Roanoke Island Festival Park Strategic Plan for Financial Sustainability. Final Report

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1 Strategic Plan for Financial Sustainability Final Report March 2013

2 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 2 Table of Contents I. Introduction II. III. IV. Executive Summary Project Scope Overview: Strategic Positioning V. Governance Partners and Their Roles VI. VII. VIII. Key Findings: Financial Data Key Options & Priorities Recommendations i. Five Year Operating Projections IX. Privatization: A Future Option X. Next Steps

3 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 3 I. Introduction Schultz & Williams (S&W) was engaged by The Roanoke Island Commission (RIC) to create a comprehensive five year report to strengthen the financial viability and sustainability of the Roanoke Island Festival Park (RIFP), including the assets and properties administrated by DCR that are located on Roanoke Island. The five year plan will identify operating revenue and expenditure projections that support the planned reductions in State appropriations, identify new sources of non State revenues and outline the feasibility of shifting the governance of RIFP to a public/private partnership model (privatization). The current expectation of the State is that RIFP will be self supporting in fiscal year 2016, commencing July 1, The final report and consultant recommendations will be submitted to the House and Senate Appropriations Committees in March Schultz & Williams is a Philadelphia based planning and consulting firm that is dedicated to working with cultural institutions and attractions throughout the country to strengthen their viability and sustainability. S&W has recently completed organizational and financial plans for the North Carolina Zoo and the North Carolina Aquariums that will further leverage their partnership with the State while raising the profile of the State s cultural resources. The development of our report was guided by a Task Force that included representatives of the Roanoke Island Commission, the Chairman of the Board of the Friends of Elizabeth II and the Executive Director of the Roanoke Island Festival Park. Task Force members were: Ellen Newbold (Chair of the RIC); Fountain Odom, Earl Willis, Brent Lane, Heidi Leo and Bob Quinn (Appointed Members of the RIC); Warren Judge (Ex Officio Member of the RIC and represents Dare County); Tod Clissold (Chairman of the Friends of Elizabeth II); and Kimberly Sawyer (Executive Director of RIC and RIFP). Rick Biddle, S&W Vice President with over 30 years of consulting and cultural attractions experience, completed the plan and met with the Task Force in October and November 2012, and in February 2013, in completing his findings and recommendations. We have developed our final report and findings based on our review of the background information that we requested; a site tour of RIFP and its related properties in October 2012; the three meetings with the Task Force members; and our meetings, telephone conversations and data review with the RIFP staff, specifically Kim Sawyer, Executive Director of RIFP, and Amy Hinnant, Operations Manager of RIFP. We thank Kim Sawyer and her staff for their time, guidance and feedback in helping us to better understand the Roanoke Island Festival Park and the important role that it plays in celebrating history on Roanoke Island.

4 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 4 II. Executive Summary Schultz & Williams (S&W) was engaged by The Roanoke Island Commission (RIC) and the North Carolina Department of Cultural Resources (DCR) to create a comprehensive five year report to strengthen the financial viability and sustainability of the Roanoke Island Festival Park (RIFP). The five year strategic financial plan creates a roadmap to insure RIFP s continued sustainability and viability as a dynamic mission driven cultural attraction that serves the State of North Carolina, Dare County, Roanoke Island and the tourist to the Outer Banks region. The enclosed report is a strategic financial plan that outlines strategies and recommendations to strengthen RIFP as a dynamic and relevant cultural asset. Once the implementation strategies and recommendations are vetted and approved by the Roanoke Island Commission and Friends, detailed business and operating plans, including any fee and staffing adjustments, can be developed to support the new strategic direction of RIFP. The Roanoke Island Festival Park is at its crossroad. Over the past 17 years, the Roanoke Island Commission, with the financial support of the State of North Carolina, has built a great foundation from which the Park is now poised, given the opportunity of time to plan accordingly, to achieve greater success, growth and impact with the audiences that it serves. The future of RIFP must include the new economic realities (less State support for operations and re balancing its sources of operating revenues) and embrace a compelling and integrated vision for the Park a vision that is endorsed and supported jointly by the RIC and the Friends of Elizabeth II. Both the Commission and the Friends must learn from the past and now plan for RIFP s new future one that continues to celebrate Roanoke Island s living history through interpretive exhibits, relevant programs and compelling visitor experiences. Roanoke Island Festival Park provides for a fun family experience with a visitor stay time that exceeds expectations and the value provided. RIFP is a relevant, mission driven cultural attraction that provides high value to the residents and visitors to Roanoke Island, Dare County and the Outer Banks region. As recent studies have shown that cultural attractions leverage $3 to $3.5 dollars for every cultural dollar invested, we have estimated that RIFP s total annual economic impact to the State and Dare County is between $6.2MM and $7.3MM. RIFP possess the core institutional characteristics of success: a compelling mission; a wonderful site with engaging interpretive exhibits; a strong base of annual visitation; available financial resources from the RIC and Friends that can leverage further investments from its audiences; and a strong partnership with the State of North Carolina and Dare County. Based on our recent experience with other cultural institutions within North Carolina in creating new governance and operating plans, we believe that the State of North Carolina has three primary strategic roles:

5 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 5 1. Stewardship: will forever own the land and the facility assets of the RIFP and RIC 2. Leadership: offer strategic guidance and direction when called upon 3. Financial: annually, the State has a long term obligation to maintain its assets for the use and enjoyment of the residents and visitors of North Carolina. We recognize and embrace the new economic realities, but cultural attractions, especially smaller institutions like RIFP, need the time to properly plan and develop the new sources of revenues to be successful, sustainable and viable in the long term. We do not believe that the State funding level can be or should be zero. To support RIFP as a relevant cultural resource, the State of North Carolina must provide the financial resources (a reasonable annual operating appropriation) that allow RIFP to maintain and preserve its assets and to grow and leverage its new operating revenues and partnerships. It is important to recognize that State funding to RIFP has declined from its peak of $2.114MM in fiscal year 2007/2008 to its current (fiscal year 2012/2013) level of $903,500 a 57% decrease since its 2007/2008 peak. Based on our review of operating and maintenance expenditures related to site and building assets, the current annual cost to maintain and preserve RIFP s existing facility (site, buildings and equipment) assets assets which are owned by the State of North Carolina is approximately $953,000 if you include a 3% contingency factor for emergency repair and replacement, the annual cost is $982,000. The annual maintenance expenditures for the site and building assets include annual operating costs for utilities, site and grounds maintenance, ship and boat maintenance, HVAC, equipment and building repairs and an annual allocation for managing the current deferred maintenance replacement needs. RIFP s annual site and building maintenance expenditures (an annual expense that will continue to increase faster than inflation due to the age of RIFP s current assets) is directly offset against the State s annual operating appropriation an appropriation that we anticipate will remain stable over the next five years. An analysis of future annual maintenance costs for RIFP can be found on page 8. On page 7, with a stable annual State operating appropriation, we have developed and recommended the five year Growth Option financial projection plan for RIFP that insures its success and sustainability as a mission driven, relevant cultural attraction. Our report including the recommendations and next steps outline the specific action steps to achieve the Growth Option. The leadership of the RIC and the Friends must come together as one voice to address three, integrated, key underlying opportunities that must be resolved as soon as possible as they form the foundation or building blocks for RIFP s future success, growth and sustainability: 1. Enterprise Funds: Utilization of the existing enterprise funds to fund RIFP s three year transition growth plan; establish funding limitations on the use of the funds (total amount of funds required projected at $680,000; and number of years projected to be used over a three year time period see page 7 projections ).

6 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 6 2. Friends Endowment Fund Commitment: The Friends are supportive of RIFP s new strategic plan and recommendations. The Friends agreed to increase their annual contribution to RIFP with an annual contribution goal of $325,000 based on the Friends current endowment/trust fund baseline balance. Annually, the Friends will continue to support RIFP at the $325,000 contribution target goal if the Friends maintain its endowment/trust fund baseline balance. Should the Friends baseline fund balance decline/increase from its current (2013) funding level, the Friends may re assess its annual contribution goal to RIFP. 3. State Appropriation: The State must continue to fund its facility assets and leverage additional and sustainable visitor and contributed revenues to support the core mission and programs of the RIFP with a minimum annual baseline appropriation of $1,058,757 (current level of funding ($903,500) plus the current legislative salary and cost of benefit increase of $155,257). It is important to note that the continued success and viability of RIFP is built on the realistic resolution of the three integrated planning opportunities outlined above and as discussed further in our report one opportunity cannot succeed without the other; together they will insure the long term growth of RIFP. In addition, the staff of the RIFP will continue to implement new revenue and program strategies to maintain and grow its operating revenues or reduce its operating expenses without negatively impacting the quality of the visitor experience. Among the strategies that the RIFP staff is implementing: 1. Increase revenues from ticket prices; 2. Expand the availability of facility rentals and promote RIFP as a destination site for weddings and meetings; 3. Develop programming with Girl Scouts and Boy Scouts including overnight trips and camping; 4. Promote Summer Concert Series to better utilize the Pavilion stage and grounds; 5. Charging an admission fees for the University Performance Series; 6. Conducted a needs assessment of RIFP s operations and staffing resources; 7. Developing facility plans to consolidate the admissions and retail sales experiences; 8. Developing facility plans to create additional temporary/seasonal exhibits to increase visitation; and 9. Continuing to investigate additional funding initiatives with the Friends. RIFP has a great story to tell to the community, to visitors and to its partners. The Roanoke Island Commission and the Friends must together actively promote this success story through conversations with the State and key leadership members of the General Assembly. With the leadership of the RIC, the Friends and the State, and given the time to implement its transition plan for growth, RIFP s future is bright, relevant, viable and sustainable.

7 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 7 Growth Option with stable State Operating support mission driven, relevant cultural attraction Operating Revenues Baseline FY `13/`14 FY `14/`15 FY `15/`16 FY `16/`17 FY `17/`18 State Appropriation $1,058,757 $1,058,757 $1,058,757 $1,058,757 $1,058,757 $1,058,757 Admission Fees $355,000 $365,000 $413,910 $434,606 $497,951 $510,096 Performing Arts $30,000 $40,000 $40,000 $40,000 $50,000 $50,000 Education Programs $5,000 $5,000 $10,000 $15,000 $25,000 $25,000 Donation/Gifts $15,000 $20,000 $40,000 $50,000 $50,000 $50,000 Sponsorships $0 $10,000 $20,000 $40,000 $50,000 $50,000 Rental Income $43,000 $50,000 $50,000 $50,000 $75,000 $85,000 (OBHC reimbursements) $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 Friends Contribution $175,000 $175,000 $325,000 $325,000 $325,000 $325,000 Subtotal Operating Revenues $1,696,757 $1,738,757 $1,972,667 $2,028,363 $2,146,708 $2,168,853 New Incremental Revenues (Net) $0 $0 $0 $15,000 $60,000 $75,000 Total Receipts $1,696,757 $1,738,757 $1,972,667 $2,043,363 $2,206,708 $2,243,853 Operating Expenses Personnel $1,535,000 $1,565,700 $1,581,357 $1,597,171 $1,598,768 $1,614,755 Performing Arts $120,000 $80,000 $80,000 $80,000 $100,000 $100,000 Utilities $114,000 $118,000 $120,360 $122,767 $125,223 $127,727 Repair & Replacement $66,000 $75,900 $87,285 $100,378 $110,416 $115,936 Advertising $103,000 $104,030 $105,070 $106,121 $107,182 $108,254 Insurance $68,000 $69,360 $70,747 $72,162 $73,605 $75,077 Supplies $65,000 $66,300 $67,626 $68,979 $70,358 $71,765 Other $10,000 $10,500 $11,025 $11,576 $12,155 $12,763 Total Operating Expenses $2,081,000 $2,089,790 $2,123,471 $2,159,153 $2,197,707 $2,226,278 Net Operating Margin ($384,243) ($351,033) ($150,804) ($115,791) $9,001 $17,575 Allocation from Enterprise Funds ($351,033) ($150,804) ($115,791) $9,001 $17,575 Balance of Enterprise Funds $3,800,000 $3,498,967 $3,348,164 $3,232,373 $3,241,374 $3,258,948 Admissions Fees includes projected (not approved) fee increases in FY `15 and FY `17 Overhead operating expenses are non salary costs Positive shift in RIFP s bottom line Three year transition funding from the existing enterprise funds (total of $680,000 projection of $618,000 with a 10% contingency allocation) to support program growth AND with a stable annual funding from the State of North Carolina and renewed annual financial commitment from the Friends.

8 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 8 Analysis of RIFP s future annual maintenance expenditures: operating and additional capital maintenance expenses Estimated Maintenance Cost for Roanoke Island Festival Park Salaries & Fringe Benefits Additional Maint. Expenses Avg 5 years Current Budget Sub-Total Total HVAC $9,177 $24,340 $33,517 $23,600 $57,117 EII/Other Boats/Trailers $57,224 $132,303 $189,527 $80,500 $270,027 Grounds/Irrigation/ Decks $10,431 $103,602 $114,033 $3,900 $117,933 Facilities/Electric/ Water $189,363 $192,892 $382,255 $16,000 $398,255 Equipment (Maint. & Replacement) $8,069 $23,135 $31,204 $3,000 $34,204 Education/Exhibits/Programs $10,336 $21,268 $31,604 $1,000 $32,604 IT/Phone $13,500 $3,150 $16,650 $26,000 $42,650 Total $298,100 $500,690 $798,790 $154,000 $952,790 Notes: Additional Maint. Exepenses are based on a 5 year average of anticipated repairs and replacement of the following categories. Please note these are anticipated ove the next 5 years. HVAC 10 units to be replaced EII/Other Boats/Trailers Haul-out each year with DOT and they have indicated the cost will be going up. 2 boat trailers to be replaced. 2 boat motors replaced. 1 inflatable boat replacement. Additional repairs to be completed to the EII which is now 30 years old Grounds/Irrigation/ Decks Replacement rotting decking on docks and decks and replacement of a dump trailer. Facilities/Electric/ Water Replacement of roofs of aging buildings Equipment (Maint. & Replacement) Replacement of golf carts over 10 years old Education/Exhibits/Costumes/ProgramIncreased expenses for materials IT/Phone $26,000 reflects IT cost we are now required to pay to DCR, however this has never beena budget item For planning purposes, we utilized an annual maintenance expense of $953,000 and increased by 3% as a contingency factor to cover unanticipated or emergency repairs and replacement expenditures total budget projection of $982,000.

9 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 9 RIFP s site map identifies the current facility assets owned by the State and maintained by RIFP staff

10 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 10 III. Project Scope Schultz & Williams (S&W) was engaged by The Roanoke Island Commission (RIC) and the North Carolina Department of Cultural Resources (DCR) to create a five year sustainable and viable financial plan for Roanoke Island Festival Park and to frame the feasibility and strategic opportunities for potentially privatizing the Roanoke Island Festival Park and its related properties and assets. In our completing our plan and report, we completed the following steps: Step 1: Requested background information about Roanoke Island Festival Park and the Friends of the Elizabeth II, Inc. (Friends). Established a Task Force, comprised of leadership members of The Roanoke Island Commission and the Friends of Elizabeth II, to guide the development of the new financial and governance plans; Step 2: Conducted a brief site tour of RIFP and its related properties with the Executive Director and met with the Task Force to discuss financial, governance and organizational opportunities and challenges; Step 3: Developed potential governance options and financial requirements; Step 4: Developed a draft financial plan and define the strategic opportunities for RIFP; and Step 5: Prepared a comprehensive final report including the five year viable and sustainable financial plan and framed the key considerations for a shift in governance. We have utilized the information gathered from each of the above steps to develop our findings and recommendations. We acknowledge the participation and guidance that the Task Force members provided to us throughout our engagement in helping to prioritize the options, recommendations and strategies for Roanoke Island Festival Park. We also thank the staff of the Roanoke Island Festival Park and the Friends of Elizabeth II for their guidance and assistance in completing our findings and report their dedication, enthusiasm and passion for the mission of the Festival Park provides for a high quality, and enjoyable visitor experience. As we will discuss below, the Roanoke Island Festival Park is at its crossroad. Over the past 17 years, the Roanoke Island Commission (RIC) has built a great foundation from which the Park is now poised, given the opportunity of time to plan accordingly, to achieve greater success, growth and impact with the audiences that it serves. The future of RIFP must include the new economic realities (less State support for operations and re balancing its sources of operating revenues) and embrace a compelling and integrated vision for the Park a vision that is endorsed and supported jointly by the RIC and the Friends of Elizabeth II. Both the Commission and the Friends must learn from the past and now plan for RIFP s new future one that continues to celebrate Roanoke Island s living history through interpretive exhibits, relevant programs and compelling visitor experiences.

11 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 11 IV. Overview Strategic Positioning After visiting the Roanoke Island Festival Park for the first time and touring the site and interpretive exhibits, S&W was impressed with the facilities, exhibits and RIFP staff. Although the facility size is relatively small (27 acres), the visitor and interpretive experiences within the meandering paths provides the feel of a much bigger experience. The exhibits and interpreters were very engaging, as the in character interpreters provided for a fun learning experience. In our opinion and based on our professional experience, Roanoke Island Festival Park provides for a fun family experience with a visitor stay time that exceeds expectations and the value provided. RIFP offers a strong set of core institutional characteristics that will, over time, further enhance the Park s relevance as a dynamic cultural resource: A compelling mission interpret, through interactive exhibits and living history demonstrations, the historic site representing the first English settlement in America in 1585; A wonderful site; great location; a diverse collection of assets; Well maintained, compelling exhibits, living history demonstrations and unique facilities; Over 50,000 ticketed visitors to RIFP and over 145,000 total visitors annually to the Park; An engaging tourism and economic magnet for visitors to Dare County, the Outer Banks region and to the City of Manteo; Available financial resources (fund balances) from both the RIC and Friends that could be utilized to support the RIFP and its future growth; and A strong partnership with the State of North Carolina, Dare County and the Town of Manteo. Today, the Roanoke Island Festival Park is at the crossroad, as it must reposition itself in light of the new economic realities of less State operating support and the relatively high annual cost of maintaining and operating a cultural attraction and Park. The Task Force, RIC and Friends all understand and recognize this reality. The strategic question is how best to move forward while embracing these new economic realities. Prior to discussing how best to move forward, we must ask ourselves some basic, tough strategic questions Is Roanoke Island Festival Park relevant today? Does RIFP offer mission critical services to its audiences? Does RIFP provide value to its audiences and the broadly defined communities/tourists that it serves? If RIFP closed, would it matter? In our professional opinion and the Task Force members, the answer to all of the underlying strategic questions is YES.the core institutional characteristics outlined above firmly answer this question.

12 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 12 Given the fact, as noted below, that RIFP has, at least in the short /mid term, the financial resources within its fund balances to be financially viable it clearly will need time to reposition its funding resources and that RIFP is a relevant, valued, mission critical, dynamic cultural resource and attraction; the option of closing RIFP is not recommended or discussed further. The other big strategic question that must be discussed before moving forward is what is the State s role in Roanoke Island Festival Park? Based on our recent experience with other cultural institutions within North Carolina in creating new governance and operating plans, we believe that the State of North Carolina has three primary strategic roles: Stewardship: will forever own the land and the facility assets of the RIFP and RIC Leadership: offer strategic guidance and direction when called upon and will insure that its representatives on the RIC have the passion and commitment to fulfill RIFP s mission and new vision Financial: annually, the State has a long term obligation to maintain its assets for the use and enjoyment of the residents and visitors of North Carolina. With today s new economic realities, at what reasonable level is the question? We do not believe that the State funding level can be or should be zero as cultural assets, as outlined in the February 2012 Program Evaluation Division s (PED) report, are expensive to maintain the median net state cost per visitor for museums/commission facilities within the State is $8.61 per visitor! Based on fiscal year 2011 data, of the 13 museum/commission facilities within the State (including RIFP), the State, in fiscal year 2011, provided over 85% of the annual operating expenses through operating appropriations to these institutions. Again, we recognize and embrace the new economic realities, but cultural attractions, especially smaller institutions like RIFP, need the time to properly plan and develop the new sources of revenues to be successful and viable in the long term. Within our report, we will address the option of reducing the State s operating support to zero, but we will not recommend this option as a viable strategy. To support RIFP as a relevant cultural resource, the State of North Carolina must provide the financial resources (a reasonable annual operating appropriation) that allow RIFP to preserve its assets and to grow and leverage its new operating revenues and partnerships. It is important to recognize that State funding to RIFP has declined from its peak of $2.114MM in fiscal year 2007/2008 to its current (fiscal year 2012/2013) level of $903,500 a 57% decrease since its 2007/2008 peak.

13 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 13 V. Governance Partners and Their Roles To help frame the strategic organizational and governance options for the Roanoke Island Festival Park, we have provided a summary of the roles and responsibilities of the current partners the historical organizational viewpoint has been provided to help clarify the future roles of the respective partners: North Carolina Department of Cultural Resources (NC DCR) DCR is a valued partner in the Roanoke Island Festival Park s development and its future growth and success. DCR s own mission and attractionrelated goals, as outlined in the February 2012 PED report, offer the framework that shapes and guides the demonstrations, exhibits and experiences at RIFP: NC DCR Mission: To enrich lives and communities, creating opportunities to experience excellence in the arts, history and libraries of North Carolina that will spark creativity, stimulate learning, preserve the State s history and promote the creative economy. NC DCR Attraction Related Goals: 1. Expand education resources available to North Carolina teachers and students through access to the State s cultural and historical programs and services. 2. Preserve and protect North Carolina s historical and cultural resources and sites and ensure adequate capital assets. Roanoke Island Commission (RIC) The RIC was formed under a state statute in 1995 as an independent commission of the State of North Carolina, located within the North Carolina Department of Cultural Resources. The RIC oversees the activities of the Elizabeth II State Historic Site and Visitor Center, the Elizabeth II, the Ice Plant Island and all other activities (now consolidated under the Roanoke Island Festival Park) under the Department of Cultural Resources (NC DCR). Its mission is to involve residents and visitors of all ages in a creative and stimulating exploration of Roanoke Island s historical, cultural and natural resources. The Commission consists of 24 voting members: six appointed by the Governor; six appointed by the General Assembly upon the recommendation of the President ProTempore of the Senate; six appointed by the General Assembly upon the recommendation of the Speaker of the House; and six ex officio individuals, or their designees, appointed due to their elected position. Members serve two year terms with no term limits. The Executive Director of the RIC/RIFP is appointed by the Commission.

14 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 14 The Commission operates an enterprise fund within the State, so net operating funds earned (revenues less expenses) during any one year and fund balances are non reverting, meaning that revenues do not revert back to its original source and do not revert to the General Fund. As of June 30, 2012, RIC enterprise fund had a fund balance of $4.078MM, according to RIFP financial statements. Per Legislation by NCGA, the Commission now operates as an enterprise fund. As a Commission and State agency, any contributions made to RIFP are tax deductible as the State is identified as a qualified organization by the IRS. Based on our review of financial information, it appears that the RIC/Friends have invested between $18MM $21MM in facility improvements and/or upgrades to the RIFP site over the years. If one assumes an average of $19.5MM total investment with a 25 year or 4% annual depreciation expense, the annual cost to maintain and preserve the site, exhibits and facilities would be $780,000. To help support the basis for on going support from the State of North Carolina and our noted depreciation allocation above, we reviewed the operating and maintenance expenditures related to current site and building assets. Based on our review of an analysis developed by RIFP staff, the current annual cost to maintain and preserve RIFP s existing facility (site, buildings and equipment) assets assets which are owned by the State of North Carolina is approximately $953,000 if you include a 3% contingency factor for emergency repair and replacement, the annual cost is $982,000. The annual maintenance expenditures for the site and building assets would include annual operating costs for utilities, site and grounds maintenance, ship and boat maintenance, HVAC, equipment and building repairs and an annual allocation for managing the current deferred maintenance replacement needs. RIFP s annual site and building maintenance expenditures (an annual expense that will continue to increase faster than inflation due to the age of RIFP s current assets) is directly offset against the State s annual operating appropriation. The Commission is created to combine various existing entities in the spirit of cooperation for a cohesive body to protect, preserve, develop, and interpret the historical and cultural assets of Roanoke Island. The Commission is further created to operate and administer the Elizabeth II State Historic Site and Visitor Center, the Elizabeth II, Ice Plant Island, and all other properties under the administration of the Department of Cultural Resources located on Roanoke Island having historical significance to the State of North Carolina, Dare County, or the Town of Manteo, except as otherwise determined by the Commission. The Commission is responsible for operating and administering: 1) Elizabeth II State Historic Site and Visitor Center; 2) Elizabeth II;

15 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 15 3) Ice Plant Island; and 4) All other properties under the administration of the Department of Cultural Resources located on Roanoke Island having historical significance to the State, Dare County, or the Town of Manteo. Because the statute transferred all other Roanoke Island properties under the administration of the Department of Cultural Resources to the Roanoke Island Commission, there are no properties on Roanoke Island of historical significance to the State of North Carolina, Dare County or the Town of Manteo that the Department now administers. All properties in Dare County that have been allocated to the Department of Cultural Resources and are now administered by the Roanoke Island Commission under Section 143B are identified below. According to the State Property Office database, the following properties are allocated by the Department of Administration to the Department of Cultural Resources, Elizabeth II State Historic Site in Dare County: Grantor/Grantee Address City Isabel Lennon Warren, One Festival Park Manteo Willim E Lennon Etux Issac A Ketchum Heirs (Robert R Hayden) Malcolm Fearing, III, One Festival Park Manteo Scuppernong R. Roanoke Island George W. Spicer Robert R Hayden Etux Mildred C Et One Festival Park Manteo Roger P Meekins and Wife Eleanor T Meekins One Festival Park Manteo In addition to the above properties, RIC are stewards of property located in Martins Point at 6505 N Croatan Highway.

16 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 16 The Friends of Elizabeth II The Friends of Elizabeth II is a 501(c)(3) organization which was established in years prior to the RIC being formed with its primary role to support the Elizabeth II ship. When incorporated in 1982, the stated purpose for which the Friends organized was noted as: To research the history of navigation and sailing vessels of the Sixteenth Century; To construct, maintain and operate a replica of a Sixteenth Century sailing vessel; To develop the educational and cultural aspects of the vessel and interpret and disseminate that information to the public through special programs, exhibits, or related activities; To disseminate information about the constructed vessel and early English settlements in America; and To exhibit and display the constructed vessel at public functions and events for educational, cultural and historical purposes. The current mission of the Friends of Elizabeth II is to support history, education and arts programs of the Elizabeth II and Roanoke Island Festival Park. As stated in the Friends current bylaws, the purpose of the Friends is to act as the non profit arm of the Commission and to advise the Commission on matters pertinent to the development and operation of the Site; to publish, acquire, dispose of and rent property or real estate, and any other materials and equipment to enhance its goals; to operate a museum store and other concessions on behalf of the Commission. The current Board of the Friends is comprised of eight individuals from the Roanoke Island community with Tod Clissold, the current Chairman of the Board and Task Force member. Members of the Board are self selected and nominated by the Board. As of October 31, 2012, the Friends of Elizabeth II reported a total investment (Trust) fund balance of $7.2MM. These funds include the restricted fund balances and the approved Friends funding for the RIFP/RIC fiscal year. The Friends also have approximately $1.2MM (net of depreciation) in land/building assets as of December Historically, the Friends have not been a fund raising organization (Note: nothing precludes the Friends from raising funds) as their primary responsibility has been to manage the Trust funds on behalf of the RIC with their priority being the welfare of the Elizabeth II. In fiscal year 2012 (commencing July 1, 2011), legislation modified the funding relationship with the Friends and RIC. The RIC could no longer transfer any portion of its net operating funds to the Friends see Shift in Funding of the Roanoke Island Festival Park subsection below. In fiscal year 2012, the State reduced its annual operating appropriation to RIFP by 18% from the fiscal year 2011 funding level (reduction of ~$423,000); fiscal year 2013 s reduction was 53% from its fiscal year 2012 level of support, or a reduction of $1.017MM. At the same time, RIC asked the

17 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 17 Friends to contribute to RIFP s operating programs. In fiscal years 2012 and 2013, the Friends will have provided $252,523 and $296,759 respectively in support to RIFP s operating programs, including carryover unspent funds from 2009 and The Friends current financial policy is that in any given year not more than 80% of the previous year s total earnings, including but not limited to interest and/or dividend earnings, shall be expended for any Friends [and/or RIC projects/programs]. The Friends have projected that its baseline earnings available for distribution (80% of total earnings) will be $175,000 annually. The $175,000 represents a 2.5% annual draw on the total current market value of the Trust. The $175,000 baseline projection does not include any restricted or Capital fund distributions, if needed and/or requested by RIC. It should be noted that the market value of Friends Trust has increased over the years due primarily to the principle growth of the investments held which are not considered earnings by the Friends. Over the past year, the State and RIFP have requested additional funding from the Friends (beyond the 80% of earnings) but the Friends have declined to increase their support beyond their current funding policy, citing that it is their fiduciary responsibility to manage the Friends assets in such a way that the funds will grow over time with an objective of helping the RIC/RIFP to become self sustaining. When the Friends were asked what would happen with their current Trust funds IF RIFP would close there were some previous discussions that the Trust funds could revert back to the State the Friends noted that their Articles of Incorporation had the following statement of dissolution: upon dissolution of the Corporation, the assets thereof shall, after all of its liabilities and obligations have been discharged or adequate provision made therefore, be distributed exclusively to any association or associations organized for the purposes similar to those set forth in Article III hereinabove or to charitable, religious, scientific, literary or educational organizations which would then qualify under the provisions of Section 501(c)3 of the Internal Revenue Code It would appear that the Trust funds based on the above dissolution agreement would not revert to the State. However, it would also appear that the RIC and the Friends need to have a frank and open discussion with buy in on the new vision and sustainability plan under the new economic realities to clarify their core functions in supporting the future sustainability of RIFP. If the Trust funds will only grow through market value (could also decline), leadership of the RIC and the Friends have an opportunity to re visit the intent of the Trust fund and to re think best practice approaches to supporting the vision and sustainability plan for RIFP. As outlined in our Recommendations and Next Steps, it is critical that the leadership of the RIC and the Friends work together as one voice to chart the future growth and viability of the RIFP with the State of North Carolina serving as a strong partner in supporting RIFP s mission.

18 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 18 Shifts in Funding for the Roanoke Island Festival Park To help frame the shifts in State and Friends have shifted over the past two years, we have provided a brief summary below: Since July 1, 2011, there have been a number of versions to how the Roanoke Island Festival Park and the Friends of Elizabeth II are funded by the State and how excess operating revenues (net operating margins generated from revenues less expenses, including any State appropriations) are allocated to the Friends. As of July 1, 2011, RIC was prohibited from transferring any excess operating revenues to the Friends. We have provided a summary of the key changes below. Prior to July 1, 2011, the RIC must keep seventy five percent (75%) of its revenue and use these dollars for the operation and maintenance of its properties. The remaining twenty five percent (25%) of the RIC s revenue must be transferred to the Endowment Fund. After July 1, 2000, the Endowment Fund in turn may return eighty percent (80%) of the investment interest earned back to the RIC for operating expenses and capital expenditures. All net operating revenues, including revenues from any State appropriations, may be transferred to the Friends of Elizabeth II. The Friends of Elizabeth II can also raise its own money. Through June 30, 2011 Roanoke Island Commission Fund Must Deposit: 75% revenues collected from property operated by RIC May Deposit: Gifts, grants, bequests Use For: Expense of RIC and operation and maintenance of properties operated by RIC Appropriations May: Transfer to Friends of Elizabeth II to carry out purpose of this Part Roanoke Island Commission Endowment Fund Friends of Elizabeth II Must Use: Transferred [appropriated] funds to carry out purpose of this Part Note: Nothing precludes Friends from raising their own money Must Deposit: 25% revenues collected from property operated by RIC Through 06/30/2000: 100% interest from Endowment forms principle After 07/01/2000: May use 80% of interest in Endowment to carry out duties

19 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 19 After July 1, 2011 but prior to July 1, 2012, the RIC must still keep seventy five percent (75%) of its revenue and use these dollars for the operation and maintenance of its properties. All state appropriations must be deposited with the RIC. The remaining twenty five percent (25%) of the RIC s revenue must be transferred to the Endowment Fund. The Endowment Fund in turn may return principal and twenty percent (20%) of the investment interest earned back to the RIC. Upon the request of RIC, The Friends of Elizabeth II must transfer dollars for the operation and maintenance of the RIC properties, as requested by the RIC. The Friends of Elizabeth II can also raise its own money. From July 1, 2011 Roanoke Island Commission Fund Must Deposit: 75% revenues collected from property operated by RIC May Deposit: Gifts, grants, bequests Implied Deposit: DCR pays pro rata share for OBX History Center; Proceeds from Buzzy Lane properties Use For: Expense of RIC and operation and maintenance of properties operated by RIC Appropriations FY12 $1.9MM Friends of Elizabeth II Must Use: Balance of unencumbered funds transferred to it only for commission expense or operating properties, or maintenance, as requested by Commission Notes: Statutory language allowed transfer of funds to Friends was repealed; nothing precludes friends from raising their own money Roanoke Island Commission Endowment Fund Must Deposit: 25% revenues collected from property operated by RIC May Use: Funds from principal and remaining 20% interest IF insufficient cash flow AND financial obligations are critical, BUT may not use for capital expenditures After July 1, 2012, the RIC must transfer one hundred percent (100%) of its funds and revenue to the Endowment Fund. The Endowment Fund will be known as the Historic Roanoke Island Fund (HRIF). All state appropriations must be deposited with the HRIF. Under the current approved legislation, State appropriations will be reduced incrementally in , and There will be no State appropriations beginning in the fiscal year. The Friends of Elizabeth II must transfer dollars for the operation and maintenance of the RIC properties, as requested by the RIC. The Friends of Elizabeth II can also raise its own money.

20 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 20 Effective July 1, 2012 Historic Roanoke Island Fund Must Transfer: All funds held by RIC, include all balances credited to RIC Endowment Funds Must Credit to Fund: All operating revenues; include revenues collected from any property operated by RIC, gifts, grants, donations, other financial assets Must Credit: DCR pays pro rata share for OBX History Center; DCR credits all rental proceeds from Buzzy Lane Properties Use For: Non reverting enterprise fund used only for expense of operating and maintaining RIC and properties managed by RIC, carrying out any other duties and purpose set out by Part; or for capital expenditures for properties operated by RIC Appropriations Reduced Incrementally: : $903K : $675K : $450k Self Supporting: Friends of Elizabeth II Must Use: Balance of any unencumbered funds that were transferred to it only for expenses of RIC that are identified as operating, or maintaining costs by RIC, and that are requested by RIC Notes: Subsection remains unchanged; nothing precludes Friends from raising their own money As noted, under the current legislation, the State s support for RIFP will decline from its high of $2.35MM in FY11 to zero in FY 16 the new economic realities but not viable IF RIFP is missioncritical.

21 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 21 VI. Key Findings: RIFP Financial Data We have provided some background financial data on Roanoke Island Festival Park in relationship to other State of North Carolina museums and commission facilities as reported by the Program Evaluation Division in their February 2012 report to the Joint Legislative Oversight Committee. The data provided is helpful in framing RIFP s performance, not necessarily comparing or evaluating its performance. It is true that no two cultural attractions (museums and commission facilities included) are alike and therefore it is very difficult to draw like comparisons. Some of the unique institutional factors that impact the comparisons are: size/acre; staffing the 12 identified institutions have full time equivalents that range for 3 to 69 staff members; number of facilities/buildings; operating schedule; partners and their roles. Net State Cost per Visitor Museums/ Commissions RIFP Number of Sites Compared in Survey 12 1 Average Expendatures $2,663,037 $2,226,053 Average Visitors 244, ,347 Median Cost Per Visitor $10.05 $14.81 Average Revenue $386,762 $603,750 Average Net State Costs 2,276,276 $1,879,250 Medium Net State Cost Per Visitor $8.61 $12.50 Notes: Net State Cost per Visitor from Program Evaluation Division RIFP reflects the average of the prior four years It should be noted that although RIFP s actual fouryear average gross and net median cost per visitor are higher than the averages of the 12 identified institutions, it is comparable on its gross with the North Carolina Battleship ($14.83) and significantly lower on the net cost for both Tryon Palace and North Carolina Museum of Art ($19.84 and $15.64 respectively). We have provided a summary of information from the February 2012 PED report below for the 12 museum/commission facilities identified. Of note are the following: Only the North Carolina Battleship is self funded with no State operating support; very engaged Non profit Board with very active fundraising and volunteer programs; The Mountain Gateway Museum is an outliner as operating costs are extremely low; Not all of the museums noted in the PED report charge an admission fee for entrance; and RIFP s performance is comparable for facilities with greater than a $1MM operating budget

22 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 22 Museums and Commissions (Department of Cultural Resources) Staff FTE Expenditures Visitors Cost per Visitors Revenue Net State Cost per Visitors North Carolina Battleship 37 $3,094, ,651 $14.83 $3,063,217 None Graveyard of the Atlantic Museums 3 $354,603 69,164 $5.13 $5.13 Mountain Gateway Museum and Heritage Center 3 $160, ,074 $0.49 $0.49 Museum of the Albemarle 16 $1,097,008 71,828 $15.27 $150 $15.27 Museum of the Cape Fear Complex 4 $614,025 76,337 $8.04 $8.04 North Carolina Transport Museum 11 $979,662 97,489 $10.05 $25,591 $9.79 North Carolina Maritime Museum, Beaufort $1,049, ,532 $3.88 $420 $3.88 North Carolina Maritime Museum, Southport 4 $253,947 58,612 $4.33 $4.33 North Carolina Museum of Art 110 $7,481, ,987 $16.37 $333,809 $15.64 North Carolina Museum of History $4,760, ,277 $8.65 $20,987 $8.61 Roanoke Island Festival Park 29 $2,096, ,270 $14.33 $227,521 $12.78 Tryon Palace $4,678, ,264 $27.16 $1,261,831 $19.84 Notes: Fiscal Year 2011 Reported Data from the 2012 Program Evaluation Committee Report We have provided below summary attendance and financial data as submitted by the RIFP staff as a baseline for developing future projections and recommendations: Admission Fees Ticket Prices Adult Child/Student Group Adult Group Student 1/2 Price Sunday Adult 1/2 Price Sunday Child/Student Special Price Tickets - Partner Coupons & Discounts Adult Coupons & Discounts Child/Student Programs Adult & Students $8.00 $8.00 $8.00 $8.00 $10.00 $10.00 $5.00 $5.00 $5.00 $5.00 $7.00 $7.00 $6.00 $6.00 $6.00 $6.00 $7.50 $7.50 $3.75 $3.75 $3.75 $3.75 $5.25 $5.25 $4.00 $4.00 $4.00 $4.00 $5.00 $5.00 $2.50 $2.50 $2.50 $2.50 $3.50 $3.50 $6.38 $6.38 $6.38 $6.38 $6.38 $6.38 $7.00 $7.00 $7.00 $7.00 $9.00 $9.00 $4.00 $4.00 $4.00 $4.00 $6.00 $6.00 $0.00 $0.00 $0.00 $0.00 $0.00 $6.38 The fees for the full price admission categories were adjusted by $2.00 in fiscal year 2012 to help offset the reduction in State operating support and to adjust for market place pricing. RIFP offers a $1.00 discount coupon via its website that is utilized by approximately 33% of the RIFP s non group visitors. The Child rate covers ages 6 17 with the Free child category covering ages 5 and under.

23 Strategic Plan for Financial Sustainability: March 2013 Final Report Page 23 Consideration should be given to modifying the age distribution of the pricing categories as cultural attractions (and museum goers) typically view adults as ages 13 and above; children as ages 3 12 and under 3 as free. The shift would serve to increase admission revenues and have no impact on visitation as the current visitor experience and programs are under valued given our professional experience and on site interactions. RIFP has a strong paid visitor base of 50,000 visitors and total visits to the Park of 145,000 visitors from which it can build upon in the coming years. Non ticketed visitors are attendees to third party/sponsored special events, meetings or programs held at RIFP. Eight Year Financial Summary of RIFP s Consolidated Programs Actuals from FY06 FY12 and Budget for FY13 One time charges Budget Revenues *State Appropriation $ 1,954,666 $ 2,107,240 $ 2,113,509 $ 1,944,643 $ 2,353,971 $ 2,341,367 $ 1,920,154 $ 903,491 *Admission Fees $ 307,517 $ 328,324 $ 344,211 $ 300,000 $ 329,328 $ 301,756 $ 326,406 $ 354,511 *Donation/Gifts $ - $ - $ - $ - $ - $ 796 $ 44,830 $ 15,000 *Misc. Revenue $ - $ - $ - $ - $ 35 $ 810 $ 2,910 $ 33,980 *Rental Income $ - $ - $ - $ - $ - $ - $ 29,239 $ 43,000 Recoveries & Other Revenues $ 969 $ 3,572 $ 351 $ 340 $ 1,880 $ 300 $ 110,069 $ - **Transfer From Fund 1230 (OBHC reimbursements) $ - $ - $ - $ - $ - $ - $ 13,541 $ 15,086 **Interest Earned $ 66,666 $ 96,088 $ 126,007 $ 98,531 $ 51,276 $ 33,710 $ 26,000 $ - ***Transfer of Funds from DCR to RIC (Buzzy Lane) $ - $ - $ - $ - $ - $ - $ 81,670 $ - Friends of Elizabeth II $ - $ - $ - $ - $ - $ - $ 252,536 $ 296,759 Total Revenues $ 2,329,818 $ 2,535,224 $ 2,584,077 $ 2,343,515 $ 2,736,490 $ 2,678,739 $ 2,807,355 $ 1,661,827 Operating Fund Disbursements Personnel $ 1,459,033 $ 1,558,523 $ 1,532,183 $ 1,639,108 $ 1,626,503 $ 1,617,559 $ 1,493,886 $ 1,532,299 Operating $ 308,168 $ 361,993 $ 445,946 $ 342,448 $ 592,915 $ 983,555 $ 480,332 $ 543,445 Transferred to Friends of Elizabeth II, Inc $ 416,000 $ 238,918 $ 292,322 $ - $ - $ - $ - $ - Legislative Mandated Transfer $ - $ - $ - $ - $ - $ 33,710 $ - $ - Total Operating Fund Expenses $ 2,183,201 $ 2,159,434 $ 2,270,451 $ 1,981,556 $ 2,219,417 $ 2,634,823 $ 1,974,218 $ 2,075,744 Annual Operating Margin (Revenues - Expenses) $ 146,617 $ 375,790 $ 313,626 $ 361,959 $ 517,073 $ 43,916 $ 833,137 $ (413,917) Ending Balance (Carry Over Balance) $ 1,714,332 $ 2,090,122 $ 2,321,968 $ 2,683,927 $ 3,201,000 $ 3,244,916 $ 4,078,053 $ 3,664,136 In each of the past seven years, with the support of the State, RIFP has generated excess net operating revenues that have allowed for the accumulation of over $4.078MM in its non reverting enterprise fund balance. The accumulated enterprise fund balance is net of the fund transfers authorized by RIC to the Friends of Elizabeth II, which in total has been $5.348MM and $947,000 from FY 2006.