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The Future of Flight Foundation Takes the Helm


On June 26, 2006, at the Snohomish County Tomorrow Annual Dinner, Governor Christine Gregoire presented Barry Smith with a special award that was inscribed “. . . whose visionary leadership MADE IT HAPPEN.” This well-deserved recognition capped the effort by Mr. Smith, his nonprofit organization, and their many partners to get the Future of Flight Aviation Center & Boeing Tour project off the ground. But by this time, the Future of Flight Foundation was very busy keeping the enterprise flying high.

Operating Agreement

A Contract for Professional Services between the county and the Future of Flight Foundation became effective on January 1, 2006. The contract stated that it would run through June 1, 2006. The agreement, in effect, retroactively documented services the Foundation had already been performing. It was an interim step on the way to the nonprofit formally assuming the facility operator role.

The contract referred to a five-month delay in the originally scheduled opening of the facility, the new opening date being December 17, 2005. The agreement covered several tasks performed by the Foundation, including managing “pre-opening special events,” running the Visitor Information Center in the facility, arranging for an electronic ticketing system, and preparing space in the exhibit Gallery for the Passenger Experience Research Center installation. It also that the nonprofit would hire and train staff, as well as recruit and train volunteers. Lastly, the contract noted that the county, the nonprofit and the Museum of Flight were negotiating to assign the County-Museum of Flight operating agreement to the Foundation.

On May 18, 2006, Snohomish County signed an Assignment and Amendment Agreement by which the Future of Flight nonprofit organization formally took over the facility operator role from the Museum of Flight Foundation. The signing took place at a “deep breath party” at the Future of Flight attended by over 100 workers and their families. The county was represented by Executive Aaron Reardon and County Council president Kirk Sievers. (The “deep breath” was being taken as the workforce geared up for the spring-summer high season.)

The Assignment and Amendment document stated:

. . . in early 2005, the County, MOFF [Museum of Flight Foundation], FOFF [Future of Flight Foundation] and the Boeing Company decided . . . that it was in the best interest of the Future of Flight Aviation Center and Boeing Tour that the theme of the exhibits in its aviation gallery would be the future of commercial aviation technology and designs; and

. . . the FOFF has in repeated instances served as de facto operator of the Future of Flight Aviation Center; and

. . . FOFF is best positioned to provide the services necessary to . . . operate an internationally recognized facility which will be a showplace for new aviation technology and which will be an attractive venue for future aviation conferences . . ..

The Assignment and Amendment left the Operating Agreement’s terms in place, with two specific amendments. Section 3.2(a) was changed to allow either party to terminate the agreement on thirty days’ written notice, and Section 1.10 was revised to clarify ownership of donations and gifts to the operator. The county and the Foundation committed to promptly begin negotiations to revise and update the agreement.

The Operating Agreement stated its goal as follows:

To create an internationally recognized facility for aviation education and conferences in Snohomish County through the development and acquisition of * * * exhibits, artifacts, and histories and the production of world-class events and programs and the long-term development of a museum that is financially self-sustaining.

The operator’s duties included routine maintenance and upkeep of the facility and exhibits, with the county being responsible for any capital replacements, improvements, or additions. The agreement contemplated that the county would own exhibits and that the operator would procure loans of some Museum of Flight-owned exhibits. The agreement specified that “donations and gifts made or pledged to benefit the County or the [Future of Flight Aviation Center] shall become the property of the County.” The operator would promote and conduct “conference and educational” activities, including Snohomish County schools K-12 educational programs and special aviation events and conferences by nonprofit organizations. The operator was responsible for obtaining catering and similar services for events at the facility.

Under the agreement the county would pay for the operator’s reasonably incurred expenses, pursuant to a county-approved annual operating budget. All revenues collected by the operator (including from ticket sales, food service, the gift shop, meeting and event space sales, and advertising sales) were to be deposited in a specific bank account established by the county in its own name. Any revenues received by the operator that did not fit within the contract definition of “operating revenues” were to be disbursed directly to the county. The operating account would be the first source of payment to the operator, and then any shortfall would be paid from the County Airport’s operating fund. If the facility operated with a positive cash flow, then the operator could receive an “incentive fee.” The operator would hire staff needed to fulfill its obligations under the agreement, including specifically a director.

It took four years to replace the original operating contract. Pursuant to the County Council’s approval, the new 15-year agreement became effective on December 16, 2009. The Future of Flight Foundation’s duties as the operator remained essentially the same: running the Aviation Center portion of the facility (i.e., the common areas and the exhibit gallery); performing routine maintenance; obtaining exhibits; managing meeting and conference spaces and events (including obtaining catering services); running a gift shop; providing educational programs; and coordinating with the Boeing Tour Center operation.

The major development was clarifying the expenses that the county would cover and establishing stable management and other fees that the county would pay the Foundation, so that the Foundation could staff and run its operation under the contract. “We’ll have a predictable source of revenue paying us for the management we provide,” said the Foundation’s Executive Director. “That’s fantastic.” This contract improvement also benefitted and provided stability for the county, as some officials had worried that the Foundation’s poor financial situation might necessitate it giving up its operator role. “If we lost the Future of Flight [Foundation], we’d pay a lot more money to get a [private] management team in there,” said County Councilman Brian Sullivan.

The following table summarizes the major financial changes in the operating agreement.

6/9/2004 CONTRACT
12/16/2009 CONTRACT



Operating Expenses

2.2: County to pay for such expenses (re “operation, management and maintenance of the facility") per adopted annual budget. Adjusted annually.
2.1: Essentially the same as the prior contract.
Both contracts: FoFF not required to pay general facility operating costs out of its funds.

Incentive Fee

2.3 & Ex. B: Annual determination. 25% of “positive cash flow” (revenues less expenses) above $50,000. Payment not to exceed $150,000.
2.4: Annual determination. Starting in 2010, 10% of Operating Total Earned Income above $1,500,000.
New contract: percent of gross rather than net; but higher threshold.

Exhibition & Acquisition Services

2.4 and 1.7: MoF was obligated to provide initial exhibits. Compensation for this capped at $381,000.
N/A (except Admissions Tax; see below.)
FoFF mostly on its own to raise funds for exhibits.

Signing Bonus

2.5: $100,000 “in consideration of prior service.”
A catch-up provision.

Direct Management Fee

2.2(a): $50,000/yr. Starting 1/1/2013,
adjusted annually by 90%” of the increase in the regional Consumer Price  .
New revenue source. Fairly predictable amount.

Admissions Tax

2.2(b): Proceeds from the County tax on revenue from admissions (ticket sales), to be used 50% for exhibits, 30% for education, 20% unrestricted.
New revenue source.

A year and a half later, in August 2011, the county requested that the Foundation agree to changes in the operating agreement that would protect the federal tax-free status of the bonds the county had issued to build the Future of Flight Aviation Center & Boeing Tour facility. These changes would allow the county to confidently refinance the bonds in a tax-free manner, resulting in significant savings. The changes needed to align with Internal Revenue Service regulations concerned mainly the term of the operating agreement (not supposed to be over ten years) and the structure of the compensation received by the Foundation (the IRS wanted a “fixed fee” arrangement).

The County Council wanted a revised agreement to be “revenue neutral” for the Foundation, but at the same time the Foundation was realizing that it needed more robust funding streams in order to renew the Gallery’s exhibits, address staffing and compensation concerns, and grow the revenue producing activities at the facility. In order to meet the county’s near term tax-free bond needs, the parties agreed to a new, one-year operating agreement, effective January 1, 2012, and then continued negotiations on a replacement contract that would address broader issues. As these issues proved to be complex and far reaching, requiring lengthy negotiations, in the fall of 2012 the parties agreed to a second one-year contract, effective January 1, 2013.

In October 2013 the county and the Foundation finalized a new, 10-year Future of Flight Aviation Center Operation and Management Agreement, effective January 1, 2014. The Foundation’s duties remained essentially the same as under the previous agreements. For its services the Foundation receives a “direct fixed management fee” (which increases per a formula based on annual changes in the Consumer Price Index). It also receives funding from the county’s admission tax, half to be used for exhibit maintenance and at least thirty percent for educational programs. The Foundation receives revenue from Gallery-only ticket sales and from Gallery event space rentals, and it retains all revenues from educational programs it produces. The county will continue to cover expenses such as utilities, janitorial, telephone, Internet, landscaping, and insurance services.