PRIVATE AND GOVERNMENT FISCAL COSTS AND BENEFITS OF THE MARYLAND DREAM ACT T. H. Gindling Department of Economics UMBC Marvin Mandell Department of Public Policy UMBC Presented at the Society for Benefit-Cost Analysis Annual Conference, February 21-22, 2013, Washington, D.C.
Introduction Maryland Dream Act allows in-state tuition rates at state colleges and universities to undocumented immigrants who have in all other respects established residency in that state. Thirteen states have adopted such legislation Oklahoma repealed its Dream Act Maryland Dream Act was supported by voters in referendum that was held in November 2012
Methodology By lowering the cost of college education for undocumented immigrants, the Dream Act will affect: amount of college education eligible individuals obtain, high school graduation rates the type of institutions they attend to obtain a given level of college education distribution of educational costs among the student, the state government and local governments
Seven Groups Considered Those who are induced by the Dream Act to obtain more education than they would in the absence of the Dream Act (Category A). Those who would not have graduated from high school without the Dream Act but graduate from high school with the Dream Act Those who would not attend college or university without the Dream Act and enter college but not complete a 4-year degree with the Dream Act. Those who would not attend college or university without the Dream Act and attend college and a 4-year university degree (i.e. BA, BS, etc.) with the Dream Act. Those who would attend college but not complete a 4-year degree without the Dream Act and complete a 4-year university degree with the Dream Act.
Other Three Sub-groups Those who do not obtain more education because of the Dream Act, but costs shift between the student, state and county governments (Category B). Those who would obtain a 4-year degree from a Maryland public university without the Dream Act, but with the Dream Act will spend two years in public community college and then graduate from a 4-year Maryland public university. Those who would obtain an Associate s degree from a Maryland community college with or without the Dream Act. Those who would obtain a 4-year degree from a private or out-of-state public university without the Dream Act, but with the Dream Act will spend two years in a public community college and then graduate from a 4-year Maryland public university.
Estimating the Number of Individuals in Each Category Who is eligible each year? Cohort of 18 year old (high school graduate age) undocumented immigrants in Maryland. No direct statistics. Our estimate is based on Passell and Cohn s estimates of the number and characteristics of undocumented immigrants in the United States How many undocumented immigrants would attend college without the Dream Act? Depends on the college enrollment rate and college graduation rate of undocumented immigrants in Maryland without the Dream Act. Estimate from the literature that 10% of undocumented immigrant high school cohort in the U.S. attend college without the Dream Act. 60% of current students who enter a Maryland university graduate with a B.A. or B.S.
Estimating the Number of Individuals in Each Category (continued) The effect of the reduction in costs resulting from the Dream Act on the high school graduation rate and the college enrollment rate of undocumented immigrants in Maryland. We used an average of estimates of impact of similar Dream Act legislation in other states. Base case: High school graduate rates increase by about 5 percentage points. College enrollment rates increase by about 4 percentage points.
How many students will benefit from the Dream Act? For each annual cohort of 18-year olds (each class ) 185 students will be induced to graduate from high school in Maryland because of the Dream Act. 435 students will take advantage of the Dream Act to attend college. Of those 163 are induced to obtain more college education, while 272 pay less for each year of college with the Dream Act than they would have in the absence of the Dream Act, but do not increase their educational attainment.
Effect of Dream Act on College Enrollment # of Individuals in Each Cohort A. Those Induced by the Dream Act to Obtain Additional College Education HIGH SCHOOL GRADUATION Without the Dream Act With the Dream Act High School Drop Out High School Graduate 185 LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act None Associates Degree 89 None Bachelors Degree from a Public Univ. 60 Associates Degree Bachelors Degree from a Public Univ. 15 Subtotal 163 B. Those Who Benefit from the Dream Act, but Whose Educational Attainment Is Not Affected LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act Associates Degree Associates Degree 133 Bachelors Degree from a Public Univ. Bachelors Degree from a Public Univ. 111 Bachelors Degree from a Private or Bachelors Degree from a Public Univ. 28 Out-of-State Public Univ. Subtotal 272
How many students will benefit from the Dream Act? At any point in time, students who benefit from the Dream Act will include: 869 students in Maryland public community colleges, 425 students in Maryland public 4-year universities, For a total of 1294 students, or 0.6% of the students in Maryland public colleges and universities. Consistent with number who have taken advantage of Dream Acts in other states. About half of these are students who would not have gone to college in the absence of the Dream Act. That is, the Dream Act will increase enrollment in Maryland public colleges and universities by about 0.25%.
Impacts Considered Fiscal costs of schooling, estimated separately for state, local and federal governments. We use a direct measure: state and county subsidies to community colleges and universities for new students. County subsidies to community colleges: Maryland Dream Act requires students to spend first two years of higher education at a public community college State subsidies to community colleges and 4-year universities: Community colleges receive state subsidies only for in-state students. Universities receive state subsidies based on the total number of students (in-state plus out-of-state).
Other Impacts Considered Fiscal benefits, estimated separately for county, state and federal governments More education raises incomes Increased income tax revenue and increased sales tax revenue Reduced spending on public programs Reduced incarceration spending
Other Impacts Considered Private benefits (to the student): increased lifetime earnings Using estimates of rate of return to education from the literature 16% for high school graduate, 12.2% for Associates (vs. high school), 45.4% for four-year degree (vs. high school) Marcotte (2010) Sensitivity analysis: 10% per year and 5% per year. Private costs of schooling (to the student) Changes in tuition and fees for education, Earnings foregone because students are not working while going to school.
Other Impacts Considered Effect on revenue of community colleges and four-year public universities. New tuition plus state subsidies minus lost tuition from students who would have gone to college without the Dream Act Everything discounted--the real discount rate used in our base estimates is 3% (with sensitivity tests at 0%, 5% and 10%).
PV of Net Benefits of the Dream Act for Each Cohort ($1000s) Fiscal Net Benefits to Private Net Total Net State plus Benefits Benefits State Gov. Local Govts. Local Govts. Federal Gov. All Govts. Per Capita Amount for Those Induced by the Dream Act to Obtain Additional College Education (Group A) LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act None Associates Degree $13.7 $0.2 $13.9 $35.7 $49.6 $57.3 $106.8 None Bachelors Degree from a Public Univ. $25.1 $10.0 $35.1 $125.2 $160.3 $206.5 $366.8 Associates Degree Bachelors Degree from a Public Univ. $5.4 $9.8 $15.2 $89.5 $104.7 $154.9 $259.6 Per Capita Amount for Those Who Benefit from the Dream Act, but Whose Educational Attainment Is Not Affected (Group B) LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act Associates Degree Associates Degree $(6.1) 0 $(6.1) 0 $(6.1) $5.7 $(0.4) Bachelors Degree from a Public Univ. Bachelors Degree from a Public Univ. $(6.1) 0 $(6.1) 0 $(6.1) $22.0 $16.0 Bachelors Degree from a Private or Out-of-State Public Univ. Bachelors Degree from a Public Univ. $(14.5) $(8.7) $(23.2) 0 $(23.2) $169.1 $145.9 Per Capita Amount for Those Induced by the Dream Act to Graduate High School $17.1 $5.7 $22.8 $35.0 $57.8 $65.9 $123.7 Aggregate Amounts Subtotal for Group A $2,779.0 $754.9 $3,533.9 $11,896.2 $15,430.1 $19,586.3 $35,016.3 Subtotal for Group B $(1,879.0) $(240.8) $(2,119.8) 0 $(2,119.8) $7,888.0 $5,768.2 Subtotal for Those Induced by the Dream Act to Complete High School $3,169.4 $1,047.2 $4,216.6 $6,465.4 $10,681.9 $12,175.6 $22,857.5 Total $4,069.4 $1,561.3 $5,630.7 $18,361.5 $23,992.2 $39,649.8 $63,642.1
Effects on Community Colleges and Four-Year Public Universities Revenue per Student Compare per student (FTE) revenue (tuition plus subsidies) for Dream Act students with and without the Dream Act Community college per student revenues increase Because the increased state subsidies are greater than the lost tuition revenue. Four-year public universities per student revenues decrease To hold public universities harmless, the 12 state universities would need to receive a total of $1.93 million in revenues for each cohort (represents 0.1% of total tuition and fee revenue at public universities in Maryland).
Immigrant magnet Other Potential Costs Literature finds little evidence of an impact of public benefits on immigrant location decisions Would require substantial foresight on the part of immigrant families. Crowding-out effects Community colleges are open access Number of new 4-year university students is small (0.1% of public 4- year university students). Recall that Dream Act students must spend the first two years at community colleges.
Other Potential Social Benefits Fringe benefits such as medical insurance, pension contributions, paid vacations, stock options Higher job satisfaction Civic engagement activities such as volunteerism and voting Health status Intergenerational effects Since these are not counted in our analysis, we likely underestimate benefits.
Sensitivity Analysis Not including reductions in spending on incarceration in the estimate of fiscal benefits Different estimates of returns to education Different discount rates Different assumptions about the impact of the Dream Act on educational attainment Different assumptions of the graduation and enrollment rates of undocumented immigrants in the absence of the dream act Different assumptions about the distribution of students between public and private universities
Our Contributions Highlights the two broad categories of students who would take advantage of the Dream Act, namely: undocumented immigrant students who obtain more education because the Dream Act lowers the cost of education to them; and undocumented immigrant students who would obtain the same education with or without the Dream Act, but who pay lower tuition and fees at public universities because of the Dream Act. Reminds us that benefits count!
What will be the total net economic impacts as well as fiscal impacts of the Dream Act? Net economic benefits will be positive and large ($63 million per cohort) Even if the only consideration is the fiscal effects on state and local governments, the impact will be positive and large. Results are generally not sensitive to changes in assumptions. Under all sets of alternative assumptions that we consider: the total net economic benefits are positive and large; total net fiscal benefits are positive. Under some sets of alternative assumptions, the net fiscal benefits to state and county governments are negative (but much smaller than net fiscal benefits to the federal gov.)
ADDITIONAL TABLES
PV of Fiscal Benefits of the Dream Act for Each Cohort ($1000s) Increased Tax Revenue Reduced Incarceration Costs Total Fiscal Benefits State Gov. Local Govts. Fed. Gov. State Gov. Local Govts. State Gov. Local Govts. Federal Gov. Per Capita Amount for Those Induced by the Dream Act to Obtain Additional College Education (Group A) LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act None Associates Degree $8.4 $3.3 $35.7 $11.3 $5.6 $19.7 $8.9 $35.7 None Bachelors Degree from a Public Univ. $29.6 $11.6 $125.2 $14.2 $7.1 $43.8 $18.7 $125.2 Associates Degree Bachelors Degree from a Public Univ. $21.1 $8.3 $89.5 $2.9 $1.5 $24.1 $9.8 $89.5 Per Capita Amount for Those Who Benefit from the Dream Act, but Whose Educational Attainment Is Not Affected (Group B) LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act Associates Degree Associates Degree $- $- $- $- $- $- $- $- Bachelors Degree from a Bachelors Degree Public Univ. from a Public Univ. $- $- $- $- $- $- $- $- Bachelors Degree from a Bachelors Degree Private or Out-of-State from a Public Univ. Public Univ. $- $- $- $- $- $- $- $- Per Capita Amount for Those Who Are Induced by the Dream Act to Graduate High School $8.5 $3.3 $36.0 $16.3 $8.1 $24.8 $11.4 $36.0 Aggregate Amounts Subtotal for Group A $2,811.1 $1,103.3 $11,896.2 $1,883.1 $935.9 $4,694.2 $2,039.3 $11,896.2 Subtotal for Group B $- $- $- $- $- $- $- $- Subtotal for Those Induced by the Dream Act to Complete High School $1,574.1 $617.8 $6,661.2 $3,009.9 $1,495.9 $4,583.9 $2,113.7 $6,661.2 Total $4,385.1 $1,721.2 $18,557.4 $4,893.0 $2,431.9 $9,278.1 $4,153.0 $18,557.4
PV of Fiscal Costs of the Dream Act for Each Cohort ($1000s) High Schools State Exps. for Local Exps. For Fed. Exps. Comm. Colleges 4 Year Public Univs. High Schools Comm. Colleges For High Schools Per Capita Amount for Those Induced by the Dream Act to Obtain Additional College Education (Group A) LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act None Associates Degree $- $6.1 $- $- $8.7 $- $6.1 $8.7 $- None Bachelors Degree from a Public Univ. $- $6.1 $12.6 $- $8.7 $- $18.6 $8.7 $- Associates Degree Bachelors Degree from a Public Univ. $- $6.1 $12.6 $- $- $- $18.6 $- $- Per Capita Amount for Those Who Benefit from the Dream Act, but Whose Educational Attainment Is Not Affected (Group B) LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act Associates Degree Associates Degree $- $6.1 $- $- $- $- $6.1 $- $- Bachelors Degree from a Public Univ. Bachelors Degree from a Public Univ. $- $6.1 $- $- $- $- $6.1 $- $- Bachelors Degree from a Private or Out-of- State Public Univ. Bachelors Degree from a Public Univ. $- $6.1 $8.4 $- $8.7 $- $14.5 $8.7 $- Per Capita Amount for Those Who Are Induced by the Dream Act to Graduate High School $7.7 $- $- $5.8 $- $1.1 $7.7 $5.8 $1.1 Aggregate Amounts Subtotal for Group A $- $984.8 $930.4 $- $1,284.3 $- $1,915.2 $1,284.3 $- Subtotal for Group B $- $1,645.1 $233.9 $- $240.8 $- $1,879.0 $240.8 $- Subtotal for Those Induced by the Dream Act to Complete High School $1,414.6 $- $- $1,066.5 $- $195.9 $1,414.6 $1,066.5 $195.9 Total $1,414.6 $2,629.9 $1,164.3 $1,066.5 $1,525.2 $195.9 $5,208.8 $2,591.7 $195.9 State Gov. Local Govts. Fed. Gov.
PV of Private Benefits of the Dream Act for Each Cohort ($1000s) Pre-Tax Lifetime Earnings Taxes Paid* After-Tax Income Comm. Colleges Tuition Paid to 4-Year Public Private Universities Universities Net Private Benefits Per Capita Amount for Those Induced by the Dream Act to Obtain Additional College Education (Group A) LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act None Associates Degree $104.7 $39.4 $65.2 $8.0 $- $- $57.3 None Bachelors Degree from a Public Univ. $367.1 $138.3 $228.8 $8.0 $14.4 $- $206.5 Associates Degree Bachelors Degree from a Public Univ. $262.5 $98.9 $163.6 $(5.7) $14.4 $- $154.9 Per Capita Amount for Those Who Benefit from the Dream Act, but Whose Educational Attainment Is Not Affected (Group B) LEVEL OF COLLEGE EDUCATION Without the Dream Act With the Dream Act Associates Degree Associates Degree $- $- $- $(5.7) $- $- $5.7 Bachelors Degree from Bachelors Degree a Public Univ. from a Public Univ. $- $- $- $(5.7) $(16.4) $- $22.0 Bachelors Degree from a Private or Out-of- State Public Univ. Bachelors Degree from a Public Univ. $- $- $- $8.0 $14.4 $(191.4) $169.1 Per Capita Amount for Those Who Are Induced by the Dream Act to Graduate High School $105.7 $39.8 $65.9 $- $- $- $65.9 Aggregate Amounts Subtotal for Group A $34,886.2 $13,141.8 $21,744.4 $1,094.4 $1,063.7 $- $19,586.3 Subtotal for Group B $- $- $- $(1,162.9) $(1,417.0) $(5,308.0) $7,888.0 Subtotal for Those Induced by the Dream Act to Complete High School $19,534.3 $7,358.7 $12,175.6 $- $- $- $12,175.6 Total $54,420.5 $20,500.5 $33,920.0 $(68.5) $(353.3) $(5,308.0) $39,649.8
Sensitivity of Present Value of Net Benefits of the Dream Act for Each Cohort in Thousands of 2011 Dollars to Variations in Key Parameters Fiscal Net Benefits to State Gov. Local Govts. State + Local Govts. Fed. Gov. All Govts. Private Net Bens. Total Net Bens. Base Case $4.1 $1.6 $5.6 $18.4 $24.0 $39.6 $63.6 Different Values of Effect of Dream Act on High School Graduation Rate 0.025 $2.5 $1.0 $3.5 $15.1 $18.7 $33.6 $52.2 0.10 $7.2 $2.6 $9.8 $24.8 $34.7 $51.8 $86.5 Effect of Dream Act on College Enrollment Rate 0.02 $3.1 $1.5 $4.6 $15.7 $20.3 $35.4 $55.7 0.10 $7.1 $1.6 $8.7 $26.3 $35.0 $52.4 $87.3 Effect of Dream Act on College Graduation Rate 0.01 $3.6 $1.2 $4.8 $15.1 $19.9 $34.1 $54.0 0.04 $4.9 $2.3 $7.2 $25.0 $32.2 $50.7 $82.9 College Enrollment Rate without Dream Act 7.5% $4.6 $1.6 $6.2 $18.4 $24.6 $39.1 $63.7 12.5% $3.5 $1.6 $5.1 $18.4 $23.4 $40.2 $63.6 BA Attainment Rate without Dream Act 4.5% $4.0 $1.6 $5.6 $18.4 $24.0 $38.2 $62.2 7.5% $4.1 $1.5 $5.6 $18.4 $24.0 $41.1 $65.1 Rate of Return to Education 5% $1.7 $0.6 $2.3 $8.1 $10.4 $20.9 $31.3 10% $3.6 $1.4 $5.0 $16.4 $21.5 $36.2 $57.6 Discount Rate 0 $11.9 $5.1 $17.0 $35.6 $52.7 $71.5 $124.2 5% $1.6 $0.4 $2.0 $12.9 $14.9 $29.5 $44.3 10% $(1.2) $(0.9) $(2.1) $6.7 $4.5 $17.7 $22.3
Sensitivity of Present Value of Net Benefits of the Dream Act for Each Cohort in Thousands of 2011 Dollars to Variations in Key Parameters (continued) State /Gov. Local Govts. State + Local Govts. All Govts. Private Net Benefits Total Net Benefits Fed. Gov. Different Values of % of bachelor s degrees earned by members of each cohort that are received from Maryland public universities in the absence of the Dream Act 25% $4.2 $1.4 $5.6 $18.4 $24.0 $40.8 $64.8 75% $3.9 $1.7 $5.6 $18.4 $24.0 $38.5 $62.5 % of those in each cohort who would earn a BA at a private or out-of-state public university in the absence of the Dream Act who will complete two years at a Maryland community college and two years at a Maryland public 4-year college or university if the Dream Act is in effect 50% $3.7 $1.3 $5.0 $18.4 $23.3 $44.3 $67.7 75% $3.3 $1.1 $4.3 $18.4 $22.7 $49.0 $71.7