The embattled UW-Oshkosh Foundation filed for bankruptcy Thursday, with leaders saying their hand was forced by a “flip flop and ill-advised political gamesmanship” from University of Wisconsin System officials who backed out of a potential settlement with the foundation’s creditors.
The System faced pressure from state lawmakers not to use taxpayer money to settle the private nonprofit’s debts — which stem from real estate projects that UW officials say were improperly financed with public money and credit — when the discussions came to light earlier this year.
In a blistering news release Thursday, leaders of the foundation, which oversees fundraising for UW-Oshkosh, said those talks had produced “a fair and reasonable settlement” agreement.
But, they said, the System’s Board of Regents bowed to political pressure and withdrew its support for the settlement, leading to the federal bankruptcy filing.
“This is a petition that never should have happened and could have been avoided,” said Tim Mulloy, the foundation’s chairman. “After the state reversed its original position, failed to honor its earlier commitments and then most recently walked away from a fair resolution, we were left with very few options.”
The foundation has $15.9 million in total liabilities, according to its court filing, and $14.8 million worth of assets.
Regent Michael Grebe, chairman of the board’s audit committee, said UW officials were disappointed to learn the foundation had filed for bankruptcy.
“We had the shared goal of trying to reach an agreement that would help keep the foundation solvent, however, we could not support using state dollars to save a private entity,” Grebe said. “That is understandably frustrating for the foundation, but we must act in a financially responsible manner on behalf of the UW System and our taxpayers.”
An attorney for the foundation asserted that creditors would not have access to the nonprofit’s endowment or “other donations held for specific purposes as directed by the donors,” since those funds must go toward their intended uses.
The UW System in January fired the foundation’s president and, along with the state Department of Justice, sued two top former UW-Oshkosh officials, accusing them of illegally transferring $11.3 million from the university to the separate nonprofit for several development projects.
Former UW-Oshkosh chancellor Richard Wells and chief business officer Thomas Sonnleitner also improperly pledged the university’s credit for the projects, guaranteeing millions of dollars worth of loans taken out by the foundation between 2010 and 2014, according to the lawsuit.
System leaders have painted the case as an isolated example of two administrators making improper deals, but Wells and Sonnleitner have said UW leaders knew about how they were financing the developments.
The foundation Thursday made a similar allegation: Mulloy wrote that a top System official was “fully aware of our plans and offered no objections.”
“When the projects at the core of this matter were first proposed several years ago, the Board of Regents was a strong, public supporter,” Mulloy said.
By May, the foundation and its creditors, along with UW leaders, were engaged in what the System described as “preliminary discussions” on a settlement.
Sen. Steve Nass, R-Whitewater, blasted the potential settlement as a taxpayer-funded “bailout” of the foundation. The criticism came as lawmakers were weighing the System’s funding request in the still unfinished 2017-19 state budget; a little more than a month later, UW leaders said they were no longer involved in settlement talks.
The foundation’s two biggest debts are $6.7 million owed to First Business Bank of Madison for a biodigester in Rosendale and $5.7 million owed to Bank First National of Manitowoc for a welcome center on the UW-Oshkosh campus, according to the bankruptcy filing.
Current UW-Oshkosh Chancellor Andrew Leavitt said in a statement that the future of those projects, along with an on-campus biodigester built by the foundation, is now “in limbo.”