Fixed income returns were positive in July, as treasury yields fell across most of the yield curve.
“Safe haven” or “sanctuary” cities will likely continue to rack up news coverage over the next several months, given President Trump’s threat to withhold federal grant funding from sanctuary cities and to publicly shame them by publishing a weekly list of crimes committed by undocumented immigrants. But in recent years, Congress has proposed legislation aimed at similar ends. In 2005, Alabama Sen. Jeff Sessions sponsored The Clear Law Enforcement for Criminal Alien Removal (CLEAR) Act. The Stop Dangerous Sanctuary Cities Act, a bill introduced last year, would deny certain Community Development Block Grants (CDBG), Economic Development Administration Grants (EDA) and Homeland Security funding to sanctuary cities.
What Is a Sanctuary City?
A “sanctuary” is a state or local government that complies with all federal immigration laws but refuses to go beyond what is required. The term applies to a broad swath of policies that describe how a city’s police force engages with the federal government after a run-in with or upon the arrest or conviction of a person who is in the U.S. illegally.
Sanctuary policies vary in terms of their scope and degree. Some policies prohibit local law enforcement officers from asking people about their immigration status. Others permit officers to ask, but do not require them to do so. Still others require officers to ask about immigration status but, if an arrest or conviction occurs, these will not allow a “detainer request” from Immigration and Customs Enforcement (ICE) to be honored. A detainer request is a document that asks local police to hold a person for up to an additional 48 hours after his or her release date under applicable law. Such requests are not warrants, and honoring them is legally questionable in light of the Fourth Amendment.
Sanctuary cities owe their existence to the dual structure of government within the U.S. Constitution and the federal government’s recent inability to enact a durable immigration reform law. The Constitution gives the federal government the power to set immigration policy, but gives states the primary responsibility to protect public safety. In the absence of legislation to clarify which of the U.S.’s 11 million undocumented persons must leave the country, states retain significant leeway to determine the extent of local cooperation with federal immigration officials.
A stringent federal posture on sanctuary cities will likely have only a modest impact on such cities’ near-term credit fundamentals. This is partly because curtailing federal grant support for sanctuary communities is legally problematic. The federal government is entitled to place conditions on its grants to incent cooperation with federal immigration officers, but the conditions and incentives cannot amount to coercion. This reality limits the types of grants that might be defunded and the size of the cuts themselves. Recent reports suggesting that New York City has over $7 billion at risk because of its sanctuary status are likely overblown. This $7 billion figure is almost 10 percent of New York City’s $84 billion budget for FY 2017. However, that figure includes many grants that are unlikely to be targeted.
Over the long term, shaming sanctuary cities may prove to be a larger credit issue than merely withholding federal aid. Shaming could upset state and local relationships, inhibit social cohesion and reduce economic vitality in certain communities. We note the following:
- Public shaming may exacerbate political fractures within states, particularly between rural, suburban and urban areas. Weekly announcements of crimes committed by undocumented immigrants may spur action by states to reconsider their local governments’ sanctuary policies. Already, Texas Gov. Greg Abbott has threatened to withhold state aid to sanctuary jurisdictions in Texas. Unlike the federal government, states have broad authority to cut aid to local governments that choose not to cooperate with federal immigration officials.
- A prolonged period of shaming may also degrade community cohesion and reduce economic vitality. Stricter immigration enforcement can lead to diminished public trust in immigrant communities. Erosion in public trust has credit implications. A growing body of research positively correlates social trust with economic growth.
We believe that prolonged shaming of sanctuary cities may diminish credit quality over time. Breckinridge incorporates public safety and community cohesion metrics when analyzing city credit fundamentals as part of our environmental, social and governance (ESG) assessment of municipal credit. We expect to monitor the sanctuary city issue closely, and we continue to fully integrate ESG factors into our research to provide a deep understanding of the social issues and safety risks in individual communities.
 South Dakota v. Dole 483 U.S. 203 (1987), National Federation of Business v. Sebelius (2012).
 Evaluation Study of Prince William County’s Illegal Immigration Enforcement Policy, FINAL REPORT 2010; Prepared for the Prince William County Police Department, Prince William County, Virginia. and Local Police Perspectives on State Immigration Policies; Police Executive Research Forum, July 2014.
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