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The University of Wisconsin System would be forced to return about $37 million in federal funds intended to extend broadband Internet across Wisconsin, under a provision passed by the Legislature's budget committee Friday.

The legislation would also prohibit UW System campuses from supporting WiscNet, a cooperative that brings high-speed Internet to most schools and libraries across the state. Campus leaders say they fear the change could cripple the network.

"The net effect of this legislation would be absolutely devastating to us, costing us millions of dollars and threatening the ability of our researchers to obtain grants or to even do their work," wrote John Krogman, chief operating officer of UW-Madison's division of information technology, in an email obtained by the State Journal.

But Republican lawmakers say the university should not be in the business of providing telecommunications services. Rep. Robin Vos, R-Rochester, said he was concerned the new broadband networks would compete with an already existing network called BadgerNet.

"Every municipality that would have been served is already being served by BadgerNet, with the exception of a few," he said.

The language was tucked into sweeping budget legislation that would cut $250 million from the UW System over the two-year budget. The bill also preserves UW-Madison's place in the UW System and provides more flexibility to all the campuses.

It still needs to go to the state Senate and the Assembly for approval.

Darrell Bazzell, UW-Madison vice chancellor for administration, said university leaders were "caught off guard" by the telecommunications provision. He said the "impact could be very significant to our research enterprise."

Under the legislation, the UW System could no longer receive funds through a federal program that provides broadband to rural and under-served areas.

That means UW-Extension would have to return about $32.3 million in federal money it is getting through the Building Community Capacity through Broadband project to provide high-speed Internet to four communities: the Chippewa Valley region, Platteville, Superior and the Wausau area.

The project would lay about 600 miles of fiber-optic cable across the state. The university has already spent about $1 million on equipment, said Maria Alvarez Stroud, program director for the project.

The grants are worth $45.9 million when matching funds from the communities are included.

In addition, UW-Madison would lose a $5.1 million grant in federal stimulus funds to improve network infrastructure for institutions in the Madison area.

The motion prohibits the UW System from taking part in WiscNet, the network provider for 450 organizations, including K-12 schools, libraries, cities and county governments.

University leaders say they're not sure if WiscNet could survive without the university's support. It is housed in the UW-Madison Division of Information Technology, and WiscNet employees are UW-Madison employees. About $1 million in salaries are paid by membership fees.

Bill Esbeck, executive director of the Wisconsin State Telecommunications Association, said the UW System is subsidizing WiscNet, which competes with private industry. He said WiscNet would have until July 1, 2012, to map its future existence without help from the university.

"From our level, we don't believe the University of Wisconsin should be using government resources to compete with the private sector," he said.