There is a museum near my home turf in a similar situation, except its debt load is even higher. You could just change the name in the above posts about KRM and you would describe its situation exactly.

I could - and have wanted to - try to change things there, but Dave's post above sums it up perfectly: if the general membership hasn't wanted to make changes over the past 20 years, why should I push them to do so? Aren't they getting what they want?

Chris.

A treasurer doesn't need some financial degree. Financial skill is important... but while you'd worry about accounting skill, I'm more interested in the guy's FICO score. If the guy drives a fancy new car that he's underwater on becasue he put 0 down and folded a deficit on the last loan... if he has 12 credit cards all maxed... if he bought a house in 2002, 2004 and 2007 and is now living in an apartment... then he'll do the same thing to your railroad museum.

As for audits, I hate to break it to you, but audits don't do anything at all. Well, they catch math errors. But if you think the auditor's going to come back with a stern face and tell you somebody's running double books, or dipping out of the till, or squandering the endowment or taking kickbacks or any financial crime you can imagine... no... that can happen right under the auditor's nose and it's not his job to tell you! Been there, seen that.

Because railroad museums are so full of amateurs, you need to really go the extra mile to keep the accounting dog-simple. Like -- have a separate physical bank account for your donor-restricted funds. Have yet another separate account for your endowment, which by law must be invested differently anyway. Yes, it's a minor hassle grabbing a different checkbook to pay different bills. But it guarantees success and everybody gets it, because we all have IRA accounts. Keep it simple so the people who are responsible for it - get it.

That is the difference between accounting, and accountability.


Well in all honesty, does your museum do that? I know of few that do.

During my tenure at a museum, the Officers and Trustees compiled a business plan, made the plan public, and posted it publicly. It stated how much funding was needed to complete our objectives, and was given to politicians, prospective donors, etc.

I cannot fathom how a museum can operate without a business plan. How do you prepare rebuilding a piece of equipment, operate a tourist line, or get Federal funding, etc. without one?

I'm sure KRM has one. As in all museums, whether its adhered to or not is another matter.

So what will happen to the museum eqipment if this sort of action continues. What will happened to L&N 4-6-2 #152?

Matt,

Good question. I checked the Kentucky Secretary of State's online UCC filing system and found the attached document. It now lists "All Business Assets Now Owned and Hereafter Acquired" as collateral, when the collateral before was on specific pieces of equipment. KRM has basically used all of its assets, from L&N 152 to the rustiest boxcar as collateral on the newly refinanced loan. The old $600,000.00 loan was from a line of revolving credit that the bank insisted be refinanced into a traditional note with collateral.

-It is interesting to note that this was not included in the KRM Annual Report, so the membership, unless they searched themselves, would not have known it.

-Basically, if KRM is unable to meet its debt payment obligations, the bank will step in, and who knows at that point?

It's kind of scary, to be honest. Talk about mortgaging your future.

I would suggest that other concerned members might want to organize in such a manner as to be able to reorganize the museum should existing management default. Not quite sure how that works in the non-profit sector, but the time to inform the membership and get things lined up would seem to be now.

It appears to be an awfully daunting mess however.

Michael Seitz
Missoula MT

Oh, [bleep].

Benevolent saviors or vultures, stand by. Someone's gonna have to save L&N 152 (and the rest) from the scrappers at auction.

Mr. Mitchell, we aren't there yet. That's a worst-case scenario. Nothing indicates that KRM will not be able to meet their debt obligations, it was only a "what if." However, given the recent scrapping frenzy at the museum, it's clear that times have been lean and KRM has decided to scrap some of its "natural resources" to make payroll. Still, with no fundraising strategy in place, your assumption may be right about a dark future ahead.

Actually, I think the more alluring question is since the bank now has "all assets" of KRM as collateral, how does that impact donor-restricted funds, more than likely deposited in an account with the same bank?

Does KRM have to notify potential donors that their money/items will become subject to the UCC filing and could be seized, sold, auctioned, scrapped if KRM is unable to meet its debt obligations?

In the end, I think Chapter 11 probably would have been the "better" choice than turning the whole operation over to the bank. Then again, neither is a good option, and are indicative of years of mismanagement which is ongoing.

Recent discussions with those “involved” at KRM indicates that the BOD is high on “hopeium” thinking they, the ones who nearly drove the museum off a cliff, can save the museum, with little in the way of substantive plans. So far, their “fundraising strategy” is “we need money” but they won’t tell you what for. I give them three years maximum under their current course, my friend gives them one.

EDIT: By the way, Town and Country Bank of Bardstown, KY is operating under an agreement with the FDIC as they got hit pretty hard during the economic downturn and mortgage crisis. Given that the control is really out of their hands, I imagine that the bank would be more of a vulture than a benevolent savior.

David

Or for a benevolent savior/group to purchase the note/debt from the bank. Again, however, the time to organize such an effort would pretty much be now. Finding interested parties might be a problem.

Michael Seitz
Missoula MT

There might be a silver lining in this cloud. If the rolling stock is being held as collateral by the bank, this should protect it from scrapping at the hands of the present management...

As long as they pay their bills, that is.

Steve Hunter

Would it be correct reading of the UCC filing that the land/property that KRM is one (presuming they own the land) is not part of the collateral package? Would track and track materials qualify as "business assets"?

Michael Seitz
Missoula MT

My point exactly.

I'd love to be wrong about this. But IF (and I emphasize, IF) it comes down to this not-implausible worst-care scenario, I don't want (the same?) people (ONCE AGAIN) kvetching because "We're only being given 30 days to come up with $XXX,XXX! Why didn't anyone tell us? Why does this always have to happen right away at the last second?? We can't fund-raise that fast!"

This is your warning. Take heed. And if it's a false alarm, there's cash/pledges with which to stabilize or restore 152, or some other L&N (or whatever) pieces.

Not a problem... Bankers are notorious for not having a clue as to what they are looking at, and scrappers are notorious for never doing UCC searches. So, if the management wants to scrap something, it will be scrapped. The bankers can chase the dollars later, that's all they are really worried about anyway.

Mike, if you were the Monopoly man, and could hand out bags of cash to KRM, why would you? If you could pay off the debt, but the organization didn't change its practices, there's a good chance, given current management and membership trends, the museum would be back in the same place 5-10 years from now.

The organization, as a whole, has suffered from these internal, organizational problems for years, but, like serious cracks in a plaster wall caused by a serious foundation problem, TEA-21 grants, Thomas, and other things allowed that crack to be patched over. Now, half the house has seperated from the other half, and you can't put enough plaster to "hide" the problem.

If you do not change the way the organization is operated, there is no gurantee that a "savior" could effect any long-term help. I mean, the current "fundraising plan" consists of linking the KRM website to another site, to seek donations, and to run more dinner and murder mystery trains, even though RJ Corman runs a much better dinner train operation only 13 miles up the road. KRM BOD members think they can "do better" than RJ Corman by offering the same things, even though they haven't been able to do so for the last 21 years in New Haven. It shows a lack of real vision, and a lack of understanding that KRM should be a museum that offers a demonstration train ride, not a tourist railroad that happens to have some rusty artifacts and equipment on the back 40 slowly returning to their base elements.



KRM owns the right of way, and some other real estate at various places along the line, including New Haven. My guess is that the UCC filing covers EVERYTHING at the museum, from a box of paperclips in the office, to a rusty boxcar, to the remans of of Sea Breaze, to L&N 152 and C&O 2716; all land, real estate, track, ties, bridges, etc.



Steve, my guess is that the bank would have to approve any sale of equipment, even for scrap, with the stipulation of where the money goes.

Because I am from Bardstown, and spent a lot of my youth volunteering at KRM, I think about theorganization and its problems a lot. The more I learn about the current situation, the more I am convinced that in order to save this village, one might just have to watch it burn first. That is a truly heartbreaking realization.

If I was the monopoly man, I'd either sack the entire board, and probably a quantity of line staff and bring in my own team, or I'd create a new corporate (501c(3)) structure and still bring in new management. I have no investment in KRM, but for those that do, now is the time to put together the organization to replace the current KRM management team.

KRM can continue to exist, as long as somebody files the yearly 990 with the IRS and keeps up their papers of incorporation, so forming a new group is the most likely means to restructure the enterprise.

A sorry sorry mess. So many of the failures in railroad preservation (and elsewhere) are in back stories that are never told, or learned from.

Michael Seitz
Missoula MT