The UW System Board of Regents settled with the UW-Oshkosh Foundation for $4.6 million and also invested $1.7 million in a biodigester. 

The UW System Board of Regents has settled with the UW-Oshkosh Foundation in a $6.3 million agreement as part of the foundation’s ongoing bankruptcy case.

The University of Wisconsin System announced the settlement late Friday night.

The settlement stemming from a dispute over who is on the hook to pay for building project loans includes a $4.6 million payment by the Regents to banks holding the foundation’s debt as well as a $1.7 million investment by the Regents into the foundation, which will funnel back to the banks.

Asked for a copy of the agreement, System spokeswoman Heather LaRoi said Saturday it will be provided “when available.” The agreement was reached Friday evening, she said.

The university’s foundation was about $15 million in debt and filed for bankruptcy in 2017. 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 private 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 both appeared 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.

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Asked how much the UW System has spent on legal fees in this case, LaRoi said, “We do not have information on our own legal fees.”

The Regents will continue to own the Alumni Welcome and Conference Center — one of the remaining building projects the foundation hadn’t sold off to pay down its debt — as it does with all UW assets, LaRoi said.

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 go to the banks holding the foundation’s debt.

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 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 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.”

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