This seems like a very obvious solution to the funding problems faced by open-access journals. Universities are already subsidizing the publication costs for articles written by their faculty by paying for subscriptions to closed-access journals, so in order to place both types of journals on level footing, the same institutions could also underwrite open-access journals.
The compact was originally suggested by Stuart Shieber, Welch Professor of Computer Science at Harvard University and Faculty Director of Harvard's Office for Scholarly Communication. He has been a vocal advocate for open-access publishing. Here is a video of him and Gary King, another Harvard professor, discussing open-access:
To date, twenty-one institutions are signatories of the compact. Although the University of Wisconsin-Madison has not signed it, the compact identifies UW-Madison as having "established open-access funds compatible with its underlying principles."