In wake of Nassar settlement, MSU proposes budget cut

Michigan State University is proposing a budget cut of up to 2.5 percent that some say is one way the school is preparing to pay for the $500 million settlement with accusers of convicted sex abuser Larry Nassar, The Detroit News has learned.

The cut, expected to range between 2-2.5 percent in all of MSU’s departments, was previewed during a recent meeting with MSU’s deans, two university sources told The News.

If enacted, between $27 million and $34 million could be trimmed from MSU’s $1.36 billion general fund.

MSU typically has proposed cutting department spending by 1 percent each year as a way to encourage efficiency but high-ranking officials portrayed the additional 1-1.5 percent as needed because of declining international enrollment blamed on Trump administration policies, the sources said.

Read more: Nassar bills expected to change regardless of MSU deal

MSU said recently that international applications were down 31 percent, mostly among Chinese students. Tuition for international students is $40,961 annually — nearly three times the $14,516 cost for in-state students.

But one of the sources, an MSU official who declined to speak publicly, said blaming the proposed cut on reduced overseas enrollment doesn’t make sense, because the university recently announced it expects to enroll its largest freshman class this fall, with more than 8,400 students.

Meanwhile, mediation resulted in the $500 million settlement announced Wednesday between MSU and 332 women and girls who sued the university, accusing officials of failing to protect them against Nassar, the serial pedophile who sexually assaulted female athletes while a doctor at MSU for more than two decades.

Any budget cut now, the MSU official said, appears to be “a gathering of money for the paying of the settlement.”

“There is a still a great deal of anxiety ... about how the settlement will be paid,” the official said. “There is uncertainty about how large it will be, and there is certainly no regular discussion about where all that money is coming from.”

Possibly cutting the budget doesn’t seem right, said Eli Pales, the new president of the MSU College Democrats.

“In my personal view, I think it is wrong to hold faculty, and students as a result, on the hook to pay for tragedies that were caused by institutional and administrative failures,” said Pales, 21, a student from Aurora, Colorado. “Obviously, I believe the settlement is warranted, not just to help the survivors, but also to set an example for other universities and state institutions that sexual assault is wrong and those responsible will be held accountable.

“If it were up to me,” Pales continued, “I would think that once insurance payments are accounted for, the state of Michigan should cover the remaining costs of the settlement. ... I don’t think students barely keeping up with increasing tuition costs and student loans should be the ones held responsible for something that was not of their doing.”

Jean Boucher, an MSU assistant professor of sociology, said he has heard a proposed cut might result because of the Nassar situation, but he acknowledges it would be difficult to prove a correlation.

“I would hope that student tuitions don’t rise,” Boucher said. “Apparently, this is an historically large settlement; it would be nice if it was paid for by those most responsible for the poor ethical decisions around Nassar.”

The settlement reached this week is only partial, since other defendants have yet to settle with the victims, including USA Gymnastics, the United States Olympics Committee, John Geddert, and Geddert’s Twistars USA, where Nassar also worked.

MSU spokeswoman Emily Guerrant declined to discuss whether the school’s budget could be cut to help pay for the settlement.

“All university budget decisions will be discussed and made at the June 22 Board of Trustees meeting,” Guerrant said.

During that meeting, the state’s largest public university will adopt a budget and set tuition for 2018-19.

Last year, the budget approved by trustees included a tuition hike of 2.8 percent for freshmen and sophomores and 3.8 percent for juniors and seniors. Trustees also approved an initiative, Go Green, Go 15, which freezes tuition at 2017-18 rates for freshmen who enroll in 2018-19 and take at least 15 credit hours each semester.

On Friday, S & P Global ratings put MSU's AA+ bond rating on CreditWatch with negative implications.

"The CreditWatch placement reflects our view of MSU's recently announced  settlement of $500 million to victims of sexual assault by former MSU employee, Larry Nassar,

without clarification of source of funds or timing of disbursement," said S&P Global Ratings credit analyst Ashley Ramchandani in a statement. "The CreditWatch with negative

implications reflects our view of the potentially negative impact of this settlement on MSU's financial profile, including, but not limited to, potential weakened operating

performance and deterioration of available resources and liquidity for an indeterminate period, as well as potential future influence on enrollment and demand, and overall

institution reputation,"

Dianne Byrum, an MSU trustee, said she was unaware of any proposed budget cuts.

Interim MSU President John Engler sent an email to the campus community Thursday, saying the settlement was important to move the university forward.

“You should be aware that all of MSU’s insurance carriers participated in the mediation and that we expect all of them to fulfill their contractual obligations,” Engler said. “In addition, since a $500 million settlement is substantial, I will be working with the Board of Trustees in the days ahead to develop a strategy to carry out our responsibilities required by the settlement.”

Sherman Garnett, dean of the MSU James Madison College, said university leaders had repeatedly asserted before this week that any settlement with Nassar’s accusers won’t hurt the university.

“In meetings that are for the university community at senior levels, we’ve been told that settlement money will be managed,” Garnett said. “Any fears there will be deep cuts related to it have been reacted to (in) a set of statements that ‘we can handle this.’ ”

MSU has insurance to pay for sexual assault, but it’s unclear how much of the Nassar settlement it will cover. Its policy with United Educators shows there is a $39 million limit for sexual molestation.

In addition to tightening the budget and possibly increasing tuition, a source told The News that the university will use a combination of insurance money, bonding and uncommitted funds — including delaying building projects and hiring faculty — to pay the settlement.

Detailed discussions about how to pay for the settlement have only occurred among the “very top” officials at the university, the MSU source told The News.

Though Engler has hinted at a tuition increase, that would not be politically viable, the official said.

KKozlowski@detroitnews.com

Beth LeBlanc contributed.