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Ohio Cultural Facilities Commission National Underground Railroad Freedom Cente1st 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 freedomandfeatures three pavilions celebrating courage, cooperation, and perseverance.

The state appropriated $15.5M for 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 and the Sponsoris seeking approval of the $850K appropriation and release of a $462K escrowcurrently held by the Commission.

On February 11, 2010, the Commission authorized a Memorandum ofUnderstanding (MOU) spelling out the conditions under which full approval couldbe 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 federalgovernment will establish a federal museum and an oversight commission tocommemorate 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 in

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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

FundingState 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 deficit (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, twosignificant 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 Generally Accepted Accounting Principles (GAAP) becausethe assets 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 acompleted project valued at $32M, without any debt, 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") four-year pro forma covering the periods from 2011 through 2014

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 are not used to calculate the current ratio

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because 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.


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. The readerwill note a ($42M) write down of the building in FYE09 due to GAAP reporting and a $24M Extraordinary

Gain in YTD10 due to debt settlement.

Operating Change in Net Assets Summary


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.

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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)

In assessing the Freedom Centers sustainability, Commission staff reviewed the impact of several eventsthat occurred over the last several years, and which affect the Freedom Centers current financial position.Arguably, the most significant event was: The consortium of banks that previously held the debt for theFreedom 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 asextraordinary revenue. This is a one-time gain and is not operating revenue. The net result of the bondsettlement is an extraordinary gain of approximately $24M in YTD10 and the elimination of interest expenseand bank fees going forward.

The Freedom Center is actively asking Congress to pass legislation whereby the Freedom Center would begifted to the Federal Government and the Federal Government would contribute $3M of annual operatingrevenue. The Sponsors projections indicate that federalization would result in a net annual operatingsurplus of approximately $1.5M, assuming their other fundraising activities meet the goals specified.However, due to the uncertainty of such legislation passing, Commission staff analyzed the FreedomCenters sustainability as if federalization will not occur and included for the Commissions review only theSponsors latest pro forma, which does not assume federalization.

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. The $42M write-down increased the FYE 09 deficit to ($49M).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 Freedom Centers Executive Committee hasapproved a new budget and business plan for FYE 2011 and FYE 2012 and although the pro formaindicates a pre-depreciation deficit of ($320K) for FYE11, in FYE12-FYE14 small pre-depreciation surplusesare projected. This business model, which forecasts how the Freedom Center might become sustainable

without federalization, relies on further operating cost cuts and maintaining elevated levels of private support(as compared to FYE 09) in FYE 2011 and FYE 2012. Actual results of private support increased from 2009to YTD10 by substantial margins, approximately 160% at YTD 10 (nine months of actual activity) and thisincreased level of private support is projected to drop in 2011 and rise again in 2012 to approximately the2010 results. Also, projected total operating costs in 2012 are about half of actual total operating costs inFYE09.

Although the Commission staff is hopeful the sponsor will meet its objectives regarding the approved 2011and 2012 budgets and cash flows from the Freedom Center Executive Committee, Commission staff has its

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reservations as to whether fundraising levels can continue to be maintained and operating costs reducedfurther. Noteworthy to the Commission staffs assessment regarding fundraising projections is the BoardSupport projection of $750K for FYE 2011, $880K for FYE 2012 and increased levels for the remainingyears. Such support by the Board indicates overall confidence in the business plan; however, Commissionstaffs reservations go beyond that which the board controls and are primarily due to the effect a downeconomy typically has on non profits: In order to reach and maintain projected fundraising levels, grants and

contributions from the federal government (Dept of Education), the city government, corporations, boardmembers and individuals would have to be realized. In a slow-growing or uncertain economy this may notbe possible to the extent the Freedom Center is projecting.

Although Commission staff based its recommendation on the most conservative projections, which do notinclude federalization, if federalization were to be approved it would result in the Facility being gifted to thefederal government (free and clear of any liens; it is not yet clear what will be required regarding theCommissions property interest in the facility. The Commission has a leasehold interest, which was requiredunder the old Ohio Building Authority bonds.) Under the federalization scenario, the U.S. Governmentwould operate the museum commemorating the ending of chattel slavery in the United States.

According to the Sponsor, if federalization takes place, the Freedom Center expects to receive

approximately $3M/year in federal operating revenues on a permanent basis, enabling the Freedom Centerto generate operating surpluses starting at $1.5M and increasing slightly for each fiscal year end. Suchsurpluses would allow the Freedom Center to build its endowment. According to the Sponsor, SenatorSherrod Brown supports the legislation that was discussed in draft form in October of 2009, and theFreedom Center management is hopeful that the legislation will be passed. The Sponsor anticipates thatthe funds would be received in the [fourth] quarter of [calendar] 2011, if [it is] successful in getting thelanguage signed and passed prior to [September 30, 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 schedule that starts in the fourth

quarter of 2010 and ends at the fourth quarter 2011 and another cash flow for fiscal year 2012. The cashflows exclude federalization funds and assume Commission funding of $850K and the return of the $462Kescrow in February of 2011. Each cash flow projection indicates positive cash balances throughout 2011and 2012 if financial projections are met and the state funds and escrow are disbursed.

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Proportion of RevenueRevenue Category FYE09 YTD10 2011 Est 2012 Est 2013 Est 2014 Est

Private 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 RevenuesPrivate Support

Board Support 750.0 880.0 900.0 950.0Individuals 303.0 305.0 308.0 311.0Corporations 625.0 705.0 720.0 730.0Trust/Foundations/Charities 650.0 948.0 963.0 973.0MLK 38.9 20.0 20.0 125.0IFCA, net 150.0

Total 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%

GovernmentDepartment of Education 275.0 50.0 200.0 150.0OCFC 850.0 0.0City of Cincinnati 300.0 100.0 100.0 100.0

Total 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 190.0 200.0 198.0 202.0Retail 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 4,509.0Year-over-year change -8% -3% -12% 2% 4%

ExpensesTotal 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

Total Expenses 8,157.1 5,670.9 5 ,162.4 4,252.6 4,338.0 4,425.0Year-over-year change -30% -9% -18% 2% 2%

NET SURPLUS/(DEFICIT) (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 planned cuts in expenses for fundraising and professionallobbying. In response to inquiries as to how projected fundraising cash inflows will be achieved whencutting fundraising expenses, the Sponsor responded that they hired a new director of development, whichshould enable the Freedom Center to cut fundraising costs while achieving their fundraising goals. TheSponsors response regarding the impact of cutting professional lobbying expenditures before federalizationis secured was to clarify that the lobbyist will not stop working, but will be working pro bono.

In order to achieve the positive cash balances anticipated in the projected cash flow, fundraising 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 itsnew director of development must contend with a challenging environment for fundraising, including anuncertain economy, possible donor fatigue, and the effect the write down of the building may have onpotential donor enthusiasm. Also, the fundraising outlook may be influenced positively by certain factors

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including the effect the debt settlement has on donor perspective as well as the prospect of federalization.Commission staff concludes that there remain formidable uncertainties regarding achieving the fundraisinglevels 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 operating

costs. Because operating costs have been cut drastically in years past, they may not realistically be cutmuch further. Nationally-recognized bond council created an amortization schedule for the outstandingprincipal related to the Freedom Center. A schedule of the outstanding unamortized state bonds wasincluded as an appendix in the Second Amendment to the Base Lease dated July 1, 2008. According to thisschedule, the dollar amount of outstanding bonds allocated to the Freedom Center is $6.6M as of February2011 out of an original balance of $14.7M. The outstanding bonds will be paid off by the state over the nextnine years. The unamortized balance of the state bonds decreases by approximately $1M per year for thenext several years. Therefore, the states exposure decreases rather substantially each of the next severalyears. These calculations do not include the $850K currently being considered for approval by theCommission because this new $850K would be guaranteed to be returned if the Freedom Center fails tocontinue operations. Commission staff evaluates the risk to the state as high if the Sponsor were to stopoperating in 2011 or 2012. Therefore, the alternative of not approving the $850K in state funds or the $462K

in escrow funds, and thereby exacerbating a very difficult financial position, may lead to closure of theFreedom Center before federalization can be approved or the new business plan can be implemented.Approval for release of the $850K state appropriation and return of the $462K escrow appears to benecessary to keep the Freedom Center open while they continue to pursue federalization or theimplementation of their new business plan. Since these two amounts would be guaranteed under theFreedom Centers proposal, release of these funds does not increase the risk to the State.

Because the states exposure regarding the unamortized amount of the bonds decreases substantially overthe next several years, risk to the state is reduced if the Commissions actions assist the Freedom Center incontinuing its operations. Accordingly, Commission staff recommends the approval of the $850K Projectand return of the $462K escrow; however, Commission staff recommends making these approvals undercertain conditions in order to mitigate any additional risk. Commission staff recommends the Commission

approve the Project contingent on execution of a guaranty in an amount equal to the proposed projectapproval for the release of the most recent appropriation of $850,000. John and Frances Pepper haveagreed to sign the guaranty. Mr. Pepper is a founding board member of the Freedom Center and Chairman-emeritus of Proctor & Gamble. Such a guaranty would ensure the Commission is not placing the new statefunds at risk; in addition, this contingent approval reduces the states risk associated with state fundspreviously paid out because the Freedom Center will have time to continue to seek federalization or anotherlong term operating strategy. Should the Freedom Center cease operations before the unamortized amountof bonds decreases to zero, the state would either 1) identify a new non-profit or local government culturalor educational organization to provide programming in the building, or 2) utilize the states first lien positionand sell the facility (recently written down to $32M by the auditors) to repay the unamortized bonds.

The Commission holds approximately $462K in an escrow fund for a management transition in the event

the Freedom Center is unable to continue to operate. The Sponsor is requesting return of the $462K inescrowed funds, in exchange for a second guaranty, signed by John and Frances Pepper. The guarantywould be called in if the Freedom Center defaults under its legal agreements with the Commission and theguaranty funds would be used to pay costs of heating, cooling, insuring, and securing the building until suchtime as another appropriate organization could be identified to operate the building. Commission staff notesthat return of the $462K in escrowed funds in exchange for a guaranty places the Commission in a positionequitable to the current position, so long as the guaranty provides that the guaranty amount account for theaccrual of interest, plus increases or decreases determined by the periodic review of estimated costsinvolved with a closed down facility covering a period of six months,.

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Finally, noteworthy for the Commissions deliberations regarding the Freedom Center, is the apparentFederal requirement that the Facility be free of all liens in order for federalization to take place. As weunderstand 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 hindered, 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 isrecommending the Sponsor be required to provide an opinion from nationally-recognized bond counsel onthis subject prior to federalization and prior to the Commission releasing or subordinating its propertyinterest. As stated previously, it appears that the lower risk alternative at this point in time is to approve therelease of the state funds in exchange for a guaranty in an equal amount. The issue of the release ormodification of the Commissions 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 thatwithout federalization it is marginally likely the Sponsor will be able to operate the Facility and present cultureto the public over a sustained 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 or fullyimplementing its new business plan, Commission staff confirms the Sponsor continue to provide theseservices as permitted by section 3383.07 of the ORC.

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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 thefreedom center.

NationalUnderground


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

NationalUnderground


Am. Sub.H.B. 640

6/15/2000 123 $3,500,000 Funded construction of thefreedom 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 Architectual fees andcontinuing development

work on the freedom

center.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 chief financial analyst, chief project manager, and executive director recommend approval ofResolution R-11-06, the approval of the Project, authorization of the expenditure of funds and return of theescrowed funds, subject to the following 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 plus theamount of interest that would be earned were the funds invested in the statetreasury, plus increases determined by the periodic review of estimated costsinvolved with a closed down facility covering a period of six months;

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3) The legal agreements for this project are amended to require that prior tofederalization, the Sponsor provides to the Ohio Public Facilities Commission(the OPFC), the Treasurer of State and the Commission an opinion ofnationally recognized bond counsel, acceptable to the Treasurer of State, andaddressed to the OPFC, the Treasurer of State and the Commission, statingthat the financing structure, ownership and/or operational/management

structure will not a) adversely affect the validity of the state-issued tax-exemptbonds; and b) will not adversely affect the exclusion of the interest on thestate-issued tax-exempt bonds from the gross income of the holders of thestate-issued tax-exempt bonds for federal income tax purposes;

4) The legal agreements for this project are amended to require that prior tofederalization, 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 andauthorize the expenditure of funds and return of the escrow,subject to certain conditions; and authorize theexecution 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

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Statement of Financial Position Information:


Assets

Current Assets:

Cash and Cash Equivalents 452,443$ 66.29% 272,077$ -88.62% 2,389,945$

Government Receivable -$ -100.00% 437,891$ -10.35% 488,424$

Accounts Receivable 560,250$ 695.92% 70,390$ -11.90% 79,896$Restricted for Capital Project -$ NC -$ NC -$

Pledges Receivable, Net 2,028,853$ 1.01% 2,008,644$ -55.93% 4,557,580$

Gift Shop Inventories 135,018$ 6.28% 127,036$ -6.41% 135,731$

Prepaid Expenses 71,621$ 23.13% 58,168$ -13.58% 67,309$

Pledges Receivable-Restricted for Capital Projects NC NC

Total Current Assets 3,248,185$ 9.21% 2,974,206$ -61.47% 7,718,885$

Other Assets

Other Assets -$ -100.00% 547,263$ -2.46% 561,074$

Investments 663,888$ -87.55% 5,333,162$ -77.38% 23,577,212$

Assets Limited As To Use (restricted) 936,666$ 95.02% 480,298$ 1.21% 474,575$

Total Other Assets 1,600,554$ -74.84% 6,360,723$ -74.16% 24,612,861$

Long-Term Assets:

Long-Term Pledges Receivable, Net 563,752$ NC -$ NC -$

Museum Facility. Net 30,474,825$ -6.34% 32,537,046$ -58.54% 78,483,461$Historical Collections -$ NC -$ NC -$

Total Long-Term Assets: 31,038,577$ -4.61% 32,537,046$ -58.54% 78,483,461$

Total Assets 35,887,316$ -14.29% 41,871,975$ -62.21% 110,815,207$

Liabilities

Current Liabilities:

Accounts Payable 347,111$ 51.82% 228,633$ -1.23% 231,472$

Payable to "Do the Right Thing" -$ NC -$ NC -$

Wage Continuation -$ NC -$ NC -$

Accrued Liabilities -$ -100.00% 156,458$ -41.84% 269,017$

Interest Payable -$ -100.00% 187,650$ -46.60% 351,400$

Deferred Revenue 24,858$ -41.35% 42,385$ -81.11% 224,367$

Accrued Expenses 246,752$ NC -$ NC -$

Accounts Payable (receivable) to (from) other funds -$ NC -$ NC -$

Note Payable (current) -$ NC -$ NC -$

Total Current Liabilities 618,721$ 0.58% 615,126$ -42.85% 1,076,256$

Long-Term Liabilities

Tax Exempt Bonds Payable -$ -100.00% 27,000,000$ -41.30% 46,000,000$

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$

Statement of Activity Information:


Revenues

Contributions

Foundations and Organizations 1,053,550$ 239.98% 309,890$ -85.60% 2,152,000$

Individuals 1,532,936$ 126.13% 677,914$ -68.19% 2,131,065$

Corporations 497,272$ 27.69% 389,437$ 11.59% 348,993$

Time Discounts -$ -100.00% 47,000$ 9.30% 43,000$

Allowance for Doubtful Accounts -$ -100.00% (264,892)$ N 33,600$

Government Grants 744,415$ -37.04% 1,182,414$ -18.16% 1,444,708$

National Underground Railroad Freedom Center, Inc.

Internally generated financial statements for year-to-date September 30, 2010 ("YTD10"), and audited financial statements for fiscal-years-ending December 31,

2009, 2008, and 2007 ("FYE09," "FYE08," and "FYE07").

EXHIBIT

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Admissions -$ -100.00% 525,690$ -20.78% 663,544$

Earned Revenues 816,017$ 98.50% 411,094$ -29.68% 584,642$

Donated Services and In-Kind Gifts 5,938$ -99.34% 903,912$ 159.08% 348,890$

Special Events 323,965$ 374.95% 68,211$ 256.45% 19,136$

Other Income 25,937$ 56.19% 16,606$ 2.84% 16,148$

Net Assets Released From Restrictions -$ NC -$ NC -$

Total Revenues and Support 5,000,030$ 17.17% 4,267,276$ -45.19% 7,785,726$

Expenses

Museum Programs 2,899,946$ -8.46% 3,167,866$ 1.96% 3,107,028$

Administrative and General 2,011,757$ 61.13% 1,248,493$ -46.94% 2,353,061$Fundraising, Developments, and Communications -$ -100.00% 1,122,893$ -20.50% 1,412,517$

Other Programs -$ -100.00% 622,510$ -51.82% 1,292,082$

Interest Expense 753,228$ -32.83% 1,121,458$ -47.75% 2,146,243$

In-Kind Expenses 5,938$ -99.32% 873,912$ 219.07% 273,891$

Depreciation 2,494,182$ -35.23% 3,851,071$ -11.24% 4,338,937$

Depreciation (2,494,182)$ -35.23% (3,851,071)$ -11.24% (4,338,937)$

5,670,869$ -30.48% 8,157,132$ -22.94% 10,584,822$

(670,839)$ -82.75% (3,889,856)$ 38.97% (2,799,096)$

Depreciation (2,494,182)$ -35.23% (3,851,071)$ -11.24% (4,338,937)$

Impairment loss (FAS-144 adjustment) -$ -100.00% (42,200,000)$ NC -$

Extraordinary income (debt settlement) 24,150,000$

Realized/Unrealized Loss/Gain on Investments 26,517$ -94.22% 458,825$ P (2,447,546)$

21,011,496$ P (49,482,102)$ 416.21% (9,585,579)$

Net Assets at the Beginning of Year 14,256,849$ -77.63% 63,738,951$ -13.07% 73,324,530$

Net Assets at the End of Year 35,268,345$ 147.38% 14,256,849$ -77.63% 63,738,951$

1In the "% Change" columns, "NC" means not calculable, "P" means the figure went from negative to positive, "N" means the figure went from positive to negative,

"NM" means not meaningful.

Total Expenses (net of depreciation)

Change in Net Assets Pre-Depreciation & Pre-Realized/Unrealized

Gain/Loss

Change in Net Assets Post-Depreciation & Post-Realized/Unrealized

Gain/Loss

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RESOLUTION NO. R-11-06

OHIO CULTURAL FACILITIES COMMISSIONFEBRUARY 8, 2011

A RESOLUTION CONFIRMING THAT THERE IS A NEED FOR THEPROJECT RELATED TO THE NATIONAL UNDERGROUNDRAILROAD FREEDOM CENTER,CONFIRMING THAT THERE ISSUBSTANTIAL REGIONAL SUPPORT FOR THE PROJECT,CONFIRMING THE CONSTRUCTION ADMINISTRATOR,CONFIRMING PROVISION OF GENERAL BUILDING SERVICES,APPROVING THE PROJECT AND AUTHORIZING THEEXPENDITURE OF FUNDS, AUTHORIZING THE RETURN OFESCROW FUNDS, AUTHORIZING THE EXECUTION OF A CAPITALEXPENDITURE REIMBURSEMENT AGREEMENT AND CERTAINOTHER DOCUMENTS AND THE TAKING OF CERTAIN OTHERACTIONS.

WHEREAS, the Ohio General Assembly (the General Assembly) established the OhioCultural Facilities Commission (the Commission) under Chapter 3383 of the OhioRevised Code (the Act) to engage in and provide for the development, performance,and presentation or making available of culture to the public, including the provision,operation and management of Ohio cultural facilities, as defined in the Act;

WHEREAS, pursuant to Section 3383.07(D) of the Act, the General Assembly requiredthat state funds, including the proceeds of state bonds, not be spent on the constructionof any Ohio cultural facility until (i) the Commission has determined that there is a needfor the cultural project and the Ohio cultural facility related to the project in the region ofthe state for which the Ohio cultural facility is proposed to be located, and (ii) provisionhas been made, by agreement or otherwise, satisfactory to the Commission, as anindication of substantial regional support for that Ohio cultural facility, for localcontributions amounting to not less than fifty (50) percent of the total state funding for thecultural project and the Commission has established guidelines for such evaluation and

determinations;

WHEREAS, the General Assembly previously appropriated for the NationalUnderground Railroad Freedom Center an aggregate amount of $14,650,000 and theCommission previously approved the project, executed the appropriate legal agreementsand paid that amount;

WHEREAS, the 127th General Assembly in H.B. 562 appropriated bond funds in theamount of $850,000 in ALI C371H2 for National Underground Railroad Freedom Center,owned and operated by National Underground Railroad Freedom Center (the ProjectSponsor). The Project Sponsor proposes to utilize the appropriation for constructionexpenses previously incurred (the Project) at the National Underground Railroad

Freedom Center(the Facility);

WHEREAS, the Project Sponsor came before the Commission on February 11, 2010and received approval for a Memorandum of Understanding (MOU) spelling out theconditions under which full approval could be granted to the Freedom Center for themost recent appropriation of $850,000.;

WHEREAS, the Project Sponsor has eliminated its debt, developed alternate plans forcontinuing its operations, and has provided a guaranty to secure the $850,000appropriation;

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WHEREAS, in accordance with requirements of prior Commission approvals, the ProjectSponsor previously provided to the Commission funds for an escrow account, andProject Sponsor has now requested return of said escrow funds in exchange for ProjectSponsor providing a guaranty of an equal amount;

WHEREAS, the Ohio General Assembly has authorized the Treasurer of State to issuebonds for the purpose of funding Ohio Cultural and Sports Facility projects, including theProject, which issuance the Treasurer of State has or will undertake;

WHEREAS, the Project Sponsor, operating as a 501(c)(3) non-profit corporation, is thefee simple owner of the Facility; and

WHEREAS, the Commission has reviewed the Project Sponsors financial statements,revised business plans proposed guaranty, and the Commission staff recommendation,and has also heard and considered oral presentations made at the Commission meetingheld on the date of this resolution.

NOW, THEREFORE, BE IT RESOLVED:

Section 1. Confirmation of Need. In accordance with Section 3383.07(D)(1) of the Act,the Commission hereby confirms that there is a need for the Project in THE region of thestate where the Project is located.

Section 2. Confirmation of Substantial Regional Support. In accordance with Section3383.07(D)(2) of the Act, the Commission hereby confirms that, as an indication ofsubstantial regional support for the Project, provision has been made and evidencepresented to its satisfaction that local contributions will amount to not less than fifty (50)percent of the total state funding for the project and that such anticipated contributions,together with the state funds, will result in full funding for the Project.

Section 3. Confirmation of the Construction Administrator. The Commission hereby

accepts the recommendation of the Executive Director and independently confirms thatthe Project Sponsor be permitted to act as construction administrator on the Project inaccordance with Section 3383.07(A) of the Act.

Section 4. Confirmation of the Provision of General Building Services. The Commissionhereby confirms that the Project Sponsor shall provide general building services, inaccordance with Section 3383.07(C) of the Act.

Section 5. Approval of the Project, Authorization of the Expenditure of Funds andAuthorization to Return Escrow Funds. In accordance with Section 3383.07 of the Act,the Commission hereby approves the Project, authorizes the expenditure of funds in anamount not to exceed $850,000 and authorizes the return of escrowed funds to the

Project Sponsor, subject to the following conditions:

(i) the Project Sponsor provides the Commission staff with evidenceof its real property interest in the site (for a period of at least fifteen[15] years), free of any mortgages, liens or other encumbrancesunacceptable to the Executive Director of the Commission in hersole discretion;

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(ii) the Project Sponsor provides the Commission staff with acertification that information contained in documents submitted toCommission staff is true and accurate to the best of the ProjectSponsors knowledge and belief, that this certification extends tofuture submissions, and acknowledging the receipt of thisresolution and the conditions set forth herein;

(iii) the Project Sponsor provides the Commission with evidencesatisfactory to the Executive Director of the Commission that it isan eligible 501(c)(3) corporation in good standing with the InternalRevenue Service;

(iv) the Project Sponsor provides the Commission with evidencesatisfactory to the Executive Director of the Commission that it isin good standing with the Attorney Generals Office, CharitableLaw Section;

(v) the Project Sponsor provides the Commission with evidencesatisfactory to the Executive Director of the Commission that it isin good standing with the Secretary of States Office;

(vi) a search of the Auditor of State database established pursuant toSection 9.24 of the Ohio Revised Code concludes that the ProjectSponsor has no unresolved findings for recovery;

(vii) the Project Sponsor provides the Commission staff with copies ofthe construction bids, consultants contracts and constructioncontracts;

(viii) the Project is Fully Funded. Fully Funded means that funds havebeen raised for the total costs of the Project including all hardcosts, soft costs and start-up costs and any operating endowment

for the Project. Raised means receipt of written pledges fromcreditworthy entities, written funding commitments fromgovernmental entities, written guarantees from creditworthyentities (in a form approved by the Ohio Attorney GeneralsOffice), cash receipts or any combination of the foregoing, all asdetermined in the sole discretion of the Executive Director of theCommission;

(ix) the Project Sponsor provides the Commission staff with complete,accurate and updated documentation of material changes inproject costs, project scope or other relevant information affectingthe organization or the Project;

(x) the Project Sponsor and the Commission execute a CapitalExpenditure Reimbursement Agreement and amendments to theCooperative Use Agreement,the Management Agreement andBase Lease, and any other required documents on or before theCommission's third quarter 2011 meeting;

(xi) the Project Sponsor has provided the Commission staff with acopy of its resolution or ordinance authorizing its execution of aCapital Expenditure Reimbursement Agreement, amendments to

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the Cooperative Use Agreement, Management Agreement andBase Lease, and any other required documents;

(xii) the Attorney General has reviewed and approved the document(s)as to form, as appropriate;

(xiii) the Controlling Board or the Director of the Office of Budget andManagement, as required by law, approves and certifies therelease and availability of funds;

(xiv) the Project Sponsor provides the Commission with a signedDeclaration Regarding Material Assistance/Nonassistance to aTerrorist Organization (DMA) pursuant to Senate Bill 9 of the 126 thGeneral Assembly;

(xv) the Project Sponsor provides the Commission with a signedAffirmation and Disclosure Form pursuant to Executive Order 2010-09S Banning the Expenditures of Public Funds for OffshoreServices; and

(xvi) the Project Sponsor provides any other documents requested byCommission staff;

(xvii) the Project Sponsor provides a guaranty by John and FrancesPepper, in conformance with the Commissions standard formguaranty document, guaranteeing the $850,000 appropriation;

(xviii) the Project Sponsor provides a guaranty by John and FrancesPepper, in conformance with the Commissions standard formguaranty document, guaranteeing an amount equal to the$462.306.60 currently held in escrow plus 1) interest based on themonthly average one-year constant maturity Treasury yield

(CMT) compounded annually; and 2) increases determined bythe periodic review of estimated costs involved with a closed downfacility covering a period of six months;

(xix) the Project sponsor provides a business plan and budget for FYE2011 and FYE 2012, approved by the Freedom Center board ofdirectors, addressing the necessary steps the Freedom Center willtake in the event federalization legislation does not take place;

(xx) the legal agreements for the Project are amended to require thatprior to federalization should federalization be pursued, an opinionof nationally recognized bond counsel, acceptable to the Ohio

Public Facilities Commission (the OPFC), the Treasurer of Stateand the Commission, and addressed to the OPFC, the Treasurerof State and the Commission, stating that the financing structure,ownership and/or operational/management structure will not a)adversely affect the validity of the state-issued tax-exempt bonds;and b) will not adversely affect the exclusion of the interest on thestate-issued tax-exempt bonds from the gross income of theholders of the state-issued tax-exempt bonds for federal incometax purposes;

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(xxi) the legal agreements for the Project are amended to require thatprior to federalization, the new financing structure, ownershipand/or operational/management structure for the project andSponsor organization is approved as acceptable to theCommission Secretary-Treasurer, in his/her sole discretion; and

(xxii) the Project Sponsor provides evidence that the bank lien on theFacility has been released.

(xxiii) The Project Sponsor agrees to provide quarterly financialstatements, including budget to actual schedules, no later thanthirty days after the end of each calendar quarter until the statebonds used to pay costs of construction of the Facility are fullyamortized.

Section 6. Authorization of Execution of a Capital Expenditure ReimbursementAgreement, and Amendments to the Cooperative Use Agreement, ManagementAgreement and Base Lease. The Chairman or the Executive Director of thisCommission be, and hereby is, authorized and directed to execute and deliver, or causeto be executed and delivered, a Capital Expenditure Reimbursement Agreement andAmendments to the Cooperative Use Agreement, Management Agreement and BaseLease,with the Project Sponsor, in the name and on behalf of the Commission, as theChairman or Executive Director deems necessary or appropriate to carry out the intentof the foregoing resolution. The execution of such agreements by the Chairman or theExecutive Director shall be conclusive evidence of the exercise of the discretionaryauthority conferred herein.

Section 7. Authorization of Execution of Guaranty Agreement for the $850,000Appropriation, Execution of a Guaranty Agreement for the return of $462,306of EscrowFunds and Taking Other Actions. The Chairman or the Executive Director of this

Commission be, and hereby is, authorized and directed to execute and deliver, or causeto be executed and delivered, Guaranties with the Guarantors, and all such otherdocuments, agreements, instruments or certifications, or to do, or cause to be done, allsuch acts and things, in the name and on behalf of the Commission, as the Chairman orthe Executive Director may deem necessary or appropriate to carry out the intent of theforegoing resolution. The taking of such action or the execution of any such agreementsby the Chairman or the Executive Director shall be conclusive evidence of the exerciseof the discretionary authority conferred herein.

Section 8. Other Matters. The Project Sponsor shall keep the Commission staffinformed in writing and by presentation at a future Commission meeting, if requested bythe Commission or its Executive Director, of any matters financial, organizational, or

otherwise that will have any impact on the construction of the Project and/or operation ofthe cultural facility.

Section 9. Open Meeting. All formal actions of this Commission concerning and relatingto the adoption of this resolution were taken and adopted in an open meeting of thisCommission, and all deliberations of this Commission that resulted in those formalactions were in meetings open to the public, and in compliance with all legalrequirements including Ohio Revised Code Section 121.22.

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IN WITNESS WHEREOF, the undersigned hereby certifies that the foregoing Resolutionwas duly adopted at a meeting held on February 8, 2011 by the members of the OhioCultural Facilities Commission.

______________________________Craig A. Marshall, CPA, Secretary-Treasurer

Documents

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