Key Takeaways
- The number of migrants and asylum seekers gaining entrance to the U.S. along the country's southern border has been increasing in recent years and the influx is straining government budgets.
- Although much of the pressure affects localities in border states, some of the largest cities across the U.S., including New York City, Chicago, and Denver, are also feeling the impact.
- These cities are adjusting their budgets to accommodate rising expenditures, but without state and federal government support, these costs are significant enough to strain budgets and could pressure credit quality.
State and local governments are shouldering the rapidly growing costs of assisting migrants and asylum seekers as their numbers increase in the U.S. In December 2023, the immigration court backlog reached 3 million pending cases, an increase of 1 million from 2022, with almost 2 million new proceedings filed in 2023 (see chart 1). If this issue remains significant enough for long enough, the increase in costs and social service requirements could affect states' and local governments' credit quality. Migrants and asylum seekers come to the U.S. through a variety of entry points, but many come through the U.S. southern border in Texas. To address this influx, Texas began transporting new arrivals out of the state in 2022. Since then, of the 100,000 migrants and asylum seekers Texas has transported, 83,600 were sent to three cities: New York (NYC), Chicago, and Denver.
Chart 1
As the number of migrants and asylum seekers rises, the budgetary strain on these cities has become increasingly visible. Below, S&P Global Ratings outlines the financial impact to date on the three cities that have received the greatest number of migrants and asylum seekers--NYC, Chicago, and Denver--including how budgets and financial plans incorporate future costs associated with asylum seekers, and whether we expect the federal and state governments will step in to help.
NYC (AA/ Stable)
NYC's "right to shelter" emerged as part of a consent decree signed in the 1980s by the city and state following a lawsuit, and requires the city to provide shelter to those in need including migrants and asylum seekers. Since April 2022, more than 175,300 migrants and asylum seekers have come through NYC's intake system and, as of Feb. 8, 2024, NYC has more than 65,800 people in its care.
Following a surge in migrants and asylum seekers over the summer of 2023, last September, NYC significantly revised its estimates for asylum seeker-related spending to $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. To accommodate rising program costs, NYC is implementing several cost-saving measures, including provisions for single migrants and asylum seekers to reapply for shelter after 30 days, and for families after 60 days. The bulk of the city's spending is on emergency shelters through the Department of Homeless Services/Department of Social Services and on running the city's Humanitarian Emergency Response and Relief Centers (HERRCs) through NYC Health + Hospitals.
Chart 2
In its preliminary budget, published in January 2024, NYC made an approximately 10,000-person downward adjustment in its projections of migrants and asylum seekers, to 88,000, in both 2024 and 2025. Moreover, cost-saving measures the city began implementing in September 2023, such as changes to service levels and staffing at the city's HERRCs, renegotiations and rebidding of vendor contracts, and a move to a nonprofit shelter model, have started to yield results. In addition, to offset rising costs, NYC implemented citywide expenditure cuts in November and, more recently, was able roll back some of these expenditure cuts thanks to better-than-budgeted revenues. In total, the city has revised its cost estimates for sheltering asylum seekers to $4.2 billion (down $500 million) and $4.9 billion (down $1.2 billion) for fiscal years 2024 and 2025, respectively.
| New York City asylum seeker costs | ||||||||
|---|---|---|---|---|---|---|---|---|
| (Bil. $) | ||||||||
| FY 2023 (actual) | FY 2024 (budgeted) | FY 2025 (budgeted) | ||||||
| Asylum seeker costs | 1.5 | 4.2 | 4.9 | |||||
| General fund (GF) expenditures | 100.2 | 114.1 | 109.4 | |||||
| Asylum seeker costs (% of GF expenditures) | 1.4 | 3.7 | 4.5 | |||||
| FY--Fiscal year. | ||||||||
In fiscal 2024, NYC received approximately $1.1 billion directly from New York State to help address migrant and asylum seekers costs, and a similar amount is included in the governor's 2025 executive budget. Moreover, the state is ramping up its overall spending on helping migrants and asylum seekers in NYC to $2.4 billion in fiscal 2025 from $1.9 billion in fiscal 2024, including spending on certain city-run HERCCs and case management. Therefore, while we expect 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. Moreover, barring an unforeseen significant increase in asylum seekers or a more pronounced economic slowdown than we currently anticipate, we expect the budgetary impact will continue to strain the budget but ultimately be manageable.
Chicago (BBB+/Positive)
Chicago has a "Welcoming City" ordinance and has repeatedly affirmed its responsibility to provide migrants access to shelter, food, and medical care. The city also has temporary protection laws that allow asylum seekers from certain unsafe countries, as well as individuals who are facing war or natural disaster, to stay in Chicago. In contrast, some of Chicago's suburbs have passed ordinances prohibiting migrant drop-off without prior city approval, exacerbating the pressure on Chicago.
The city's estimated migrant relocation costs in 2023 totaled approximately $275 million. Chicago saw just under 40,000 migrants arrive in the city from August 2022 to January 2024; over 80% came via bus or airplane from Texas. To accommodate the influx, the city has set up 28 temporary congregate shelters but also relies on police stations and airports to serve as emergency shelters while individuals and families wait for available shelter space. As of Feb. 7, 2024, there were 13,250 migrants in Chicago's shelters. Given the magnitude of the challenge, the city is working with faith-based and not-for-profit groups to help place newcomers, and is also relying on private grants to help bridge the gap. According to the city's New Arrivals Situational Awareness Dashboard, more than 200 buses arrived in Chicago between August 2022 and October 2023, primarily from border cities in Texas (see chart 3).
Chart 3
It's difficult to estimate the number of migrants who will come to Chicago in 2024, but to control costs, the city is limiting how much it is willing to spend to support the influx. The 2024 budget 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. In November 2023, Illinois announced $160 million in new funding to support the migrant crisis but did not indicate how much of that would be used to support Chicago's migrant-related costs.
Although it seems likely that 2024's costs will exceed budgeted amounts (particularly since, on Jan. 29, 2024, the mayor extended the maximum stay time in shelters by 30-60 days for most migrants), the city has not shared contingency plans for managing unbudgeted expenditures. Given that Chicago's $16 billion budget was balanced using $50 million in corporate fund reserves and $139 million in other one-time money, without new revenues, the overages from the $150 million might have to come, at least in part, from reserves that stood at $1.9 billion (39% of expenditures) at year-end 2022, up from $1.4 billion (27.5% of expenditures) at year-end 2021. 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.
Denver (AAA/Stable)
The City and County of Denver has provided services to more than 38,400 migrants since the end of 2022. Given its full-time population of about 749,974, this makes Denver the recipient of the highest number of migrants per capita for a nonborder city. To date, total costs for migrant support are estimated at more than $42 million, an expense we expect will continue to rise, particularly as other communities throughout the metropolitan area are unable or unwilling to provide significant support to the city. The majority of costs are related to personnel (about 40%), followed by facilities (about 25%). Denver currently operates seven noncongregate shelters for newcomers and two congregate shelters for migrants experiencing homelessness; currently more than 3,600 individuals are sheltered. Given limited resources and growing needs, Denver has resumed discharging families from the city-run facilities following a pause in November. Effective Feb. 5, 2024, the length-of-stay policy for families was extended to six weeks, and shortened to two weeks for individuals. The city continues to work with local nonprofits and other resources to provide additional support, employment opportunities, and longer-term housing solutions.
While costs related to migrants and asylum seekers were unbudgeted for the fiscal year ended Dec. 31, 2022, they were largely offset by the $11 million in contingency incorporated into Denver's adopted budget. In mid-fiscal 2023, the city amended its budget to establish the Border Crisis Response fund within its human services special revenue fund, which is funded through various transfers from other funds, to support personnel and program costs related to helping asylum seekers. The Border Crisis Response fund was budgeted at $11.0 million in fiscal 2023 and $9.5 million in fiscal 2024. In total, Denver expended approximately $46 million in fiscal 2023 for migrant support services across all programs, about 1.8% of general and special revenue funds expenditures.
Only one month into the 2024 fiscal year, the city has identified significant cost overruns related to its migrant support programs for case management and housing solutions, contributing to a potential year-end operating deficit. In February 2024, the city council approved an increase in an appropriation from the general and capital facilities funds to increase the Border Crisis Response fund by $25 million from its original budgeted amount. The city's adopted budget includes $34 million in general fund contingency for unbudgeted expenditures, which will largely offset its respective portion of the supplemental appropriation. Other city agencies have been tasked with identifying budget cuts of 5%- 15% to help mitigate the overall budget impact of a looming $180 million deficit (5% of combined general fund and special revenue fund expenditures, or 3.6% of total budgeted expenditures) in the event that additional federal aid is not received. Although we view the evolving situation as a budgetary challenge necessitating ongoing budgetary adjustments for the current fiscal year and beyond, we consider Denver's historically very strong reserve and liquidity cushion as a positive credit factor to navigate near-term pressures.
Will The Federal And State Governments Come To The Rescue?
The mayors of the three cities have been quite vocal in their calls for additional federal and state support to alleviate the fiscal burden caused by the influx of migrants and asylum seekers. So far, New York State has provided significant additional support to NYC, with spending totaling $1.9 billion in fiscal 2024, increasing to $2.4 billion in the governor's executive fiscal 2025 budget. In November 2023, the governor of Illinois committed $160 million in funding for Chicago to support three key needs: $30 million for intake and welcome centers; $65 million for winterized tent and temporary housing; and $65 million for "wraparound" services to provide legal assistance and help with getting work permits, which only 1% of the migrant arrivals since 2022 have been able to legally obtain. Denver has also received some support, including a $3.5 million reimbursement award from the State of Colorado, and $13.8 million in federal aid.
So far, the federal government's support has been more limited. In December 2022, the Bipartisan Year-End Omnibus spending bill authorized an $800 million grant program through the Federal Emergency Management Agency (FEMA). Of those funds, NYC received more than $130 million in calendar 2023. Chicago received approximately $40 million in asylum seeker grants from FEMA in 2023, but grants often fall short of needs: for example, Chicago asked FEMA for between $39 million and $67 million, but received only $4.3 million. 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.
Sheila Flood and Sophia Piron contributed research to this article.
This report does not constitute a rating action.
| Primary Credit Analysts: | Felix Winnekens, New York + 1 (212) 438 0313; felix.winnekens@spglobal.com |
| Jane H Ridley, Englewood + 1 (303) 721 4487; jane.ridley@spglobal.com | |
| Alyssa B Farrell, Englewood + 1 (303) 721 4184; alyssa.farrell@spglobal.com |
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