How the Influx of Migrants is Impacting the Budgets of some of the Largest Cities in the U.S.

As the Greg Abbott administration in Texas continues implementing its "Lone Star" operation, busing thousands of migrants crossing the U.S. southern border to some of the countries largest cities, S&P Global warned that a lack of support from state and federal governments, their budgets could be strained and their credit quality come under pressure.

In a new report, the agency highlighted that more than 80% of the some 100,000 migrants Texas has bused to other parts of the country have been taken to New York City, Chicago and Denver.

Authorities of these three cities have repeatedly pleaded for additional funding, warning that their budgets and capacity to deal with the arrivals was reaching a breaking point. In this context, S&P analyzed the financial impact they have sustained and provided an outlook for the near future.

New York CIty

S&P Global highlighted that since April 2022, more than 175,000 migrants and asylum seekers have arrived in the city and gone through its intake system, the figure by February 8 being around 65,800. The city currently has a rating of AA/Stable.

Following a surge in arrivals over summer 2023, the city significantly updated its spending estimates for this subject, "$4.7 billion (up $1.8 billion from the adopted budget) and $6.1 billion (up $5.1 billion) in fiscal years 2024 and 2025, respectively, after having spent $1.45 billion (or 1.4% of total fiscal 2023 general fund expenditures) in fiscal 2023."

As costs surge, the Eric Adams administration has implemented a series of measures to reduce them, "including provisions for single migrants and asylum seekers to reapply for shelter after 30 days, and for families after 60 days." The report added that other cost-saving decisions have started to yield results, allowing it to revise down some of them.

Therefore, even though S&P Global expects the city "will struggle to materially reduce asylum-seeker costs, given the already implemented cost-saving measures, we believe it will continue to take necessary steps to adjust other expenditures to ensure budgetary balance." In consequence, it said, even though this will strain the budget, this will ultimately be manageable.

Chicago

The city has seen almost 40,000 arrivals between August 2022 and January 2024, 80% of them coming from Texas. Chicago, with a BBB+/Positive rating, has a "Welcoming City" ordinance, had 13,250 people in its shelters by February 7.

Even though Chicago can't predict how many migrants it will receive, authorities have limited the budget to deal with the situation: it "includes $150 million to pay for migrant costs, less than half of the estimated $275 million spent in 2023." "Chicago expects to fill the gap with grants from the state and federal governments and has stated that the $150 million cap will not be exceeded," the report said.

S&P highlighted that even though the costs are likely to exceed the cap, the city has not shared contingency plans for unbudgeted expenditures, meaning that without new revenue it would have to use part of its reserves.

"If support from the state and federal governments does not materialize as expected, the impact on Chicago's bottom line could be sizable. How the city manages these pressures, particularly when faced with high costs for its underfunded pension programs, could have a longer-term effect on its credit quality," S&P Global said.

Denver

Even though the number of migrants that have arrived in the city and county of Denver is the lowest of the three, its much lower population (roughly three quarters of a million) makes it the "recipient of the highest number of migrants per capita for a nonborder city."

With a AAA/Stable rating, Denver's costs for migrant support are estimated and $42 million and expected to continue climbing, "particularly as other communities throughout the metropolitan area are unable or unwilling to provide significant support to the city."

Overall, Denver has provided services to almost 38,500 migrants since late 2022. The figure stands at some 3,600 people, but given "limited resources and growing needs, Denver has resumed discharging families from the city-run facilities following a pause in November."

This is illustrated by the fact that, only one month into fiscal year 2024, the city already identified "significant cost overruns related to its migrant support programs for case management and housing solutions," which could lead to a year-end operating deficit.

The report delves into the measures taken by authorities to obtain the funds necessary, and says that even though it is set to represent a budgetary challenge that will require adjustments, Denver's "historically very strong reserve and liquidity cushion" are a "positive credit factor to navigate near-term pressures."

The report concludes by posing the question of whether federal and state governments will provide significant aid to the cities. It considers that state authorities have provided funding -although figures differ in each one- but that the federal government's support has been more limited.

"Given current political dynamics in Washington D.C. and the upcoming presidential election, we do not consider additional federal support likely. Therefore, cities on the front line of migrant and asylum seeker inflows will have to face the uncertainty of rising costs without a guarantee of revenues to offset the expenditures," S&P Global concludes.