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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: Under NURFCs current operating structure, sustainability is an issue. NURFC is

working with the federal government to establish a federal museum and oversightcommission to commemorate the ending of chattel slavery in the United States.A discussion draft of this legislation was completed in October 2009. Preliminaryterms include the gifting of the facility to the United States government and theUnited States government, via an appointed board of trustees, operating thefacility in cooperation with the Secretary of the Interior and other federalagencies. This legislation is expected to pass in 2011.

Facility Overview: The Center consists of a 160,000-square-foot facility located on the Cincinnatiriverfront. Features of the facility include a museum, interactive story theaters,computer networking to other Underground Railroad sites, arts and educationfacilities, and a public forum space.

The Center is owned and operated by the Sponsor, as 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 the

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Underground Railroad to contemporary times, challenging and inspiring everyoneto take courageous steps for freedom today.

Project Information

Scope: The Freedom Center has recently been written down to a value of $32M. It wasopened in August 2004, and features three pavilions celebrating courage, cooperation,and perseverance. The current appropriation will reimburse the Sponsor forconstruction expenses previously incurred but not yet reimbursed (the Project). Theproject consists of reimbursing $850,000 on an appropriation awarded in H,B. 562 andrelease of approximately $460,000 of escrow monies held under the original baselease.

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.

Amount

$0

$0

$0

$0

$0

$34,000,000

$0

$4,500,000

$12,000,000

$0

$0

$50,500,000

$7,750,000

City Government

Source

Cash-on-Hand

Funds Already Expended on Project

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

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Funding Model

Amount Substantiation

$15,500,000

$0

$63,000,000$0

$6,000,000

$22,200,000

$11,650,000 $7,750,000 not substantiated

$106,700,000

$117,744,000

Source

State Funding

Total Funding Sources

Total Project Budget

Cash-On-Hand

Private ContributionsCounty Government

City Government

Federal Government

Other (future investment

income)

Project Need

Operating Pro Forma Summary

Revised - Private Support Escalating

FYE11 FYE12 FYE13 FYE14 FYE15

Total Revenues (net of capital income raised) $ 4,566,900 $ 6,870,000 $ 7,523,000 $ 7,627,000 $ 7,731,000

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 $ - $ - $ - $ - $ -

Post-Depreciation Surplus/(Deficit) $ (1,098,500) $ 1,148,000 $ 1,744,000 $ 1,790,000 $ 1,835,000

Revised - Private Support Flat

FYE11 FYE12 FYE13 FYE14 FYE15

Total Revenues (net of capital income raised) $ 4,363,900 $ 6,364,000 $ 6,964,000 $ 7,015,000 $ 7,066,000

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 $ - $ - $ - $ - $ -

Post-Depreciation Surplus/(Deficit) $ (1,301,500) $ 642,000 $ 1,185,000 $ 1,178,000 $ 1,170,000

The Freedom Center is in danger of not continuing as a going concern and, accordingly, the consortium ofbanks which previously held the debt for the Freedom Center have exchanged $47M in bond debt for

approximately $24M the Freedom Center was holding in investments. The net result of the bond settlementis an extraordinary gain of approximately $23M in YTD10. Also, material to the Freedom Centers financialposition is the adjustment of the carrying value of the building on the FYE09 financial statement. Theprevious balance of $78M in FYE08 was written down to $32M in FYE 09 as a result of FAS 144, the GAAPpronouncement applicable toAccounting for the Impairment or Disposal of Long-Lived Assets. Additionally,the Freedom Center continues to operate at a deficit, as is evidenced by a pre-depreciation, preextraordinary gain, operating deficit of ($700K) at YTD10, a pre-depreciation loss of ($3.9M) at FYE 09,operating deficits in previous years and the sponsor prepared pro-forma indicating pre-federalization lossesexceeding ($1.8M) for the out years. Federalization is the prospect that the facility will be gifted to the

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Federal Government (free and clear of any liens) and use the Freedom Center to operate a museumcommemorating the ending of chattel slavery in the United States. And, according to the sponsor, ifFederalization takes place the Freedom Center should receive approximately $3M/year in operatingrevenues on a permanent basis enabling the Freedom Center to generate operating surpluses starting at$1.15M for each twelve month period opening October 1, 2011, the Federal fiscal year. Therefore, whenreviewing the Freedom Centers sustainability staff heavily considers the probability of a successful

Federalization of the Freedom Center. According to the sponsor, the most updated information we currentlyhave available indicates that Senator Sherrod Brown is backing the legislation which was discussed in draftform in October of 2009 and the Freedom Center management is optimistic that the legislation will bepassed. However, if Federalization is successful there remains a pending issue regarding cash flow needsbeing met until Federal funds are received. A review of the liquidity position calls into question the ability ofthe Freedom Center to meet its obligations into the first quarter 2011 and beyond. Currently, staff is waitingfor a cash flow schedule from fourth quarter 2010 through the period when Federal funds would be received.However, correspondence from the sponsor indicates cash may be depleted in the first quarter of 2011.Part of the solution to the sponsors anticipated cash flow concerns may lie with the Freedom Centersrenewed ability to raise funds. Although the Freedom Center must contend with negative influencesaffecting fundraising, including an uncertain economy, possible donor fatigue and the affect the write downof the building may have on potential donor perspective the fundraising outlook also includes positive

influences, including the effect the bond settlement has on donor perspective as well as the very realprospect of Federalization. A recent spike in fundraising has enabled the Freedom Center to close the gapon its operating losses, so much so that the sponsor believes the Freedom Center may break even by yearend.

In formulating the staff recommendation to the Commission staff bases its rationale focusing on theultimate objective of the Commission, that is to have the Freedom Center facility provide culture for the nextfifteen years. Since operating costs, which have been cut drastically in years past cannot realistically be cuttoo much further and because operating revenues have historically been insufficient to cover costs, staffbelieves the most promising option to achieve the Commissions objective relies on successfulFederalization. The alternative of not approving the Commission funds and thereby exacerbating a direfinancial position may lead to the demise of the Freedom Center and the unenviable position of the stateowning a singular use building, the use being a museum in a City that already has the successful Cincinnati

Museum Center. Staff views the approval for the $850,000 project and $460,000 escrow release asgetting the Freedom Center closer to Federalization and ultimately closer to the Commission realizing itsobjective. However, if the Commission were to approve the funds and Federalization not succeed theCommission would be responsible for placing those additional funds at risk. Accordingly, staff isrecommending the Commission approve the project and release of the escrow funds contingent on aguarantee, acceptable to the executive director at her sole discretion on both the appropriation of $850,000and the escrow release of approximately $462,000. Also staff recommends the Commission require aboard approved business plan addressing cash flow concerns from fourth quarter 2010 throughFederalization and until a positive cash and working capital position can be re-established. Finally,noteworthy for the Commissions deliberations regarding the Freedom Center is the Federal requirementthat the facility be free of all liens in order for Federalization to take place. This criteria would require theCommission release its first lien position on the facility. However, as stated previously, staff believes the

best option to the facility providing culture for the next fifteen years relies on Federalization and theexchange of the first lien position for Federalization is a worthy one.

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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:

AppropriationName

BillNumber

AppropriationDate

G.A. AppropriationAmount

Comments

NationalUnderground

Railroad FreedomCenter

Am. Sub.H.B. 562

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

NationalUnderground

Railroad FreedomCenter

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 thefreedom center.

NationalUnderground

Railroad FreedomCenter

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

NationalUnderground

Railroad FreedomCenter

Am. Sub.H.B. 640

6/15/2000 123 $3,500,000 Funded construction of thefreedom center.

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NationalUnderground

Railroad FreedomCenter

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 Riverfront

DevelopmentAm. H.B.

7489/17/1996 121 $333,332 Funded construction of the

freedom center.

Total $15,500,000

Recommendation: The materials submitted by the Sponsor were reviewed and analyzed, and theCommission project analyst, project managers, and executive director recommend approval of Resolution R-10-17 and recommend the approval of the Project and authorization of the expenditure of funds.

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

substantial regional support; determine the provision of general building services; approve the project andauthorize the expenditure of funds, pending certain requirements; and authorize the execution of legalagreements.

Chief Analyst Project Manager

Executive Director

Exhibits

A Provision of Culture

B Detailed Project Budget

C Facility Project Info

D Project Team Resumes and qualifications

E Financial Statements

F Evidence of Local Match