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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. Preliminary

terms 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 everyone

to take courageous steps for freedom today.

Project Information

Scope: The Freedom Center has recently been written down to a value of $32M at FYE09. Itwas opened in August 2004, and features three pavilions celebrating courage,cooperation, and perseverance. The current appropriation will reimburse the Sponsorfor construction expenses previously incurred but not yet reimbursed (the Project).The project consists of reimbursing $850,000 on an appropriation awarded in H,B. 562and release of approximately $462,000 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 ofthe 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 Contributions

County Government

City Government

Federal Government

Other (future investment

income)

Project Need

Financial Assessment

Commission staff analyzed the Sponsors 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$

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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 thecalculation could have the effect of artificially inflating the current ratio.) A current ratio of greater than 1:1 isconsidered acceptable.

YTD10 % Change FYE09 % Change FYE08

Current Ratio 5.258.58%

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% $ 10,584,822

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)

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 investments) $ 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

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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 $ 1,170,000Depreciation $ (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)

The Freedom Center is in dire financial straits.

Knowing that the Center is in danger of not continuing as a going concern, a consortium of banks thatpreviously 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 settlement is anextraordinary gain of approximately $24M in YTD10.

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 theImpairment 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 loss of ($3.9M) at FYE09,operating deficits in previous years, and the Sponsor-prepared pro forma indicating pre-Federalizationlosses exceeding ($1.8M) for the out years.

Federalization is the prospect that the Facility will be gifted to the Federal Government (free and clear of anyliens), and the U.S. Government will use the Freedom Center to operate a museum commemorating theending of chattel slavery in the United States.

According to the sponsor, if Federalization takes place, the Freedom Center should receive approximately$3M/year in operating revenues on a permanent basis enabling the Freedom Center to generate operatingsurpluses starting at $1.15M for each twelve month period opening October 1, 2011, the beginning of thenext Federal fiscal year. Therefore, when reviewing the Freedom Centers sustainability staff heavilyconsiders the probability of a successful Federalization of the Freedom Center. According to the Sponsor,

the most updated information we currently have available indicates that Senator Sherrod Brown is backingthe legislation that was discussed in draft form in October of 2009, and the Freedom Center management isoptimistic that the legislation will be passed. The Sponsor anticipates that the funds would be received inthe [fourth] quarter of 2011, if [it is] successful in getting the language signed and passed prior to

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[September 30, 2011]. Even if Federalization is successful, there remains a pending issue regarding cash

flow needs being met until 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.Currently, staff is waiting for a cash flow schedule from fourth quarter 2010 through the period when Federalfunds would be received. Correspondence from the Sponsor indicates cash may be depleted in the firstquarter of 2011. Part of the solution to the sponsors anticipated cash flow problem may lie with theFreedom Centers renewed ability to raise funds. Although the Freedom Center must contend with negativeinfluences affecting fundraising, including an uncertain economy, possible donor fatigue, and the affect thewrite down of the building may have on potential donor perspective, the fundraising outlook also includespositive influences, including the affect the bond settlement has on donor perspective as well as the veryreal prospect of Federalization. A recent spike in fundraising has enabled the Freedom Center to close thegap on its operating losses, so much so that the sponsor believes the Freedom Center may break even byyear end.

In formulating the staff recommendation to the Commission, staff bases its rationale on the strategy webelieve will most likely enable the Commission to meet its ultimate objective: to have the Freedom Center

Facility provide culture for the next fifteen years. Because operating costs, which have been cut drasticallyin years past, cannot realistically be cut too much further and because operating revenues have historicallybeen insufficient to cover costs, staff believes the most promising option to achieve the Commissionsobjective relies on successful Federalization. The alternative of not approving the Commission funds andthereby exacerbating a dire financial posit ion may lead to the demise of the Freedom Center and theunenviable position of the state owning a singular-use building, the use being a museum in a city thatalready houses the successful Cincinnati Museum Center. Staff views the approval for the $850,000 (TheProject) and $462,000 escrow release as getting the Freedom Center closer to Federalization andultimately closer to the Commission realizing its objective.

However, if the Commission were to approve the funds and Federalization did not come to fruition, 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. Such a guarantee would ensure the Commission is

placing the yet-to-be-approved state funds at no greater risk than they are currently andin factlessensthe states risk associated with $14.5M of appropriations previously approved as the Freedom Center movescloser to Federalization. Also, staff recommends the Commission require a board-approved business planaddressing cash flow concerns from fourth quarter 2010 through Federalization and until a projectedpositive cash and working capital position can be re-established. Finally, noteworthy for the Commissionsdeliberations regarding the Freedom Center, is the Federal requirement that the Facil ity be free of all liens inorder for Federalization to take place. This criterion would require the Commission to release its first lienposition on the facility. As stated previously, staff believes the best option to ensure the Facility providesculture for the next fifteen years relies on Federalization, and the exchange of the first lien position forFederalization is a worthy one.

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.

Deleted:

The Freedom Center is in danger of notcontinuing as a going concern. Accordinconsortium of banks which previously hedebt for the Freedom Center have excha$47M in bond debt for approximately $2Freedom Center was holding in investmeThe net result of the bond settlement is aextraordinary gain of approximately $24MYTD10. Also, material to the Freedom Cfinancial position is the adjustment of thecarrying value of the building on the FYEfinancial statement. The previous buildibalance of $78M in FYE08 was written d$32M in FYE 09 as a result of FAS 144, GAAP pronouncement applicable toAccfor the Impairment or Disposal of Long-LAssets. Additionally, the Freedom Centecontinues to operate at a deficit, as is evby a pre-depreciation, pre extraordinary operating deficit of ($670K) at YTD10, a

depreciation loss of ($3.9M) at FYE 09,operating deficits in previous years and tsponsor prepared pro-forma indicating pfederalization losses exceeding ($1.8M)out years. Federalization is the prospecthe facility will be gifted to the FederalGovernment (free and clear of any liens)the U.S. Government will use the FreedoCenter to operate a museum commemothe ending of chattel slavery in the UniteStates. According to the sponsor, ifFederalization takes place the Freedom should receive approximately $3M/year operating revenues on a permanent basenabling the Freedom Center to generatoperating surpluses starting at $1.15M fotwelve month period opening October 1,the beginning of the next Federal fiscal yTherefore, when reviewing the FreedomCenters sustainability staff heavily consthe probability of a successful Federaliza

the Freedom Center. According to the sthe most updated information we currentavailable indicates that Senator Sherrodis backing the legislation which was discin draft form in October of 2009 and theFreedom Center management is optimisthe legislation will be passed. The Sponanticipates that the funds would be recethe 4th quarter of 2011, if [it is] successfugetting the language signed and passed9-30-11. However, if Federalization issuccessful there remains a pending issuregarding cash flow needs being met unFederal funds are received. A review ofliquidity position calls into question the athe Freedom Center to meet its obligatiothe first quarter 2011 and beyond. Currestaff is waiting for a cash flow schedule ffourth quarter 2010 through the period wFederal funds would be received. Howecorrespondence from the sponsor indicacash may be depleted in the first quarter2011. Part of the solution to the sponsoanticipated cash flow concerns may lie wFreedom Centers renewed ability to raisfunds. Although the Freedom Center mcontend with negative influences affectin

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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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National

UndergroundRailroad Freedom

Center

Am. Sub.

H.B. 850

3/18/1999 122 $500,000 Funded construction of the

freedom 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 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; determinesubstantial 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

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The Freedom Center is in danger of not continuing as a going concern. Accordingly, the consortium ofbanks which previously held the debt for the Freedom Center have exchanged $47M in bond debt forapproximately $24M the Freedom Center was holding in investments. The net result of the bond settlementis an extraordinary gain of approximately $24M 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 building balance of $78M in FYE08 was written down to $32M in FYE 09 as a result of FAS 144,the GAAP pronouncement applicable toAccounting 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 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 theFederal Government (free and clear of any liens) and the U.S. Government will use the Freedom Center tooperate a museum commemorating the ending of chattel slavery in the United States. According to thesponsor, if Federalization takes place the Freedom Center should receive approximately $3M/year inoperating revenues on a permanent basis enabling the Freedom Center to generate operating surplusesstarting at $1.15M for each twelve month period opening October 1, 2011, the beginning of the next Federalfiscal year. Therefore, when reviewing the Freedom Centers sustainability staff heavily considers theprobability of a successful Federalization of the Freedom Center. According to the sponsor, the mostupdated information we currently have available indicates that Senator Sherrod Brown is backing the

legislation which was discussed in draft form in October of 2009 and the Freedom Center management isoptimistic that the legislation will be passed. The Sponsor anticipates that the funds would be received inthe 4th quarter of 2011, if [it is] successful in getting the language signed and passed prior to 9-30-11.However, if Federalization is successful there remains a pending issue regarding cash flow needs being metuntil the Federal funds are received. A review of the liquidity position calls into question the ability of theFreedom Center to meet its obligations into the first quarter 2011 and beyond. Currently, staff is waiting fora 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 on the strategywe believe will most likely enable the Commission to meet its ultimate objective, that is to have the FreedomCenter facility provide culture for the next fifteen years. Since operating costs, which have been cutdrastically in years past cannot realistically be cut too much further and because operating revenues havehistorically been insufficient to cover costs, staff believes the most promising option to achieve theCommissions objective relies on successful Federalization. The alternative of not approving theCommission funds and thereby exacerbating a dire financial position may lead to the demise of theFreedom Center 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. Staff views the approvalfor the $850,000 The Project and $462,000 escrow release as getting the Freedom Center closer toFederalization and ultimatel closer to the Commission realizin its ob ective. However if the Commission

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Project and release of the escrow funds contingent on a guarantee, acceptable to the executive director ather sole discretion on both the appropriation of $850,000 and the escrow release of approximately$462,000. Such a guarantee would ensure the Commission is placing the yet to be approved state funds atno greater risk than they are currently in and, in fact the states risk lessens the risk associated with $14.5 Mof appropriations previously approved as the Freedom Center moves closer to Federalization. Also staffrecommends the Commission require a board approved business plan addressing cash flow concerns fromfourth quarter 2010 through Federalization and until a projected positive cash and working capital positioncan be re-established. Finally, noteworthy for the Commissions deliberations regarding the FreedomCenter is the Federal requirement that the facility be free of all liens in order for Federalization to take place.This criteria would require the Commission 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 onFederalization and the exchange of the first lien position for Federalization is a worthy one.

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.