Cities that might lose federal funding over their so-called “sanctuary” policies at least have this financial comfort for the moment: Credit rating agencies say the cities aren’t likely to have their bond ratings downgraded in that event.
A downgrade to the rating could mean additional millions in interest payments on the bonds that finance future spending projects.
The general consensus thus far from the major rating agencies is that the Trump executive order, which mandates a withholding of federal funds to cities and counties that don’t fully cooperate with federal immigration officials, has too many legal and legislative hurdles to effectively hamstring a municipality.
For example, Fitch Ratings issued a news release which said federal cuts wouldn’t pressure a city’s rating, noting that, “…civil and constitutional challenges appear likely” to stand in the way of Trump’s executive order.
The waters aren’t entirely calm, however. Chicago, which has suffered numerous bond problems in recent years, got a word of reassurance from ratings firm Standard and Poor’s about the city’s sanctuary policies, but a caveat made clear that a sanctuary-related downgrade was still possible under the right circumstances.
The ratings agencies also seemed in agreement, though, that downgrades were more likely in the event of a ‘perfect storm’ of federal funding cuts: for example, if funds are withheld over sanctuary policies while at the same time major cuts to programs like Medicaid were implemented because of changes to the Affordable Care Act.
Not all cities depend on federal funds equally. San Francisco estimates that federal monies are about $1 billion of its almost $10 billion budget. That ratio is thought to be on the higher end of the spectrum, with the greater share of cities having a smaller dependence on federal funds. And totaling the federal money a city receives can be a convoluted issue, as often times the city receives money that is originally granted first to the county, which is then passed on to the city, sometimes indirectly.
San Francisco has already filed a lawsuit challenging Trump’s “sanctuary” executive order.
The feud between San Francisco and Trump seems almost personal at times. As a candidate, Trump frequently took aim at the city, claiming their sanctuary policies caused the death of Kate Steinle, who was killed by an illegal immigrant who was a repeat drug offender.
Meanwhile, San Francisco Mayor Ed Lee has been defiant toward the administration’s immigration policies, with Tweets like, “Being a sanctuary city is in our DNA. San Francisco will never be anything other than a sanctuary city.”
