government shutdown update

government shutdown update

Analyzing the Impact and Implications of Government Shutdowns

1. Introduction to Government Shutdowns

Considerable concern has been expressed about the potential economic harm from government shutdowns, many of which have occurred in the decades since the 1974 enactment of the Congressional Budget and Impoundment Control Act, which established the modern budget process. Reflecting this concern, economic and other analyses have been prepared about government shutdown effects during shutdowns or in preparation for possible shutdowns. Shutdowns also have led to the development of new lessons and increased concerns over time. Since 1980, there have been six administrative closures of an agency or agencies, collectively referred to as the Iran-related closures. These closures have taken place at the end of calendar years or periods during budget negotiations, and have lasted less than three full days. Total government outlays have been directly or indirectly affected, several times because of a partial or full temporary federal workers’ furloughs.

The U.S. federal government periodically shuts down due to Congress’ failure to pass regular appropriations bills or interim continuing resolutions. When shutdowns occur, federal programs and activities are affected in different ways. Federally funded national parks may close, research activities might stop, the federal workforce may be placed on furlough, and services such as providing food aid to low-income persons or tax collection, examination, and refund processing may be curtailed or delayed. Not only have different federal programs and activities been affected in different ways during past government shutdowns, but Congress and the President have different authorities and options to direct government operations during such shutdowns.

2. Historical Context and Causes of Government Shutdowns

The term “shutdown” is something of a misnomer, since many government functions persist throughout the break in appropriations. Essential public health and safety operations, for example, continue. In contrast, nearly 40 percent of federal civilian employment, totaling about 880,000 employees, is now subject to furlough. This category covers a wide range of nonessential, nonexempt activities that constitute a large portion of the “output” of the federal government, such as federal contract awards, grants and loans, and, crucially, revenue collections. Although employees required to support the work of other key essential functions—such as air traffic control and emergency law enforcement and hazardous material response—must continue working, they do so without pay until a new appropriation or continuing resolution is enacted.

Over the past half-century, federal government funding gaps known as “shutdowns” have become increasingly common. Yet public policy scholars have given relatively little attention to investigating the causes, implications, and (often understated) impact of such events. We argue that extant explanations of shutdowns are overly narrow and therefore have trouble explaining their rise, characteristics, and longer-term implications. In response to this oversight, this article sets out to develop a more pluralistic conception of shutdowns and their relationship to American state capacity. In so doing, we hope to trigger further conversation and empirical work with the aim of developing a more comprehensive understanding of shutdowns, their antecedents, their conduct, their impact, and, ultimately, how they are best avoided.

3. Economic Consequences of Government Shutdowns

With the current use of 100 contracts, we expect about 1,400 contracts to be affected. This implies that a total of only $4.9 billion of contracts were affected by the delay, less than one-fifth of Del Castillo’s figure of $26 billion. Summing expenditures and contracts, with Del Castillo’s estimate as final expenditure gives a GDP reduction of 4.5% and 7.74% for shutdowns between 50 and 75 days. Since final expenditures are about one-fourth of wage compensation, Del Castillo’s estimate suggests a GNP reduction of 20% and 30% for the existing shutdowns. With our estimate of 1.92, Del Castillo’s estimate gives a 4.5% GDP reduction after a 50-day shutdown.

3.1 What economic effect can appropriations gaps have? A temporary shutdown of the federal government might be expected to have a temporary impact on economic activity. Most of the federal workers, contractors, and grantees affected by legislation creating an appropriations gap should receive what they would have received in the absence of a shutdown. Only their receipt of the money may be interrupted. Defense contractors were forced to place about 5% of new contracts on hold for the duration of the last government shutdown. The length of the interruption ranged from 2 days to 3 weeks.

The previous sections have discussed the salient features and significance of government shutdowns. Economists seek to understand the consequences of government shutdowns and how these consequences may help inform policy decisions. Why should we worry about government shutdowns at all? After all, government shutdowns are temporary, and all federal government activities eventually resume. Nonetheless, shutdowns have real effects that are analyzed in some depth in the rest of the paper.

4. Political Ramifications and Public Opinion

By way of example, veterans might be expecting $1.3 billion in care in January, but because of the existing “Do not pay” statute, it’s not possible to access those funds to pay for the services that the veterans are expecting. The ultimate irony of the trust funds is that the only thing they purchased directly is potentially the political suicide of a member of Congress because the constituents then see they are not only not getting services, but they paid for services in advance. The big dollar items are the trust funds, the prior services of retirees, the costs of issuing the Social Security checks, and the active services that some of the trust funds provide. There are also miscellaneous unobligated funds that flow into general funds, but they are also small in terms of dollar terms. Then the third category, which I think the controllers have always defined directly as obligations, are the cash controls. While all of us apparently stand in awe of the funding process, the process that’s applied until after the funding process, the agencies check to be sure that there’s money to cover the checks they want to write. So if they take an action, take an employee out on furlough, there has always been a mechanism which they call cash management, to see if we have the money in this fiscal year to do — to pay all the people we might established would not be doing anything if we had the advance funding.

A number of those representatives had been critics of federal employees in the past and suddenly found out that almost prima facie setup an environment where the federal employees in the district started talking every day in the chowder line. They interacted with them at the clinic, and all of a sudden it’s like being in any small town in the country where the federal family, the postal service, you are a significant percentage of the total family. Trying to deal with the specifics highlights the dilemma that exists with respect to disposal of unobligated funds that remain in hypothecated accounts. Over time, there has evolved what are now over 1,500 categories and none of them are fungible. Just this one example, OMB estimates that seven billion dollars exist in the trust funds or revolving funds, these special use accounts, but because of the existence of the hypocrisy, those funds cannot be used to pay the salaries of those departments or the agencies during a shutdown or a furlough. The end result is that the public is being short-stopped the services that they paid for.

And the final topic that I want to address is the political ramifications of shutdowns, specifically in two contexts: the Federal context and the individual legislative context. In the Federal context, it’s essential to recognize the dramatic impact that federal employees have on the local districting surrounding the National Capitol. They are significant players in the dialogue between the legislator and those who represent it. By way of example, it’s an interesting irony that the first event that led to the passage of the first legislation with respect to federal employee compensation, the Dual Compensation Act, had to do with the failure of the Congress to pass any legislation during a year and a half following the passage of the act which made any appropriation for federal employees.

5. Mitigation Strategies and Future Directions

First and foremost, creating approaches to ensure that workers have access to a level of financial risk management that can help minimize the level of economic catastrophe they face when unable to draw a paycheck. Similarly, understanding the demand for resources provided by government employees is a critical area of study. By utilizing this information collectively from three areas of government affected by a potential shutdown, follow-on research may look to expand and begin to embrace more subtle variables of risk and potential secondary consequences from extended periods of economic hardship immeasurable at scale. Finally, identifying methods to track the secondary effects on communities experiencing a reduction in resources provided by government workers over time should also become a focus of further research. However, the long-term analysis of how a government shutdown may indeed exacerbate geographical concentrations of policy and financial impacts to certain regions, even within large regional economic zones, is an important impetus for follow-on analysis.

The many challenges and risks associated with a government shutdown are difficult, if not impossible, to mitigate. However, given the demonstrable areas of enhanced risk, certain strategies could be taken in order to reduce the impact on security and economic confidence. Additionally, it is also important to continue research in order to understand both the direct and indirect consequences of such events. This understanding may allow decision makers to act on changing the ground truths and provide the necessary level of security and assistance to our citizens.