PRIVATE AND GOVERNMENT FISCAL COSTS AND BENEFITS OF THE MARYLAND DREAM ACT

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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.

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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• Thirteen states have adopted such legislation • Oklahoma repealed its Dream Act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

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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

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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.

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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.

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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.

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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.

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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.

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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

Out-of-State Public Univ. Bachelors Degree from a Public Univ. 28

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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

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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

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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

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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

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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%).

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PV of Net Benefits of the Dream Act for Each Cohort ($1000s)

Fiscal Net Benefits to Private Net

Benefits Total Net Benefits

State

Gov. Local Govts.

State plus 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

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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).

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Other Potential Costs

• Immigrant magnet

– 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 year university students is small (0.1% of public

4-year university students).

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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

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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

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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.

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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.)

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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

Public Univ. Bachelors Degree from a Public Univ. $- $- $- $- $- $- $- $- Bachelors Degree from a

Private or Out-of-State Public Univ.

Bachelors Degree from a 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

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PV of Fiscal Costs of the Dream Act for Each Cohort ($1000s) State Exps. for Local Exps. For Fed. Exps.

For High Schools High Schools Comm. Colleges 4 Year Public Univs. High Schools Comm. Colleges State Gov. Local Govts. Fed. 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 $- $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

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PV of Private Benefits of the Dream Act for Each Cohort ($1000s)

Pre-Tax

Lifetime Earnings

Taxes Paid* After-Tax

Income Tuition Paid to Net Private Benefits

Comm.

Colleges 4-Year Public Universities Private Universities

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

a Public Univ. Bachelors Degree 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

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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

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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. Fed. Gov. All Govts.

Private Net

Benefits Total Net Benefits

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

Figure

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