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In-State Tuition for Illegal Immigrants Helps Maryland's Budget 2 comments
What is the marginal cost of admitting one more student to the University of Maryland? Is UMD building any new buildings for that one student? No. Are they maintaining any new landscaped grounds? No. Are they hiring a new $3M/yr basketball coach? No. Are they even hiring any new professors? Not many.
Now, what about with a 3% increase in new students? Many university costs would still remain fixed (i.e. unchanged) within that small of an increase. It is only the costs that would actually increase (the variable or marginal costs) that would impact the state’s budget or total university subsidy.
Illegal immigrants represent about 3% of the population, so even if the Maryland Dream Act resulted in a student enrollment influx proportional to their share of the population, you're talking a 3% increase in new students. Consider however that due to lower incomes and second language barriers, this is an underrepresented group in college attendance, so the reality is that we are talking about a figure less than 3%.
So the question then, would a 3% (or less) increase in enrollment times the instate tuition rate be equal to, less than, or greater than the MARGINAL cost of serving that new 3% (or less)? The question can be answered under a model that subsidizes the producer for the difference between total revenue and total cost, and then makes output or sales decisions based on price exceeding unit marginal cost but falling short of unit total cost. The entire concept is completely intuitive. Think it through from the perspective of a producer that is being subsidized. Average cost doesn't matter. The subsidy relative to the average cost doesn't matter. The only thing that matters is whether or not in state tuition exceeds marginal cost.
Imagine you are running a hot dog stand. You only have 2 costs: the fixed cost of the stand, and the variable (aka marginal cost) of the hot dogs. The stand costs you $100/month regardless of how many hot dogs you sell. The hot dogs cost you $1 each. You're currently selling 100 units per month at a price of $1.50/unit.
Does selling more units improve, or hurt your bottom line?
To really parallel this example,
Imagine the state government has agreed to subsidize the difference between the price of the hot dogs, and the average cost of the hot dogs, essentially cover your losses.
Does selling more units reduce, or increase the amount of money the state must subsidize your stand?
The concept is of per unit revenue (price) exceeding variable cost, but not covering total cost. In such a scenario you reduce your losses by increasing production. Each additional unit sold covers all the variable cost, and has a little left over to contribute to paying the fixed cost.
This is an economies of scale concept where the producer is operating inside of the optimal economy of scale.
It would be like if a car company invested in a new expensive factory and at 100 units per month, the market price of a car couldn't cover the total cost of production, but at 1000 units per month it could.
In-state public education will always be a money losing operation for the government, but increasing total output will make it less of a money losing operation as long as tuition covers the variable cost.
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This post has 2 comments:
"Alien friends are under the jurisdiction and protection of the laws of the state wherein they are; that no power over them has been delegated to the United States, nor prohibited to the individual states, distinct from their power over citizens; and it being true, as a general principle, and one of the amendments to the Constitution having also declared, that “the powers not delegated to the United States by the Constitution, nor prohibited to the states, are reserved, to the states, respectively, or to the people,” the act of the Congress of the United States, passed the 22d day of June, 1798, entitled “An Act concerning Aliens,” which assumes power over alien friends not delegated by the Constitution, is not law, but is altogether void and of no force."
The Maryland Legislative Services report that estimates it would hurt MD's budget is highly flawed on multiple fronts.
1. The Cade formula uses average cost, not marginal cost.
2. The 732 Cade exemptions at Montgomery College can be exempted for any number of reasons, such as " for dually enrolled high school
students. " mlis.state.md.us/2011r...
Many smart high school kids take courses at Montgomery College. Most of the adult elective classes they teach are exempt. There isn't nearly enough information to determine the # of illegals enrolled at MC based only on their Cade exemptions.
3. They literally quadruple these errors by applying a completely arbitrary doubling rate to these figures in 2013 and 2014.
This study analyzed the results of 10 states that have already tried in-state tuition for illegals (Texas was one of them) and they observed that it incentivized a 31-54% increase in enrollment for non-citizens. But that was a 30-50% increase of a very small number to begin with, 50 out of 19,000, that's 0.2%, the increase itself was 0.05%. Applied to UMD College Park you're talking about 19 new students. www.rwu.edu/depository...
The only way it would hurt the state budget would be if illegals were willing and able to pay the out-of-state rate, an argument and assumption that some have made. Given that they don't qualify for any student aid or loans, and come from much lower average income backgrounds, this isn't the case. These kids do not come from the same families as the New York and New Jersey kids driving late model BMW's and living on fraternity row at College Park.
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