Despite considerable uncertainty about President-elect Donald Trump's policy proposals for immigration reform, S&P Global Ratings believes it could be helpful to provide its preliminary views on how a stricter approach to immigration could affect certain sectors in U.S. public finance.
What's Happening
The incoming administration hasn't released details on how proposed immigration policies would be structured or enforced, and the timing and extent of any policy changes remain unclear. Nevertheless, Trump's first term, campaign priorities, and early cabinet appointments serve as a preliminary guide for gauging potential areas of credit impact.
Why It Matters
In addition to potential economic and workforce impacts, a proposed change in federal immigration policy could put financial pressure on some public finance sectors, although significant uncertainty remains around the timing, magnitude, and implementation that complicate making cost or economic projections. Tighter border policies could relieve some costs for governments that experienced higher social service expenditures to support new arrivals entering the U.S. during the past few years, even as they potentially raise costs for labor and construction.
What Comes Next
The president has some freedom with executive actions on immigration but given an already meaningful slowdown in unlawful border crossings after President Biden's 2024 actions to curb immigrants entering the country, deportations may end up smaller in scale (and phased in). We'll watch whether the Trump administration's approach to immigration results in a measurable impact on revenue and expenditure trends, particularly for governments that provide direct services and support to migrants and asylum seekers.
States and local governments: Dampening economic trends would exacerbate any incremental declines in tax revenue generated by immigrants' economic contribution, such as sales taxes. However, without clarity on the magnitude and form of the Trump administration's enacted immigration policies, their broader economic and workforce impacts remain uncertain. However, to the extent states and counties cover the health care costs for uninsured or Medicaid enrollees, we believe they could see lower costs if Medicaid rolls for vulnerable populations decrease.
Even targeted or small-scale deportations could set the administration up for conflict with states and cities that deprioritize enforcement of federal immigration law or identify as "sanctuaries." The previous Trump administration made cooperation with Immigration and Customs Enforcement a condition for local governments to receive some federal grant funding, although the impact on local government finances was minimal. In our view, the availability of federal grant or entitlement funding could again be contingent on state and local governments' policy positions to the administration.
Education providers: Some public school districts have had difficulty closing budget gaps as they struggle to maintain funding for pandemic-era learning loss programs while managing higher personnel costs to recruit and retain teachers. If K-12 enrollment fell significantly due to immigration policy, this could exacerbate budgetary pressure in districts where headcount contributes to state aid.
Many colleges and universities have faced credit pressures from lower enrollment amid rising competition for students, with a looming "demographic cliff". In some cases, international students have helped fill the domestic enrollment gap. Although many students enrolled in U.S. institutions are of international origin, less than 2% are undocumented (according to the American Immigration Council and Higher Ed Immigration Portal). However, if implementation of stricter immigration policies results in lower international student enrollment overall, schools with a significant international population could face additional budget pressures.
Not-for-profit health care: Many acute health care providers have seen margin compression ease in recent years with improvements in labor and supply costs. Some could see additional cost savings that marginally benefit credit quality should lower care requirements for uninsured or underinsured populations contribute to further reductions in margin pressure. But these savings could be offset by wage growth if Trump's proposed immigration policy leads to workforce challenges.
Related Research
- How Could A Second Trump Term Affect U.S. Credit, Nov. 7, 2024
- After Trump's Win, What's Next For The U.S. Economy?, Nov. 7, 2024
- Migrants And Asylum Seekers Pose Budgetary Challenges In New York City, Chicago, And Denver, Feb. 13, 2024
- Federal Cuts To Sanctuary Jurisdictions Are Not An Immediate Credit Risk, March 30, 2017
This report does not constitute a rating action.
| Primary Credit Analysts: | Sarah Sullivant, Austin + 1 (415) 371 5051; sarah.sullivant@spglobal.com |
| Nora G Wittstruck, New York + (212) 438-8589; nora.wittstruck@spglobal.com | |
| Secondary Contacts: | Geoffrey E Buswick, Boston + 1 (617) 530 8311; geoffrey.buswick@spglobal.com |
| Jane H Ridley, Englewood + 1 (303) 721 4487; jane.ridley@spglobal.com | |
| Jessica L Wood, Chicago + 1 (312) 233 7004; jessica.wood@spglobal.com | |
| Suzie R Desai, Chicago + 1 (312) 233 7046; suzie.desai@spglobal.com |
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