is the government shutting down

is the government shutting down

Understanding the Impact of Government Shutdowns: Causes, Consequences, and Solutions

1. Introduction to Government Shutdowns

Finally, the report touches on reasons why shutdowns may occur and ends by suggesting policies that can prevent future service interruptions. Clearly, the two appropriation policy solutions offered are neither an exhaustive mix of potential legislative strategies nor are they exclusive. The objective is to provide a manageable and reasonable starting point to stimulate creative thinking and sustain legislative effort that may ultimately lead to action.

However, it is useful to consider shutdowns in the context of long-run trends in government funding at the macroeconomic level and to recognize fundamental reasons that can make the budget process particularly difficult. Therefore, this report touches briefly on the concept of fiscal stabilization and its limitations, examines spending, tax, and deficit trends in the context of policy response to macroeconomic events, and categorizes federal spending relative to its funding source. The report subsequently reviews federal wage and employment metrics that probably will be used in any analysis of a government shutdown’s impact and highlights historical measurement issues that are useful as examples for informing the adjustment of a range of macroeconomic statistics to assure their validity and relevance after a lengthy lapse.

When the U.S. Congress is unable to pass appropriations legislation, implemented through either annual appropriations acts or a continuing resolution, the federal government shuts down nonessential operations in part due to lack of legal authority to continue them. The fiscal and economic cost of a sustained shutdown is usually substantial, as can be its other effects in the case of an extended shutdown. This report provides an introduction to the topic of government shutdowns. Its intended audience is Members of Congress, congressional staff, and other interested parties for whom much of the information presented here represents resources for more in-depth staff research. The overview generally is intended to derive from a wide array of possible research sources and the underlying foundation required; more information is available from those sources. Aware of time constraints on congressional staff, this report is written using summary language to deliver its key points as a whole.

2. Causes and Triggers of Government Shutdowns

The length and severity of the shutdown are related to the underlying cause (or causes) of the impasse. They could be tied to a single narrow policy provision or rider, action on numerous appropriations bills, political difficulties facing the congressional leaders, spending priorities, the state of the economy during an election year, or an ongoing difference of opinion with the President over the budget during a time of divided government. Some unique scenarios tie the appropriators’ hands, such as the insufficient guidance given them by their budget committees as to the overall number that the former are to allocate among the various jurisdictional subcommittees for starter funds. Once the overpowering gesture of enacting a straight-jacket budget law has been bypassed or symbolically addressed, one can anticipate wide latitude in thinking about, framing, and drafting spending measures that might be better informed by the spirit and letter of the work being done, including the deadline, by the executive agencies as they develop their budget requests.

While the eventual decision to enter a government shutdown can be caused by any number of issues – including those unrelated to appropriations – the specific trigger for the majority of all government shutdowns has been Congress’s failure to complete the work of annual appropriations by the start of the new fiscal year, which begins October 1. Government shutdowns generally occur when there is a disagreement within the legislative branch over the provisions of an appropriations bill, or a set of them, that prevents the enactment of new budget authority to keep the operations of one or more or all of the federal departments and agencies up and running.

3. Consequences of Government Shutdowns

The evidence provided in the following pages shows that advances in the sophistication of high-frequency data, particularly on fiscal aggregates, have enabled comprehensive analysis of a government shutdown episode and its aftermath. These range from measures of size and net flow impacts on economic activity to dividing economic output into differential shares and their individual sector and subsector levels, to examining both fiscal year and economy-wide burdens of financial imbalances from them and how markets for fiscal instruments respond. These insights also extend to policies around possible causes and solutions. The article begins with literature and review, setting up and measuring the macroeconomic effects of the government shutdowns of late 1995 and early 1996.

There is a small theoretical literature on the overall macroeconomic effects of a government shutdown, producing inferences for what economic sustainability might look like in terms of payments and outstanding debt. Still, there is no comprehensive empirical work on economic effects across major sectors and broader economic aggregates. In this section, we provide evidence on the short-term macroeconomic and budgetary consequences of the government shutdowns in late 1995 and early 1996. This includes work on what economic activity looked like in terms of the deficit, net of timing shifts in spending and receipts and in terms of underlying patterns of spending and receipts; the effect of the speed of a shutdown’s ending; and the “intertemporal smoothing” of a shorter-term government shutdown within the fiscal year, evidence suggesting you would not observe a clear spike in spending with the government now reopened.

4. Mitigation and Solutions to Prevent Future Shutdowns

It is increasingly apparent that ill-considered and poorly structured government shutdowns that stem from differences in the parties’ platforms and the manner they are addressed amongst themselves do substantially detract from their overall category, contrary to faintly expressed populist utterances ready to saddle 800,000 public sector workers with the brunt of this fiscal and psychological loss. Since the economic and societal costs of government shutdowns are proven and large, everyone has a vested interest in ensuring that the organic structure of this mainly beneficial commercial institution is not periodically discarded, if only temporarily, during times of political strife.

In setting forth an agenda for seeking reforms to the legal framework to prevent future government shutdowns, we must confront resurgent thinking against the government in general and the role of bureaucracy in particular. This can readily lead to inertia against reform since support for an effective public policy intervention is expected from noted officials occupying key public positions. This has not happened, even after the grave consequences of the 35-day fiasco had been directly experienced. This was in large part a result of the U.S. Constitution embedding the right of Congress to deny funding to the Executive at the instigation of whatever faction gains control of both houses of Congress. Congress, consequently, is legally structured to predominate over a weakly led and weakly structured Executive.