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UW System reaches $4.6 million settlement agreement with UW-Oshkosh Foundation

December 22, 2018

The UW System Board of Regents settled with the UW-Oshkosh Foundation for $4.6 million as part of the foundation’s ongoing bankruptcy case, the University of Wisconsin System announced around 10 p.m. on the Friday before the holiday weekend.

The settlement reached through court-ordered mediation stems from a dispute over who is on the hook to pay for building project loans.

The university’s foundation filed for bankruptcy in 2017, after millions of dollars had moved from the university to the private foundation. Former Chancellor Richard Wells and former Vice Chancellor Tom Sonnleitner signed letters to lenders assuring them the university would cover debt from the building projects if the foundation could not.

State law says money can move from a private entity to a public one, but not the other way around.

Wells and Sonnleitner face felony misconduct in office charges in Winnebago County Circuit Court, where the former university leaders were scheduled to appear earlier this month. Court records indicate their next appearance will be in April.

Wisconsin’s public university foundations are nonprofit organizations primarily funded through private donations and investments. As state tax support to public universities dwindles, universities have increasingly relied on their foundations.

The UW-Oshkosh Foundation filed a lawsuit against the UW System, arguing that the System should be responsible for the debt. A U.S. bankruptcy judge issued a partial ruling in favor of the foundation over the summer, but the UW System appealed.

The Regents and UW-Oshkosh Foundation agreed “to confirm ownership of” the Alumni Welcome and Conference Center — one of the remaining building projects the foundation hadn’t sold off to pay down its debt — though it’s not clear which side owns the center.

It’s also unclear when the settlement was reached. System spokeswoman Heather LaRoi did not immediately respond to a request for comment Saturday.

The settlement also includes a $1.7 million investment from the Regents into the foundation’s Witzel Avenue Biodigester, which turns organic waste into energy. The System called the biodigester a “revenue-generating educational asset that will yield significant returns.” Those returns will funnel back into the debt-holding banks.

Statements from foundation leaders, UW-Oshkosh Chancellor Andrew Leavitt and the Board of Regents pledged support in a “renewed relationship.”

In December 2017, the Board of Regents established a specific written policy requiring primary fundraising foundations be separate and legally independent from their UW institution.

The Legislative Audit Bureau reviewed 10 fiscal years of information on the relationships between UW institutions and their foundations. Auditors were unable to obtain complete information from some universities and foundations, the March 2018 report noted.

“I cannot stress strongly enough that improving the management and transparency of the affiliated organizations is something we take seriously,” UW System President Ray Cross told the Legislature’s Joint Audit Committee in July. “It will not start or end with this audit.”

Regent Michael Grebe, who chairs the board’s audit committee, said in a statement after the legislative hearing that the the board is in the process of adopting and implementing policies recommended by the Audit Bureau.

“We are pleased the audit report confirmed the Oshkosh situation was an isolated incident,” he said. “The Board of Regents takes very seriously any issue that puts taxpayer, donor, or student funds at risk.”

This story may be updated.

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