All,

While this won't make me any more popular with some of the folks at the Kentucky Railway Museum ("KRM"), I have decided to post the museum's 2011 Annual Report, which was made avaiable for inspection at the Museum's Annual meeting on Friday, April 20, 2012. The report is attached as a .pdf document. I was unable to attend, but from what I heard from several who took good notes is that the "establishment" candidates won re-election to the board.

This also supplements two other RYPN discussions on KRM and it's condition, located http://www.rypn.org/forums/viewtopic.php?t=32037 and http://www.rypn.org/forums/viewtopic.php?f=1&t=32023&hilit=Sea+Breeze

This "Annual Report" should be instructive to RYPN readers in how to not run a museum. This is what happens when you fail to develop private sources of funding, conduct no fundraising, and depend too heavily on the little blue British engine and government grants to keep your operation afloat. This is also what happens when you lose focus of what your mission as a museum is, embark on acquiring equipment not relevant to the museum's mission, and generally mismanage affairs. This is also illustrative of the "day of reckoning" that less well-endowed and operated museums will face in the near future. To me, the economic crisis of present has exposed those museums and organizations that were not well prepared for such a rainy day, KRM being one of them.

Some highlights and editorial comments from my review of the report:

-There's a KRM Roster for those of you who are interested.
-Notice the sparse information contained o the "financial statement" which tells you nothing. You learn more about KRM from looking at the IRS Form 990, which was not provided to members.
-Notice that the "economy" and other non-internal factors are blamed for the financial condition of the museum, not a general lack of fundraising.
-KRM wants to install a turntable, but there are no plans for budget to cocoon wooden cars, protect at-risk equipment, or provide for more covered storage.
-Notice that KRM, over six months into the self-created financial crisis, is not seeking private donations, but rather signing up for a new round of government grants.
-Despite being over $600,000.00 in debt, the museum has a paid staff of five people, plus numerous part time and hourly workers.

To me, this shows that the majority of KRM's membership and its leadership have failed to really learn from its mistakes. My guess is that the museum will continue to have the same problems, and will engage on scrap drives to "fix" the problem again and again. Instead of being brutally honest, the leadership is blaming the same old whipping boys of “the economy.” This does not bode well.

Edit: The Report was provided to the membership in black and white form, so the pie charts are as useless to them as they are to you viewing it.

Not with a bang, but with a whimper.

Isn't that a bit unprofessional posting such a thing on RYPN? This is clearly a document meant only for the members and directors of KRM.

KRM styles itself as a museum, "The Official Railway Museum of the Commonwealth of Kentucky" (an honorary title). In theory, a museum such as KRM holds its collections (equipment, smaller artifacts, etc.) in trust for the education and benefit of the public.

KRM also avails itself of non-profit status under section 501(c)(3) of the tax code of the United States of America, and similar provisions of the Commonwealth of Kentucky. As such, documents, including the annual report are not private, proprietary or confidential.

It is not an internal or confidential document, and does not state so whatsoever in the document. Any potential donor could and should ask to view such documents, including the annual report. It contains no personal or private information. The financial information is a heavily-redacted version of the financials every non-profit has to put on their IRS Form 990, which are publicly available.

How we govern ourselves in railway preservation is a valid point of discussion. If you are a non-profit organization, you should be willing to withstand public scrutiny. If you expect private donors to be interested in your organization, you should be able to withstand the same scrutiny. Sunlight is the best disinfectant. If you don't think your organization could withstand public scrutiny, then you should convert your organization to a private club.

This is a continuation of two long-running discussions on this forum about the present condition, both physical and financial of KRM as an organization, and as such, full disclosure of this is both acceptable and by no means "unprofessional."

I'd drink to this post if I hadn't drunk it all already!!!

The equipment roster doesn't appear to be complete. Example: Where is the IC caboose? Has it been sold or scrapped already?

Good report, David, and a lesson to others if they are open-minded enough to read and understand it. This is a teaching moment.

Lincoln, you are correct. I do not think the roster is complete. Even the annual report says that it is "under investigation." I don't know how hard it is to walk around the property and figure out what you own. I mean, this isn't a major class 1 railroad, there are a finite number of places KRM equipment could be. The roster also has some errors.

That being said, in the 1980s annual reports of KRM, there was a very good and accurate roster. Why they didn't work from those as a starting point, I do not know.

I think the IC caboose is still on the property.

A blend of public and private funding sources is an optimal mix for any museum. Rare is the museum which is entirely funded from private sources only, train museums or otherwise.

A better question is: what was the attendance at the museum for 2011? Are they publicizing themselves, or is it the "we know better" group which is insular and has no outreach to the populace. Is membership increasing or decreasing?

Lastly, 600,000k is an awful lot of debt. Short of obtaining the 990 (which can be done on some search engines and is public information), what did the funds go to?

I wish a few more people felt this way, there is a group up in New England that should take this to heart.......

If there was a like button I would have hit it, and if there was a share button I would have hit that too.

East of Eden,

You make good points. I have also attached KRM's 2010 IRS Form 990 to this post. It is a .pdf document.

Public vs. Private Financing

The problem is that KRM has relied almost exclusively on public financing. This is problematic at times like now, when such public financing dries up. What do you do? A good mix of public and private financing is the "right" mix, especially when that rainy day or days comes. When you are in that much debt, and have so much capital projects that need attention, the fact that you haven't even began to raise funds through private donations, and instead announce another new round of requests for government grants shows a myopia.

My longstanding point is that when you rely solely on one source of "fundraising" such as government grants, you are shortchanging yourself in the long term. A sound strategy would involve private fundraising, private grants, and public grants.

Ridership/Attendance

I find it curious that no such comparison is shown in the Annual Report (unless I missed it). I too would like to know what visitorship and admissions at the museum looks like. My gut guess is that it is down, part of a long downward trend.

Membership

Active membership is down. This has been a long term trend; volunteer functions are being replaced by paid staff. There has been no real outreach program to get new active members who volunteer. Replacement of key volunteers, especially as they age, is an issue for KRM and many other museums.

Debt

As I understand it, KRM had a revolving line of credit, like a credit card, from the bank that it slowly grew. If one looks at the IRS Form 990s for KRM, you will notice the long term trend of this, finally reaching a point late last year when the bank cried "uncle" and demanded the debt situation be addressed. In response, the museum began scrapping equipment before offering it to other non-profits or paying parties. I find it curious that such information, including how the debt was restructured, was not included in the Annual Report. Where all of this money went is also somewhat of a mystery. My guess is that a portion was used to purchase non regionally significant equipment for the tourist train, while the rest was used during "lean months" to keep the light bill on and the paid staff going. In other words, there really isn't a "great purpose" that KRM put itself into debt for, like land acquisition, or building covered storage for the equipment.

The IRS Form 990 for 2011 was not provided to the membership. That form has better information than what KRM provided its members about the financial condition of the museum. The 2010 form as a guide shows that the museum had approximately $222,000.00 in wages to paid staff. If the museum cut that in half or more, their debt problem would be over in a few years if those monies were applied to debt service.

In Summary

At the most basic level, KRM has failed at its mission as a museum. Much of the equipment continues to rot, with no plans for disposition to better homes or plans for stabilization. The financial problems faced by KRM are not unique. However, they are an example of what happens when an organization relies too much on the little blue engine and TEA-21 grants, fails to attract new volunteers, and private sources of fundraising. The "in charge" group, who helped drive the museum off of a cliff is under the delusion that they and they alone can save the museum. They have made just about every wrong decision they can, short of setting the place on fire to "save it." They think that the fact that the membership has too much power in selecting board members is the problem, and replacing them with a self-perpetuating board, and seeking more government grants for a turntable will be the solution.

At the most basic level, this whole discussion has not been to air my dirty laundry and dissatisfaction with KRM's leadership. Instead, it should be viewed as instructive to other organizations. Be careful how you present yourself to both your membership and potential donors. Keep an eye on those finances, and do not become too dependent on one source of revenue and fundraising. Start thinking about the "long term" and issues such as volunteer recruitment, and the long term viability of your organization. How we govern ourselves has a direct impact on how we raise funds and present ourselves to the public. The KRM way is a way I would not recommend.

And the membership presumably is more than satisfied with the situation, as they voted the perps back into office.

So, isn't the membership simply getting what they deserve?

I have no dog in this fight, just waiting to see eventually how high the bids on 152 get in case I don't have to drop out. I always like its lines.

dave

Dave,

Good point, what is left of the active membership is mostly (with a few people who ask tough questions) more concerned with "playing train" than the long term viability of the organization.

For example, a few months ago, in a large e-mail discussion amongst many KRM members, I made many of the same points. I got more than one reply of members along the lines of "Gee, I'd really like to ask those same questions, I'm just afraid they will be mad at me and take me off engineer's list and I won't get to run the locomotive." I replied to each one, and mentioned that if the museum continued down its present path, there wouldn't be a museum, an engineer's list, or a locomotive to run. Never got a reply.

The membership, collectively (myself included) is to blame for not being engaged, willing to ask tough but fair questions, and electing the same people over and over again to run the museum. On the other hand, I think the leadership at KRM has not been fully honest with the membership in reporting the museum's situation, and is instead trying to use this crisis to further insulate them in power. In the end though, it is the directors and corporate officers that owe the legal and fiduciary duty to the organization, and they should shoulder a lot of the blame.

If you are involved in railway preservation, even if you aren't an officer or director, you should be thinking about the "long term" and the long term viability of your organization. Being a responsible member is just the same as being a responsible citizen, participate and inform yourself.

Dave, maybe we can do a joint bid for 152?

Thanks for the 2010 990, Dave.

A salary for the Secretary who sits on the Board.Is that person allowed to vote? The Executive Director's salary is in line.

The most glaring omission is no Treasurer position (unless I missed something). I cannot believe KRM doesn't have one with this amount of money. If this position is an "unofficial" one blended with another position, that is incredibly poor Board management and is a recipe for "rubber stamping" projects.

You have to cross reference the 990 with the 2011 Annual Report and a few things become clear:

The corporate secretary is employed by the museum as the office manager. That's where her salary comes from. While those salaries may be "in line" you have the issue that there are currently 5 full time employees, a number of part time employees, and a gaggle of hourly help used for special events. With that much debt load, you should be willing to cut some of the paid staff to economize, which hasn't happened.

There is a treasurer, he's also a board member, as as far as I know has no professional training in accounding. As far as I know an outside accountant does the monthy statements, but these aren't presented to the membership, just the woefully inadequate "summary" in the annual report. In fact, it was the treasurer/board member who stated that the equipment needed to be scrapped to keep the museum open and keep people employed. In other words, priorities are not in line.

For clarification, there was one "insurgent" member who tried to win one of the board seats, but he was beaten by the establishment. However, change can't happen with just one member running and a few others concerned.

I am invovled with another non profit that has a treasuer who is actually an accountant, and who looks at things and is very meticulous. It's amazing the difference professionalism makes.

Geez.

There should be a recording secretary who is distinct from the corporate secretary/office manager. The recording secretary can sit on a board (voting or not depending KRM bylaws), the other should not. Otherwise, there is conflict of interest by one who gets paid, and can vote.

Not having a corporate Treasurer listed, and having a Trustee acting as one who has no CPA/financial acumen can open the door to many embarrassing questions if ever audited.

BTW: Depending on the state, minutes of all not for profit meetings are required, and open to inspection if asked or demanded.

Dave, is there an actual business plan they follow here, with long and short term goals?

I don't think the secretary is a voting position on the BOD, though that's hard to see.

With regard to the Bylaws, they called a special membership meeting back in October and voted to suspend the bylaws. The claim was that suspending them would allow the BOD to handle the self-created crisis. Now, the bylaws say that the notice for a special meeting needs to state the particular purpose for which the meeting is to be called. The notice, of which I have a copy just says "To discuss the future of KRM." My guess is that the suspension of the bylaws is invalid. The Executive Director, who is paid, used to sit on the BOD and still may, which is a major conflict of interest.

With regard to a business plan, you will have to ask them. The Annual Report indicates that they want to formulate one. Given we are over six months into the "KRM Financial Crisis" and they do not yet have one, it should give one cause to alarm. If they had one before, they either 1) were not following it, or 2) had a really really really bad business plan.

Either way, while I wish them the best, I'm kind of sitting around for the inevitable end.