MSU has a $4.4 billion endowment. Why that can't help its budget problems

USA Today

a day ago

EAST LANSING — Michigan State University, which is navigating a financial crisis at the same time some state Republican legislators would like to see taxpayers' contributions to the university slashed, has a $4.4 billion endowment.
MSU and the University of Michigan, which has a much larger endowment of $19.2 billion, stand alone among Michigan's 15 public universities in having massive piles of cash stashed in endowments.
But those endowments are of little help to the current financial crisis, MSU officials said, and calls from the GOP to target MSU and U-M for deep cuts to state tax revenue sharing are just the latest criticisms of the two largest public universities in Michigan stockpiling cash.
MSU President Kevin Guskiewicz has committed, over the next two years, to cutting general fund spending by 9%, a result of an ongoing budget deficit he said became evident about two years ago. At the same time, MSU and other research universities face the risk of losing federal research funding as President Donald Trump's administration slashes federal spending.
And Michigan House Republicans in their initial higher education funding proposal this year wanted any institutions with an endowment between $1 billion and $5 billion to lose 50% of their state appropriation, and those with an endowment above $10 billion to lose 75% of state funding, which would then be redistributed to Michigan's other smaller public universities.
Rep. Matt Maddock, R-Milford, said the intention was to make cuts to the "woke" universities and give it to the "not woke" universities or the "less woke" universities
The only two universities impacted would have been MSU and U-M, although the line was removed in the proposal that passed the House. House Appropriations Chair Ann Bollin, R-Brighton Township, did not respond to multiple requests for comment from the State Journal.
What can MSU do with its endowment? A lot, according to school officials, but there are many limitations on how that money is spent. Here's what we know:
What endowments can't do
Lawmakers and advocacy groups have over the years called for more scrutiny on university endowments amid complaints over rising tuition and other colleges costs, arguing MSU and U-M don't do enough to keep costs for students and families down.
But endowments can't be spent on just anything, and come with strict rules. Endowments can't be used to fill in gaps from state appropriation losses or cover other university costs, MSU Vice President for University Communications Emily Guerrant said in an email to the State Journal.
This money is largely made up of individual contributions, with the "vast majority" of them being earmarked for specific purposes like student scholarships, faculty fellowships, and athletics, said Dan Hurley, chief executive officer of the Michigan Association of State Universities.
But those individual contributions aren't immediately used for the purpose the donor requested. Instead, they are invested so the original amount remains preserved. Then, any earnings made off the investment are used for the specific purpose the donor requested.
For example, if an alum donated $500,000 to a specific college within MSU to pay for a scholarship or scholarships, the $500,000 would be invested. Any future earnings from that investment would then go to fund the scholarship or scholarships into the future.
What does MSU's endowment look like
MSU's endowment is made up of more than 4,250 gifts, Guerrant said. Endowed funds are a minimum of $50,000 payable over five years, through a future gift, a bequest or from an estate.
Over the past five years at MSU, the endowment has provided more than $1.13 billion from investment income to directly support the university's operating budget, university reporting from October shows. Currently, the university's plan for spending endowment funds is limited to 4.8% of the total portfolio value, or about $211 million.
The endowment cannot be used to fill the current financial gaps that MSU is addressing through budget cuts because the money is contractually obligated to go to where the donor intended, Guerrant said. The university believed the appropriate way to handle the budget issues were cuts across the board, Guerrant said.
"There's not a specific endowment fund we could tap into for something like (Infrastructure Planning and Facilities," she said.
What universities can do
Universities set the spending rate on their endowments. In December, MSU raised its rate from 4.4% to 4.8%. U-M's rate is currently 4.5%, set in 2010, which was a decrease from the 5% set in 1995.
Universities can, however, interpret broad categories of donations to use them for specific purposes. For example, MSU recently decided to dedicate endowment funds initially made for advancing university strategic initiatives to support research funding after federal cuts to university research funding.
"Michigan State University is committing $5 million per year over the next three years from a restricted endowment fund designated for advancing university strategic initiatives," Guskiewicz said during the April Board of Trustees meeting. "In this moment, few initiatives are more strategic — or more essential — than sustaining our research enterprise and protecting educational opportunities for our students."
Contact Sarah Atwood at [e-mail]. Follow her on X @sarahmatwood.