Project Analysis and Staff Recommendation

National Underground Railroad Freedom Center

Commission Assessment Team: Tony Capaci, chief analyst and Amy Rice, chief project manager

National Underground Railroad Freedom Center 50 E. Freedom Way

Cincinnati, Hamilton County
Facility and Project Sponsor Information

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. The Commission
is holding in escrow approximately $462K, provided by the Sponsor, in the event
the Sponsor is unable to continue to operate the facility. .The Sponsor is Deleted: In such an unfortunate event, these
requesting return of the escrowed funds in exchange for a guaranty in an equal escrowed funds would be used to heat, cool,
secure and insure the facility until a new cultural
amount. The guaranty funds would be used to heat, cool, secure and insure the organization user could be identified
facility until a new cultural organization user could be identified, or the building
sold to satisfy the Freedom Center’s obligation to return to the Commission the
amount of any outstanding unamortized bonds.

On February 11, 2010, the Commission authorized a Memorandum of

Understanding (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 Congressional
approval to federalize the facility, and federal funding will be provided for a
portion of the annual operating costs. NURFC’s vision is that the federal

Ohio Cultural Facilities Commission National Underground Railroad Freedom Center

1st Quarter 2011 Meeting Page 1 of 12
 government will establish a federal museum and an oversight commission to
commemorate the ending of chattel slavery in the United States. A discussion
draft of this legislation was completed in October 2009. Preliminary terms include
gifting the facility to the United States government and the United States
government, via an appointed board of trustees, operating the facility in
cooperation with the Secretary of the Interior and other federal agencies. The
federal legislation has not been approved, but the Freedom Center anticipates it
will be approved in 2011.

Subsequent to the February 2010 Commission approval of the MOU, the

Freedom Center has eliminated its debt, developed alternate plans for continuing
its operations, and has offered to provide a guaranty to secure the $850K
appropriation. Commission staff recommends approval of the $850K
appropriation, contingent on the Sponsor providing a guaranty for the $850K and
a business plan outlining operational contingencies in the event federalization is
delayed.

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). Matching resources were
substantiated in November 2008. On October 9, 2001, Substantial Regional Support was confirmed by
the Commission in resolution R-01-26. The following table is provided for informational purposes.

Ohio Cultural Facilities Commission National Underground Railroad Freedom Center

1st Quarter 2011 Meeting Page 2 of 12
 Source Amount
Cash-on-Hand $0
Funds Already Expended on Project $0
Irrevocable Written Pledges $0
In-Kind Contributions (up to 50%) $0
Operating Endowment $0
Private Contributions $34,000,000
County Government $0
City Government $4,500,000
Federal Government $12,000,000
Site Valuation $0
Other $0
Total Matching Resources $50,500,000
Minimum Match $7,750,000

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.

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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 the
consortium of banks settled $47M bond debt in exchange for $24M held in investments (a second
position lien on the facility was held as collateral; the Sponsor states that the lien has been released)
The second event is that, appurtenant to GAAP because the asset’s value is ‘impaired,’ management
wrote down the carrying value of the facility from $78M to $32M at FYE09. Therefore when analyzing
the funding for the project, Commission staff reviewed a completed project valued at $32M without any
debt, and calculated that the project is fully funded.

Project Need

Commission staff analyzed the Sponsor’s financial statements, including the following:
• internally generated financial statements for year-to-date September 30, 2010 ("YTD10")
• audited financial statements for fiscal-years-ending December 31, 2009 and 2008 (“FYE09”
and "FYE08")
• five-year pro forma

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 assets
are positive (YTD10 total assets are $35.9M; total liabilities are $0.6M).

YTD10, the Sponsor had no debt; therefore, a viability ratio was not calculated.

Liquidity:
Liquidity relates to availability of, access to or convertibility to cash. A test of liquidity is current ratio (current
assets divided by current liabilities), which indicates how many times over the entity can pay its current
liabilities with its current assets. (Note: Restricted current assets were not used to calculate the current ratio
because they generally are not available to service current liabilities. Including restricted current assets in the

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1st Quarter 2011 Meeting Page 4 of 12
 calculation could have the effect of artificially inflating the current ratio.) A current ratio of greater than 1:1 is
considered acceptable.
YTD10 % Change FYE09 % Change FYE08
Current Ratio 5.25 8.58% 4.84 -32.58% 7.17

The Sponsor’s YTD10 working capital is $2.7M). Days of cash-on-hand (an indication of how many days an
organization can pay expenses if its revenue stream ceases) at 22 is lower than the 30-day norm.

Leverage:
Leverage is the degree to which a Sponsor is borrowing money. A measure of leverage is debt ratio (debt Deleted: sponsor
divided 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)
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)

Pro Forma Review:

A pro forma review is a projection showing anticipated expenses and revenues for the period.

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 Operating Pro Forma Summary Comment [CB1]: LPS provided updated pro
Revised - 01/14/2011 forma on 01/14/11: it does not include ... [1]
FYE11 FYE12 FYE13 FYE14 Deleted: ¶

Revised - Private Support Escalat

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)
Total Revenues (net of capital incom
Pre-Depreciation Surplus/(Deficit) $ (320,516) $ 5,411 $ 8,000 $ 84,000
Federalization Revenue
Depreciation $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576)
Total Expenses (net of capital expen
Post-Depreciation Surplus/(Deficit) $ (3,646,092) $ (3,320,165) $ (3,317,576) $ (3,241,576) Sp Pre-Depreciation Surplus/(Deficit)
onsor Depreciation
Post-Depreciation Surplus/(Defici
In assessing the Freedom Center’s sustainability staff reviewed the impact of several events which occurred
over the last several years which affect the Freedom Center’s current financial position. Arguably, the most Revised - Private Support Flat
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 Total Revenues (net of capital incom
revenue. This is a one-time gain and is not operating revenue. The net result of the bond settlement is an Federalization Revenue
extraordinary gain of approximately $24M in YTD10 and the elimination of interest expense and bank fees Total Expenses (net of capital expen
going forward. Pre-Depreciation Surplus/(Deficit)
Depreciation
The Freedom Center is lobbying Congress to pass legislation whereby the Freedom Center would be ‘gifted’
Deleted: Post-Depreciation Surplus/(Defici
to the Federal Government and the Federal Government would contribute $3M of operating revenue for the
Deleted: ¶ ... [2]
continued operations. Per a review of one of the Sponsor’s projections federalization would result in a net
operating surplus of approximately $1.5M. However, due to the uncertainty of such legislation passing, Deleted: , if legislation approving federalization
... [3]
Commission staff analyzed the Freedom Center’s sustainability as if federalization will not occur and only Deleted: has
included the Sponsor’s pro forma which does not account for federalization, for the Commission review. Deleted: ve
Deleted:
Also material to the Freedom Center’s financial position is the adjustment of the carrying value of the
Deleted: must be
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 Deleted: S
Impairment or Disposal of Long-Lived Assets. Deleted: sponsor
Deleted: Federalization
Additionally, the Freedom Center continues to operate at a deficit, as is evidenced by a pre-depreciation,
Deleted: Federalization
pre-extraordinary gain operating deficit of ($670K) at YTD10, a pre-depreciation deficit of ($3.9M) at FYE09,
Deleted: sponsor
and operating deficits in previous years. However, the Executive Committee has approved a new budget
and business plan for FYE 2011 and FYE 2012 whereby small pre-depreciation surpluses are projected in Deleted: pro-forma
the out years, although the pro forma indicates a pre-depreciation deficit of ($320K) for FYE11 This Deleted: Federalization
business model, which indicates the Freedom Center can be sustainable without federalization, relies on Deleted: loss
further operating cost cuts and maintaining elevated levels of private support (as compared to FYE 09) in
Deleted: , and the Sponsor-prepared
FYE 2011 and FYE 2012. Actual results of private support increased from 2009 to YTD10 by substantial
Deleted: ing
margins, approximately 160% at YTD 10 (nine months of actual activity) and this increased level of private
support is projected to drop in 2011 and rise again in 2012 to approximately the 2010 results. Also, Deleted: pre-federalization
projected total operating costs in 2012 are about half of actual total operating costs in FYE09. Although the Deleted: losse
staff is cautiously optimistic regarding the approved 2011 and 2012 budgets and cash flows from the Deleted: s exceeding ($1.8M) for the out ... [4]
Executive Committee, Commission staff has its reservations as to whether fundraising levels can continue
Deleted: balances
to be maintained and operating costs reduced further. Noteworthy to staff’s assessment regarding
Deleted: if
fundraising projections is the Board Support projection of $750K for FYE 2011, $880K for FYE 2012 and
increased levels for the remaining years. Such support by the Board indicates confidence in the business Deleted: d
plan; however, staff’s reservations are primarily due to the affect the economy typically has on non profits. In Deleted: effect
order to reach and maintain projected fundraising levels, funds from the Federal Government (Dept of Deleted: ..

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1st Quarter 2011 Meeting Page 6 of 12
 Education), the City Government, Corporations, Board members and individuals would have to be Deleted:
contributed. In a slow growing or uncertain economy this may not be plausible to the extent the Freedom
Center is projecting.
Sponsor Comment [kf2]: TC/CB evaluate accuracy of this
Federalization would result in the Facility being gifted to the Federal Government (free and clear of any sentence based upon new business plan

liens; it is not yet clear what will be required regarding the Commission’s property interest in the facility. The Deleted: It appears that the Freedom Center is
in danger of not continuing is a going concern
Commission has a leasehold interest, which was required under the “old” Ohio Building Authority bonds.) unless federalization is realized or an
Under the federalization scenario, the U.S. Government would operate the museum commemorating the extraordinary set of
ending of chattel slavery in the United States. Deleted: sponsor
Deleted: ships or gifts are received. ¶
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 Deleted: Federalization

to generate operating surpluses starting at $1.15M for each twelve month period beginning with October 1, Deleted: sponsor
2011, the start of the next Federal fiscal year. 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 Deleted: optimistic
[fourth] quarter of 2011, if [it is] successful in getting the language signed and passed prior to [September
30, 2011].”

Even if the effort to secure federalization is successful, there remains a challenge in meeting operating cash
flow needs until such time as the Federal funds are received. A review of the liquidity position calls into
question the ability of the Freedom Center to meet its obligations in the first quarter of 2011 and beyond.
Commission staff requested and reviewed a Sponsor-prepared cash flow schedules that starts in the fourth Deleted: a
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 assumes Commission funding of $850K and the return of the $462K Deleted: Federalization
escrow in February of 2011. Each cash flow indicates positive cash balances throughout 2011 and 2012 if Comment [kf3]: CB/TC verify
financial projections are met. Comment [kf4]: Need to update based upon new
cash flow and business plan
Comment [kf5]: This phrase may no longer be
relevant
Deleted: and
Deleted: until federalization is anticipated to
take place in October of 2011, at which time the
Freedom Center would possibly receive $3M in
federal funding.

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 Proportion of Revenue
Proportion of Revenue
Revenue Category FYE09 YTD10 2011 Est 2012 Est 2013 Est 2014 Est
Private Support 21% 62% 49% 71% 67% 69% 80%
Private Support
Government 22% 15% 29% 4% 7% 6% 60%
Earned 57% 23% 20% 23% 23% 23% Government
Other 0% 0% 1% 2% 3% 3% 40% Earned
Total 100% 100% 100% 100% 100% 100% 20% Other
0%
FYE09 YTD10 2011 2012 2013 2014
Est Est Est Est

Trends in Operating Results

($ Thousands) FYE09 YTD10 2011 Est 2012 Est 2013 Est 2014 Est

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

Other Income 70.0 100.0 115.0 130.0 7,000.0

Year-over-year change NC NC 43% 15% 13% 6,000.0
5,000.0
Total Revenues 5,449.7 5,000.0 4,841.9 4,258.0 4,346.0 4,509.0 Total Non-personnel
4,000.0 Costs
Year-over-year change -8% -3% -12% 2% 4%
3,000.0 Total Personnel Costs
Expenses 2,000.0
Total Personnel Costs 4,078.6 2,835.4 2,453.2 2,085.2 2,127.0 2,170.0 1,000.0
Total Non-personnel Costs 4,078.6 2,835.4 2,709.2 2,167.4 2,211.0 2,255.0 0.0
Total 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/(DEFICIT) (2,707.4) (670.8) (320.5) 5.4 8.0 84.0

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 cuts in fundraising and professional lobbying expenses. In
response to inquiries as to how projected fundraising cash inflows will be achieved when cutting fundraising
expenses, the Sponsor responded that they hired a new director of development, which should enable the Deleted: sponsor
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. Deleted: :
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 new
director of development must contend with a challenging environment for fundraising, including an uncertain
economy, possible donor fatigue, and the effect the write down of the building may have on potential donor
enthusiasm. Also, the fundraising outlook may be influenced positively by certain factors including the effect
the 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 the Deleted: only one alternative is available to
Freedom Center must achieve elevated fundraising levels while further reducing payroll and other operating potentially enable fulfillment of the overall goal
that the Freedom Center facility continue to
costs. Because operating costs have been cut drastically in years past, theymay not realistically be cut operate
much further,.. Nationally-recognized bond council created an amortization schedule for the outstanding Deleted: Federalization
principal related to the Sponsor. It was included as an appendix in the Second Amendment to the Base
Deleted: Since
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 Deleted: and
bonds will be paid off by the state over the next 9 years. The unamortized balance of the state bonds Deleted: can
decreases by approximately $1M a year for the next several years. Therefore, the states exposure Deleted: and because operating revenues
decreases rather substantially each of the next several years. These calculations do not include the $850K have historically been insufficient to cover costs,
it appears that the most promising alternative is
currently being considered for approval by the Commission. Commission staff evaluates the risk to the state federalization as contemplated by the Sponsor
as ‘high’ if the Sponsor were to stop operating in 2011 or 2012. Therefore, the alternative of not approving
Deleted: Commission staff calculated
the $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 new Deleted: to be
business plan be implemented. Approval for the $850,000 and the $462,000 appears to be necessary to Deleted: 7.4
keeping the Freedom Center open while they continue to pursue federalization or the implementation of Deleted: October
their new business plan. Deleted: 2010
Deleted: 10
Because the state’s exposure regarding the unamortized amount of the bonds decreases substantially over
the next several years it behooves the Commission to enable the Freedom Center to continue operations. Deleted: sponsor
Accordingly, Commission staff recommends the approval of the $850K project and $462K escrow release. Deleted: Project
However, Commission staff recommends such an approval only conditionally in order to eliminate any Comment [jd6]: TC & KF to revisit on 1/10/11
additional risk. Commission staff recommends the Commission approve the Project contingent on execution Deleted: implementing
of a guaranty in an amount equal to the current appropriation of $850,000. John Pepper, a founding board
Comment [kf7]: Discuss w/ KF rewriting this
member of the Freedom Center and Chairman-emeritus of Proctor & Gamble, has agreed to sign the paragraph
guaranty. Such a guaranty would ensure the Commission is not placing the new state funds at risk; in
Comment [kf8]: CB/TC to redraft based upon
addition, this contingent approval reduces the state’s risk associated with state funds previously paid out new business plan CB to review 1/17/11.
because the Freedom Center will have time to continue to seek federalization or another long term
Deleted: Since
operating strategy. Should the Freedom Center cease operations before the unamortized amount of bonds
Deleted: the
decreases to zero the state would utilize its first lien position and sell the facility (recently written down to
$32M by the auditors) Comment [kf9]: Need to revisit in light of new
information just received.

The Commission holds approximately $460K in an escrow fund for a “management transition” in the event Comment [jd10]: TC & KF to revisit on 1/10/11
the Freedom Center is unable to continue to operate.. The Sponsor is requesting return of the $462K in Deleted: Commission staff also recommends
escrowed funds, in exchange for a guaranty, signed by John and Frances Pepper, in an equal amount. The the Commission require a business plan,
approved by the Freedom Center board, with
guaranty would be called in if the Freedom Center defaults under its legal agreements with the Commission fallback arrangements in the event the Sponsor-
and the guaranty funds would be used to pay costs of heating, cooling, insuring, and securing the building prepared cash projections prove infeasible.
until such time as another organization could be identified to operate the building as a cultural facility. Deleted: The escrowed funds would be used
Commission staff notes that return of the $462K in escrowed funds in exchange for a guaranty in an equal to pay costs of heating, cooling, insuring, and
amount places the Commission in a position equitable to the current position. securing the building until such time as another
organization could be identified to operate the
building as a cultural facility
Finally, noteworthy for the Commission’s deliberations regarding the Freedom Center, is the apparent
Federal requirement that the Facility be free of all liens in order for federalization to take place. As we
understand it, this criterion would require the Commission to release its property interest in the facility at the Deleted: first lien position on
point in time when the federal government takes ownership and commits to providing operating funds. The
Commission may be prohibited, by the bond documents pertaining to the bond money which funded the
original appropriations, from releasing its property interest in the facility. Therefore, Commission staff is
recommending the Sponsor be required to provide an opinion from nationally recognized bond counsel on

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1st Quarter 2011 Meeting Page 9 of 12
 this subject prior to federalization and prior to the Commission releasing or subordinating its property Deleted: issue
interest. As stated previously, it appears that the lower risk alternative at this point in time is to approve the
release the state funds in exchange for a guaranty in an equal amount. The issue of the release of the
Commission’s first lien position on the facility is a decision for a future point in time.

A review of the Sponsor’s solvency, liquidity, leverage, change in net assets and pro forma indicates it is
marginally likely the Sponsor will be able to operate the Facility and present culture to the public over a Deleted:
sustained period of time in accordance with Section 3383.07 of the ORC.

See Exhibit E for a summary of the Sponsor’s financial statements.

Provision of General Building Services

Although experienced in the provision of general building services at the Facility, the Sponsor has
marginal financial capacity to continue providing general building services at the Facility. In
anticipation of the Sponsor completing the proposed Facility transfer to the federal government,
Commission staff conditionally confirms the Sponsor continue to provide these services as permitted
by section 3383.07 of the ORC.

Approval of the Project and Authorization of the Expenditure of Funds

Appropriation History: 
Appropriation Bill Appropriation G.A. Appropriation Comments
Name Number Date Amount
National Am. Sub. 6/24/2008 127 $850,000 Funding this project.
Underground H.B. 562
Railroad Freedom
Center
National Am. Sub. 12/28/2006 126 $2,000,000 Funded construction of the
Underground H.B. 699 freedom center.
Railroad Freedom
Center
NURFC H.B. 16 5/4/2005 126 $4,150,000 Funded construction of the
freedom center.
National H.B. 675 12/13/2002 124 $4,000,000 Funded construction of the
Underground freedom center.
Railroad Freedom
Center

Ohio Cultural Facilities Commission National Underground Railroad Freedom Center

1st Quarter 2011 Meeting Page 10 of 12
 National Am. Sub. 6/15/2000 123 $3,500,000 Funded construction of the
Underground H.B. 640 freedom center.
Railroad Freedom
Center
National Am. Sub. 3/18/1999 122 $500,000 Funded construction of the
Underground H.B. 850 freedom center.
Railroad Freedom
Center
Cincinnati Riverfront Am. H.B. 9/17/1996 121 $166,668 Architectural fees and
Development 748 continuing development
work on the freedom
center.
Cincinnati Riverfront Am. H.B. 9/17/1996 121 $333,332 Funded construction of the
Development 748 freedom center.
Total $15,500,000

Recommendation: The materials submitted by the Sponsor were reviewed and analyzed, and the
Commission chief financial analyst, chief project manager, and executive director recommend approval of
Resolution R-11-06, the approval of the Project and authorization of the expenditure of funds, subject to the
following conditions:

1) The Sponsor provides a guaranty by John and Frances Pepper in

conformance with the Commission’s standard form guaranty document,
guaranteeing the $850,000 appropriation;
Formatted: Indent: Left: 0.75", No bullets or
2) The Sponsor provides a guaranty by John and Frances Pepper in numbering
conformance with the Commission’s standard form guaranty document,
guaranteeing an amount equal to the current amount held in escrow, in
exchange for return of the escrow funds; Comment [kf11]: Add to Resolution
Comment [jd12]: TC & KF to revisit on 1/10/11
3) Prior to federalization the Sponsor provides to the Ohio Public Facilities Comment [kf13]: Need to revisit given recently
Commission (the “OPFC”), the Treasurer of State and the Commission an provided info?
opinion of nationally recognized bond counsel, acceptable to the Treasurer of Deleted: ¶
State, and addressed to the OPFC, the Treasurer of State and the <#>The Sponsor provides a business plan,
Commission, stating that the financing structure, ownership and/or approved by the Freedom Center board of
directors, addressing the necessary steps the
operational/management structure will not a) adversely affect the validity of Freedom Center will have to undertake in order
the state-issued tax-exempt bonds; and b) will not adversely affect the to meet the potential needs should the Sponsor-
exclusion of the interest on the state-issued tax-exempt bonds from the gross prepared projected cash flow positive balances
not be met;¶
income of the holders of the state-issued tax-exempt bonds for federal
income tax purposes;

4) Prior to federalization, the new financing structure, ownership and/or

operational/management structure for the project and Sponsor organization is
approved as acceptable to the Commission Secretary-Treasurer, in his/her
sole 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; confirm
substantial regional support; confirm the provision of general building services; approve the project and

Ohio Cultural Facilities Commission National Underground Railroad Freedom Center

1st Quarter 2011 Meeting Page 11 of 12
 authorize the expenditure of funds and return of the escrow, pending certain requirements; and authorize the Comment [kf14]: Add to Resolution
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

Ohio Cultural Facilities Commission National Underground Railroad Freedom Center

1st Quarter 2011 Meeting Page 12 of 12
 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 Center
immediately. For purposes of the pro forma, Commission staff reported the federalization income on the accrual basis and recognized only three-
twelfths of the projected remittance in FYE11.

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

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