Oct. 14, 2020: Update on MSU’s financial situation


Dear Spartans,

Earlier this summer, I shared with you some of the financial impacts that COVID-19 has had on Michigan State University. With the recent approval of the state budget by the Michigan Legislature and governor, combined with our official Fall 2020 enrollment numbers, this letter serves as another update to our financial situation.

As I previously shared, we initiated several cost-cutting measures in early summer to fill a hole left in the 2020 fiscal year budget. These measures are all still taking place, including:

  • Deferring some capital projects
  • Reducing unit spending by a minimum of 3%
  • Pay cuts for all MSU executive managers and deans, ranging between 2% and 10%
  • Furloughs for more than 800 union employees and 700 student employees in units with severe budgetary challenges such as Residential and Hospitality Services
  • Wage reductions for non-union faculty and academic staff, ranging from 1% to 7%, with those earning less than $50,000 annually exempt from reductions
  • Reducing the employer-match in retirement contributions for all faculty and academic staff from a 2:1 ratio to 1:1
  • Reducing university-related travel, contractors and vendors

In addition to the above cost reduction measures, we are utilizing some of MSU’s operating reserves to fill remaining budget holes. Reserves are intended to be leveraged in extraordinary situations, and we clearly see this global pandemic as an appropriate time to tap reserves, but this is not an unlimited source. We also have a duty to financial stewardship, so we continue to balance our need to directly cut costs with our ability to utilize a portion of our “savings.” As I’ve also mentioned before, the university’s endowments are not available for uses beyond their established purposes. 

New budget information
In late September, state appropriations were finalized that will keep higher education at the same level of state funding as the previous fiscal year. While our budget year already started on July 1, knowing what funding we can expect from the state is helpful in our planning as we move forward.   

Another factor directly impacting our financial position is enrollment. The official numbers for Fall 2020 also were finalized last week. Compared to last year, MSU has a decline in its total enrollment for the fall semester -- 49,695 students enrolled, which is down by 883 students from this time last year. First-year student enrollment stands at 8,228, down 342 students from last year. Unfortunately — despite significant effort by many — this decline in enrollment has had an impact on MSU’s budget, attributing to a $54 million decline compared to last year’s revenue. The current tuition revenue reflects both a decline in total enrollment and an adverse change in student composition, specifically fewer international and out-of-state students. It also is essential to note, a smaller class will have at least a four-year impact on our budget as that class moves through each year toward graduation.

Cost increases and auxiliary losses
MSU leadership has been planning for multiple funding scenarios. The recent news about state funding and enrollment is better than we anticipated, but it is still below levels of a typical year and we still have significant deficits to cover. In the budget approved this past June, we increased financial aid by 4% -- a decision we believe was essential to support MSU students to receive an affordable education. We also are implementing previously negotiated raises for unionized employees to honor our previous commitments to staff. And as is the case in any year, we must cover inflationary increases in our spending on essential items such as health care, utilities and maintaining a safe physical infrastructure.

As a result of COVID, we are also experiencing increased costs in other areas such as shifts to online class delivery modalities, technology upgrades, cleaning and sanitation, and COVID-19 early detection efforts and testing.  

Further, Athletics and Residential and Hospitality Services have both incurred significant losses due to decisions related to on-campus residency and suspension of fall sports and the ability to garner funds from having fans in the stands. These auxiliary budget areas do not draw from our general fund and are self-sustaining. Both organizations are undertaking measures this year to remain self-sustaining, which has required a number of cost reductions including pay reductions and furloughs.

Concluding comments
I will be meeting with the Board of Trustees in the coming weeks to discuss our finances and moving forward. For now, all of the cost-saving measures listed above will continue. And the university will continue to seek engagement with our unions. I will share more information and updates with our campus when additional decisions have been made.

In the meantime, MSU will continue to deliver on its core mission as an inclusive community with strong academic disciplines and a liberal arts foundation. Despite our challenges, we will continue providing a world-class education, conducting high-caliber research and advancing outreach and engagement locally and globally.

There will be continued shared sacrifices. It is with great regret that we have had to move forward with reductions that affect employees, like yourselves, who are working diligently to advance student success, keep the campus functioning and deliver on our mission. I greatly appreciate how all of you are coming together to support one another and continue forward. I know this remains a very challenging time. Please know that I am proud of all of you, your collective spirit and dedication to our great university.

And as I’m closing all my remarks these days – don’t forget to vote and to get your flu shot!

Sincerely,

Samuel L. Stanley, Jr. M.D.
President