MSU: Bond, not tuition, to pay $500M settlement

Beth LeBlanc, Blake Alsup and Kim Kozlowski
The Detroit News
Kathy Morrow, left, and Leslie Miller, right, mothers of sexual-assault survivors Hannah Morrow and Emma Ann Miller, respectively, yell at trustees.

East Lansing -- Michigan State University trustees on Friday approved a historic $500 million settlement with victims of serial sex abuser Larry Nassar and authorized university officials to seek general revenue bonds to fund the school's payments to more than 330 women and girls. 

The trustees also voted to freeze freshman tuition and cut 1 percent in costs across departments as part of a two-year budget.

Because of MSU's history of strong financial management "we are in a position that we can have such a very large bond issue," Trustee Melanie Foster said, adding that no tuition or state funds will be used to pay for the settlement.

After the vote, Nassar victims and supporters erupted with cries of "Shame!" and repeated calls for the removal of Interim President John Engler, who has faced a public backlash over email comments criticizing Rachael Denhollander, Nassar's first public accuser.

As trustees discussed the settlement, survivors of Nassar’s abuse and their supporters held up photos on their cell phones reading “Fire Engler.” Audience members were not allowed to bring signs into the meeting room.

The $500 million settlement approval from the board of trustees was preliminary, as the agreement has yet to be finalized and approved by a judge, MSU spokeswoman Emily Guerrant said. However, the board is not expected to vote a second time when the agreement is finalized, she said. 

Sexual-assault survivor Hannah Morrow walks among more than 300 pinwheels that represent sexual-assault survivors.

Once the agreement is finalized, MSU will have a 30-day window to deposit the money into a fund set up for the women involved in the settlement. 

The board also authorized MSU officials to continue the bonding process, which Guerrant said was the "quickest and most efficient" way to pay the $500 million settlement. The bond will pay for all of the costs up front, then be repaid chiefly through insurance, investments and interest. 

"We’re still negotiating with insurance," Guerrant said. "We expect them to honor their policies, but since that is not final right now anything that would come in from the insurance policies would go to pay back the bond.”

While the university has put a two-year freeze on tuition for incoming freshman, others will see an increase next year. 

Tuition remains $14,460 a year for in-state freshmen but increases 2.5 percent for sophomores and 2.2 percent for most juniors and seniors, below the state legislature's 3.8 percent cap. Juniors and seniors in engineering and business will see 3 to 3.2 percent increases in tuition.

The overall tuition increase averages to about 1.75 percent, Guerrant said. 

By comparison, the University of Michigan Board of Regents voted Thursday to raise in-state undergraduate tuition 2.9 percent.

The university also will establish a block tuition rate for the 2019-20 school year, where students taking 12 to 18 credits per semester would pay a flat rate instead of per credit. In his presentation to trustees, Engler said the block rates will serve as an incentive for students to take more credits and finish their degrees sooner.

Engler said the incoming freshman class has a decline in international students and added that researchers are anticipating a 15 percent decline in in-state high school graduates. MSU has been enrolling about 5 percent of Michigan high school graduates. 

"It's against this backdrop that the two-year budget strategy begins to be rolled out,” and the importance of competitive tuition becomes clear, Engler said.

‏Engler said the budget includes no layoffs but institutes a one-year freeze on salaries for all top administrators, including vice presidents and deans.

The budget also includes a 1 percent budget cut across departments — that's in addition to an annual 1 percent withholding, which traditionally has been used by the provost to fund university-wide priorities. 

Anna Pegler-Gordon, director of the Interdisciplinary Inquiry & Teaching Program at MSU’s James Madison College, said the budget cuts will inhibit instructors across the campus. 

"We won’t be able to do as much with our students because they haven't increased funding and they’re going to take back some funding from the colleges," Gordon said.