Give Me Your Tired, Your Poor? The Impact of Potential Federal Funding Losses For "Sanctuary" Cities

Recent weeks have seen the incoming Trump administration make repeated comments in regards to pulling federal funding from any government (or federally funded institution) that has decided to embrace a “sanctuary” approach to the issue of undocumented immigrants.

Cities such as Seattle, Portland, New York, Los Angeles, Houston, and San Francisco as well as states like California, Connecticut, New Mexico, and Colorado are all facing the potential disruption of federal funding as a punitive measure in this potential scenario.

Seattle, SNW Asset Management’s hometown, has reinforced its position as a “Welcoming City” in the weeks since the presidential election. In late November, Mayor Ed Murray signed an executive order reaffirming the city’s position on immigration. This order created an “inclusive and equitable city cabinet” to protect the civil liberties and civil rights of Seattle residents. The order also set aside $250,000 to assist unauthorized immigrant students enrolled in Seattle’s public schools. This continues the city’s history of inclusive action on immigration that was codified by city ordinance in 2003 and which has been reaffirmed multiple times in the years since.

“…You are not going to take our neighbors away. You are not going to take our children away…” — Mayor Edward Murray, City of Seattle (December 6, 2016 – Interview with Diane Rehm)

These actions were taken in spite of the fact that Seattle faces the possible immediate loss of at least $28 million in federal funding and puts at risk up to $85 million in total annual funding from the federal government. In context, this represents less than 2% of Seattle’s annual budget of $5 billion. The funds, however, include money earmarked for education programs, healthcare, community outreach, affordable housing, and programs to assist the homeless population in the city. The city expects to be able to make up much of the potential shortfall in funding, but only by cutting into the budgets of other departments and programs.

Seattle is not the only city that has taken a very public position on this issue in opposition to the expected policy shift by the President-elect and his aides.

In the past few weeks, municipal and law enforcement leaders of scores of U.S. cities have reaffirmed their commitment to fair and equitable treatment of all residents, regardless of documentation status. Included are such diverse cities as Los Angeles, New York, Nashville, St. Paul, San Francisco, Phoenix, and Denver. A number of cities and universities are considering adopting “sanctuary” ordinances and policies before the end of the year to clearly communicate their support for inclusive communities.

The modern history of the concept of “sanctuary” goes back to the organized movement by churches in the U.S. in the 1980s to provide sanctuary to undocumented refugees fleeing violence and persecution in conflict-ridden countries such as Nicaragua and El Salvador. The faith community has continued its programs of support for such families and individuals in the subsequent decades, with the areas of conflict driving the immigration largely shifting from Central America to the Middle East. Programs to assist refugees from Sudan, Somalia, Syria, Iraq, Lebanon, and other countries continue to be funded and managed by faith-based groups across the United States, often in the face of vocal opposition to such charitable acts by a minority of the local population. Many of these programs expanded over the years to include the provision of assistance to any needy undocumented immigrant who sought help and support.

Beginning in the 1990s, municipal governments enacted similar policies and programs to address the needs of such residents and ensure the provision of required services to immigrant community were upheld. This is stipulated under the 14th Amendment of the United States Constitution and as affirmed and interpreted in such Supreme Court rulings as Almeida-Sanchez v. United States (1973), Plyler v. Doe (1983), Zadvydas v. Davis (2001), and others. After the events of 9/11, the federal government began putting additional pressure on local governments to aggressively implement immigration law and to take up the burden of policing, investigating, and detaining undocumented residents. As a result of widespread pushback, largely from the law enforcement community itself, five states, over 500 individual counties, and scores of cities have put in place policies or ordinances limiting local law enforcement’s responsibilities to enforce federal immigration law.

The incoming Trump administration has taken issue with this stance adopted by local governments. With an aggressive anti-immigration position as a core tenet of the campaign’s platform, the President-elect feels that quick action is required to begin the deportation process of the up to 11 million undocumented residents that are currently in the United States. Such a massive program cannot be undertaken by the federal government alone, and the incoming administration has determined that the most effective way to ensure cooperation by local governments is to threaten to withdraw federal funding.

Aside from the potential impact to Seattle outlined earlier, the Pacific Northwest is looking at an aggregate potential loss of federal funding measured in the hundreds of millions of dollars. When that is extended to the cities and states on the West Coast and in the Intermountain West with sanctuary ordinances or policies, the potential loss of federal funding on a widespread basis is ominous.

The constitutionality of such action by any administration is already being questioned, with the powers guaranteed to the states under the 10th Amendment being the most likely barrier to the implementation of a systematic withdrawal of federal funding for governments that continue to enforce their existing policies and ordinances. Additionally, rulings by the Supreme Court such as South Dakota v. Dole (1987) and National Federation of Independent Business v. Sebelius (2012) will provide precedent for what will likely be an issue decided in the federal court system.

As an investment manager in the municipal bond market, SNW is keeping a close eye on this issue and its potential impact on all of our accounts, including those in both the SNW Impact Strategy and those that are managed under core strategies. Clients who are interested in taking an active position in support of local governments and institutions embracing inclusive communities should feel free to reach out to us at any time.

Source: Diane Rehm Show, December 6, 2016 – transcript; The Seattle Times; Politico; The Washington Post; Pew Research Center; U.S. News & World Report