Unauthorized immigration is a hot topic in the United States, with daily apprehensions at the border exceeding 10,000 by late 2023. While debates often focus on the social and political aspects, new research by economists Jess Cornaggia, Kimberly Cornaggia, and Ryan Israelsen dives into a less-explored question: how does unauthorized immigration affect the budgets of local governments?
By looking at municipal bond markets—where cities and counties borrow money—the study reveals that the financial impact of immigration depends heavily on local economic conditions.
Labor Markets Tell the Story
In areas with tight labor markets, where unemployment is low and there aren’t enough workers, unauthorized immigration seems to help. These regions benefit from an expanded workforce, which leads to stronger local economies and lower borrowing costs for their governments. Bond investors appear to see immigration as a plus in these situations.
But in areas with average or high unemployment, the picture is different. Immigration adds strain, pushing up borrowing costs. This likely reflects concerns that local governments will face higher expenses without enough new revenue to cover them.
The Role of Sanctuary Policies
Sanctuary jurisdictions, which limit cooperation with federal immigration enforcement, face their own challenges. These places often start with lower borrowing costs, possibly because they signal good governance or inclusiveness. However, high levels of immigration can erode these advantages, especially if local job markets can’t absorb the newcomers.
Unauthorized immigration increases public spending in areas like welfare, education, and policing. Unfortunately, these costs often outpace any additional tax revenue, putting financial pressure on local budgets. Sales tax revenues, for instance, tend to decline in areas with more immigration, possibly due to shifts in spending habits or informal economic activity.
A Call for Targeted Policies
The study highlights the complexity of immigration’s effects. Its benefits depend on local conditions, such as the strength of the job market, while its costs are felt most where public services are stretched thin. One-size-fits-all immigration policies may fail to address these local differences. Instead, tailored approaches that consider labor market needs and fiscal realities could help communities better manage immigration.
Municipal bond markets, which quickly respond to economic shifts, provide a useful signal for policymakers. Rising borrowing costs can act as an early warning, showing where immigration is straining local resources.
In the end, unauthorized immigration is neither an unqualified blessing nor an inevitable burden. It all depends on how—and where—local economies and governments adapt.
