Sen. Steve Nass upset possible bailout of UW-Oshkosh Foundation could cost taxpayers

Milwaukee Journal Sentinel

Worried that student scholarships and other support for the University of Wisconsin-Oshkosh could be at risk, a settlement that could cost state taxpayers millions of dollars is being discussed to protect assets in the university's beleaguered private foundation.

A state senator warned Thursday such a "bailout" could have implications for UW System's entire biennial budget, which is in the early stages of being decided by state lawmakers. He made it clear in a letter to UW System President Ray Cross that any attempt to use state money to bail out a private fundraising foundation would set back efforts to rebuild trust between the UW and state lawmakers.

Sen. Steve Nass (R-Whitewater) on Thursday released a letter he wrote to Cross that states he's aware of efforts to reach a deal that potentially would use public funds "to assist in what would be a bailout" of debts of the UW-Oshkosh Foundation.

"I am aware that such a bailout might need action by the Legislature to include elements of a deal in the 2017-'19 biennial budget," Nass wrote. He said he hoped no one involved planned to "rush a bailout that benefits the private foundation and the banks/investors involved at the expense of the taxpayers or students."

He urged Cross "to keep your commitment that the public won’t be forced to fund the inappropriate decisions of two campus administrators and the failed oversight of the System."

Nass warned: "Any effort by the UW System to ram through a bailout in the late stages of the state budget process would certainly cast a new light on the public relations campaign that was launched by the UW System on this matter in mid-January."

At issue is the fact UW-Oshkosh's private fundraising foundation does not have enough cash to cover $14.5 million in debt for several real estate projects under investigation by the state Department of Justice.

The Department of Justice is negotiating the settlement on behalf of the UW System and Board of Regents.

The UW-Oshkosh projects were the subject of a suit the UW System filed in January against former Chancellor Richard Wells and his chief business officer, Thomas Sonnleitner, for allegedly funneling millions of dollars in university money into real estate projects through the private foundation to push that work despite a weak economy.

The UW System ideally wants the UW-Oshkosh Foundation to remain solvent so that its assets are not frozen or at risk. That includes scholarship support for students. The UW-Oshkosh Foundation in fiscal 2016 provided $1.3 million in scholarships.

The UW System previously contended it cannot be held liable for foundation debts on the building projects because guarantees made by Wells and Sonnleitner that the university would back the loans were illegal.

But the state Justice Department believes the banks could attempt to go after the UW System, claiming they were victims of fraud and argue the state is liable for the actions of its employees.

Wells and Sonnleitner are accused of illegally transferring more than $11 million in university funds to the foundation to help finance the university's new Alumni Welcome and Conference Center and four other building projects between 2011 and 2014.

The foundation still owes money to banks for three of the five projects under state investigation: the $12.5 million conference center on campus; and two "green" energy biodigesters, including one on campus and one at the Rosendale Dairy in Fond du Lac County.

UW System officials have spoken with some lawmakers about efforts involving the state Department of Justice to reach a settlement on the debts so that the foundation can remain solvent.

"Please note, these were preliminary discussions and no agreement has been reached," UW System Regent Michael M. Grebe, chairman of the board's audit committee, said in a statement released Thursday in response to Nass.

"We are being extremely cautious down this path, and if an agreement had been reached, we would have shared this information with the general public. We will continue to be transparent and forthcoming if there is information to share,” Grebe said.

The leaders of the Legislature's budget committee said they did not know how the issue would play out.

"It's going to be debated but we don't have a position right now," said Sen. Alberta Darling (R-River Hills), co-chair of the Joint Finance Committee.

Rep. John Nygren (R-Marinette), co-chair of the committee, said he did not have enough information about the situation.

Rep. Gordon Hintz (D-Oshkosh), a committee member, said: "As unappealing as the state coming in to fix this problem is, I think the consequences for not doing that are far worse for UW-Oshkosh and the (UW) System."

Patrick Marley of the Journal Sentinel staff contributed to this report.