Shutdown Threat Looms Again – What the Impact Could Look Like 

With hours left before the start of the next federal fiscal year at midnight on October 1, Congress is set once again to fall short of completing the annual budget appropriations process on time. Not even a quarter of the twelve appropriations bills have made it to the floor of either chamber. This means that essentially the three following options are in play: the federal government could shut down with only essential functions continuing; Congress could adopt a continuing resolution (CR) that would temporarily fund federal government operations at previous fiscal year levels; or an omnibus spending agreement is brokered to fund the government through September 30, 2024. The last option is the least likely to happen in the coming days given the divided control of Congress, as well as the disagreement among House Republican factions. And while both chambers have taken some procedural steps to advance funding legislation, a shutdown in some form seems most likely now. So if the federal government is forced to shutdown, what might that impact look like across the country? 

The impending shutdown has the potential to have a significant impact on various communities, particularly those dependent on government employment and federal fiscal interactions. But overall, a shutdown could disrupt numerous services, put pressure on workers, create political turbulence, and have broader economic ramifications. For example, national parks could remain open, but even if they did, shuttle services and restrooms may be closed. From a broader impact perspective, in 2018-19 the Congressional Budget Office estimated that the United States economy lost around $3 billion during a five-week partial shutdown.  

Military personnel and their families could face financial uncertainty due to potential delays in paychecks. Additionally, civilian employees working in defense-related industries or at military bases may be furloughed, affecting local economies. At present, there exists no enduring legislation safeguarding military pay. During shutdowns Congress enacts temporary measures to protect military pay. It's worth noting that the Coast Guard is an exception to these provisions as they fall under the jurisdiction of the Department of Homeland Security rather than the Department of Defense. To remedy the lack of legislation, Congress is in the process of advancing the Pay Our Troops Act, a bill designed to provide ongoing funding for military pay in the event of a government shutdown. 

Areas with a significant federal employee presence may experience challenges as federal workers may be furloughed or asked to work without pay. This can impact the employees and local businesses relying on their patronage. A full shutdown would likely be similar to recent ones in 2013 and early 2018 when approximately 850,000 out of 2.1 million non-postal federal employees were furloughed. 

While federal grant programs, which support a wide range of projects and initiatives, may continue to operate during a shutdown, there could be delays in processing applications and providing support due to reduced staffing. For example, while the Supplemental Nutrition Assistance Program (SNAP) is classified as mandatory, it can still be impacted. The USDA has the authority to distribute SNAP benefits for a 30-day period, but the continuity of benefits may need to be determined. 

Programs like the Water Infrastructure Finance and Innovation Act (WIFIA), Transportation Infrastructure Finance and Innovation Act (TIFIA), and Railroad Rehabilitation and Improvement Financing (RRIF) are likely to remain operational as they are funded through different mechanisms and may not rely on annual appropriations. However, borrowers and applicants should anticipate potential processing delays. Congress only intends to discuss significant legislation unrelated to the shutdown once the government is fully operational again. 

Other federal fiscal relationships that are more complex, i.e., Build America Bonds (BABs), Pay-As-You-Go (PAYGO), and any subsidy programs, may also be affected by a potential government shutdown. The status of BABs during a government shutdown hinge on whether interest payments are considered essential or non-essential. Necessary payments would continue as scheduled. In the 2013 shutdown, BABs rebates were halted because of the budget impasse in Congress. While PAYGO may not be directly affected by a shutdown, the legislative process for addressing budgetary matters could be disrupted. Sequestration was employed by the government to implement PAYGO, aiming to compensate for expenditures surpassing a specific limit. Subsidy programs – for example, farms, medical, and hospitals – may continue to operate due to mandatory spending requirements or dedicated funding sources. However, administrative processes and support may be impacted.  

To see the various shutdown contingency plans of federal agencies, click here. Please note, some agency plans have been updated more recently than others.