UW-Oshkosh on hot seat
System sues pair over building project support
When former University of Wisconsin-Oshkosh Chancellor Richard Wells retired two years ago, he was heralded for helping modernize the state’s thirdlargest university.
In his 14 years of leadership, ambitious real estate developments literally reshaped the landscape in and around the Fox Valley campus. Degrees conferred jumped 30%, with dramatic growth in the number of majors. Enrollment rose 19%, with students of color more than tripling.
Now that legacy is drowning in scandal.
The UW System on Wednesday sued Wells and his former chief business officer on accusations of illegally promising state money to back loans on several high-profile building projects if the university’s supporting foundation became overextended and couldn’t make its debt payments. Further, Wells and his chief business officer allegedly made illegal transfers of money from the university to the foundation to help make those projects happen, the suit says.
Millions of university dollars illegally transferred to the foundation have not been repaid, according to the lawsuit, which seeks unspecified damages.
It’s hard to imagine the revelations coming at a worse time.
The UW System hopes to receive $42.5 million in new funding from the state in the 2017-’19 budget, and doesn’t need a crisis of confidence in its stewardship of state taxpayer dollars. System officials were slammed a few years ago by Republican lawmakers for not publicly dis-
closing hundreds of millions of dollars in cash balances that campuses had been setting aside for future use. That blowup created mistrust among GOP legislators and led to steep cuts in state funding and mandated tuition freezes.
The UW-Oshkosh lawsuit will surely fuel the wariness of those who think universities take taxpayer money for granted and have strayed from tight business models with highly accountable operations.
At the same time, governors and legislative leaders for years have encouraged chancellors to be entrepreneurial leaders in their communities. Academic officials — including some speaking privately on Thursday — say they are under enormous pressure to amass the kind of economic development record Wells compiled.
Notably, Wells is not accused in the lawsuit of personally benefiting from the illegal financial transactions he made on behalf of the university. While the state Department of Justice filed a civil suit against Wells and former UW-Oshkosh chief business officer Thomas Sonnleitner on behalf of the university, officials won’t say whether criminal charges also are being considered.
But while the investigation of his alleged dealings was unfolding, UW System financial management staff also began reviewing financial transactions between other UW campuses and their independent foundations.
No irregularities at other campuses have been discovered, according to UW System spokeswoman Stephanie Marquis.
So far, it appears GOP legislative leaders are satisfied with the UW’s response. UW System leaders kept Legislative leaders apprised of the investigation as it was unfolding, according to sources.
Assembly Speaker Robin Vos (R-Rochester) said the issue would not affect his thinking on funding for the overall UW System in the upcoming state budget, and gave UW-Oshkosh credit for trying to address the problem.
Assembly Republican leaders Vos, Majority Leader Rep. Jim Steineke (R-Kaukauna) and Rep. John Nygren (RMarinette) issued a joint statement commending UW-Oshkosh chancellor Andrew Leavitt for making the discovery and UW System officials, the regents and DOJ for conducting the investigation and reviewing financial transactions at other universities.
“We look forward to learning more about the UW System’s report on the matter and if criminal prosecution will be pursued,” the statement said. “We will then determine whether legislative action is warranted, which may include an audit of the relationship between universities and their foundations.”
Checking elsewhere
The unfolding legal drama sheds new light on the increasingly important role that private foundations play for public universities. They are legal, independent entities set up for the exclusive benefit of the public universities for which they are named. They can raise money for campus projects, such as welcome centers and residence halls, and get them built faster than universities because they don’t have to go through a lengthy approval process and cut through red tape required by the state for public institutions.
The UW-Oshkosh Foundation was created to provide support to the university, so funding should have flowed only from the foundation to the university. The state constitution and UW System policies do not allow a public entity to support a private organization, and campuses have strict rules that prevent university executives from being in decision-making roles on behalf of foundations.
UW leaders now have directed all campus chancellors to make sure that memorandums of understanding with their supporting foundations clearly spell out that only foundation board members and employees may initiate transactions, contracts and obligations of a foundation. And books and records must be “maintained in a professional, controlled and transparent manner and be available to the university as needed for oversight and monitoring.”
The transactions in question at UW-Oshkosh were not properly recorded in university books.
Private foundations that support UW campuses also will now be required to provide an annual audit report to their respective universities, even though they are independent organizations.
Time line of response
When Wells retired in 2014, community and UW System leaders lauded him for boosting the university’s educational and economic impact in Oshkosh, the Fox Valley region and the state.
Between 2010 and 2014, the UW-Oshkosh Foundation participated in the renovation of the downtown Oshkosh Best Western Waterfront Hotel and the Oshkosh Sports Complex. The Foundation also constructed two biodigesters and a $12 million campus Alumni Welcome and Conference Center.
Last April, UW-Oshkosh Foundation President Art Rathjen informed Leavitt that the foundation might need help from the university making its debt payment on the Welcome and Conference Center — assistance Wells and Sonnleitner had guaranteed in writing, if needed.
Rathjen was employed by the university but in a role that involved working hand-in-hand with the foundation.
Within a day of the request for financial assistance, Leavitt took the matter to UW System President Ray Cross, setting off a series of investigations that ultimately resulted in the civil lawsuit the DOJ filed Wednesday.
Wells, who was Sonnleitner’s supervisor, is accused of overseeing the illegal transfer of more than $11 million in university funds to the UW-Oshkosh Foundation to support the building projects.
In addition, Wells and Sonnleitner executed illegal guarantees pledging the university’s financial support for the foundation’s bank loans related to the projects, according to the lawsuit. The written guarantees asserted that the university would make debt payments for the foundation if it could not meet its financial obligations.
When Cross was first contacted by Leavitt about the welcome center loan payment, the UW System president directed
his staff to review financial documents on all recent UW-Oshkosh Foundation real estate projects.
The regents and UW System then hired a retired Dane County judge to independently review all guarantees that Wells and Sonnleitner had made to the foundation. When the judge’s report came back, it identified other financial transactions to investigate. At that point, the regents and UW System called in the state Department of Justice.
Because the actions of Wells and Sonnleitner were unconstitutional, the university could not legally guarantee the foundation’s bank loans or be held responsible for the foundation’s project expenses or debt service, according to the UW System.
While Wells retired in August 2014, Sonnleitner continued in his role as chief business officer and a vice chancellor. But he was placed on administrative leave last May when UW System staff informed Leavitt that letters signed by Sonnleitner guaranteeing university assistance on foundation debt were unlawful. Sonnleitner was suspended in May and retired shortly thereafter — but not before authorizing a transfer to the foundation not tied to a specific project.
Leavitt terminated Rathjen’s employment on Jan. 17. Rathjen had served as both vice chancellor for University Advancement and UW-Oshkosh Foundation president.
The chancellor also put another unidentified UW-Oshkosh employee on administrative leave. These employees were involved in the foundation’s administration when the unlawful guarantees were issued and the financial transactions occurred.