formatted: Indent: Left: 0.75", No bunumbering

Comment [kf11]: Add to Resolution

Deleted: The Sponsor provides a business plapproved by the Freedom Center board directors, addressing the necessary stepFreedom Center will have to undertake ito meet the potential needs should the Sprepared projected cash flow positive banot be met;

Comment [jd12]: TC & KF to revisit on

Comment [kf13]: Need to revisit given rprovided info?

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authorize the expenditure of funds and return of the escrow, pending certain requirements; and authorize the

execution of legal agreements.

Chief Analyst Chief 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

Comment [kf14]: Add to Resolution

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Page 6: [1] Comment [CB1] Chris Bruner 1/ 18/ 2011 8:03:00 AM

LPS provided updated pro forma on 01/14/11: it does not include federalization. These can be deleted.

Page 6: [2] Deleted Chris Bruner 1/ 18/ 2011 7:47:00 AM

Footnote: According to the sponsor

Page 6: [3] Deleted Chris Bruner 1/ 18/ 2011 7:47:00 AM

, if legislation approving federalization is passed prior to September 30, 2011, $3M will be remitted by the federal government to the Freedom Centerimmediately. 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.

Page 6: [4] Deleted tonyc 1/ 18/ 2011 9:07:00 AM

s exceeding ($1.8M) for the out years.

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