January 19, 2018
As this is being written a federal government shutdown is scheduled to go into effect at the end of the day on Friday, January 19. Should it occur it will be more of an annoyance than anything else because only some government functions will be affected. Government shutdowns do not occur often. The last one was from September 30, 2013 to October 16 a total of 16 days. Prior to that was a 21-day closure between December 15, 1995 and January 6, 1996. The Congressional Research Service recently published a document entitled “Shutdown of the Federal Government: Causes, Processes, and Effects” which describes the process.
It is important to recognize that not all federal government activities will cease. The Office of Management and Budget (OMB) determines which workers are affected. Generally, agencies that protect life and property are exempted. This would include medical care at VA hospitals, air traffic controllers, border and coastal protection, protection of federal lands, buildings, and waterways, care of prisoners, law enforcement and criminal investigations, emergency and disaster assistance workers, agencies that ensure the production of power, and the military. All U.S. Treasury auctions of government securities will be held as usual. The Post Office continues to deliver the mail because it is a self-funded agency. Social Security and Medicare payments are made on time. Food stamps continue to be distributed.
OMB reported that in the 2013 standoff roughly 850,000 executive branch workers were laid off daily at its peak in early October. That represented about 40% of the federal workforce. While there is no guarantee that those workers will be paid, the reality is that they have never gone unpaid. Once the shutdown comes to an end Congress routinely approves legislation to pay those workers retroactively.
Perhaps the most visible part of government that is affected are the national parks and monuments as well as the Smithsonian museums in Washington, D.C. Howls of protest arise as visitors find their vacation plans have been interrupted. The State Department will stop processing applications for passports and visas. Experimental programs at the National Institutes if Health will cease. The Centers for Disease Control will stop monitoring disease surveillance. The Bureau of Alcohol, Tobacco, and Firearms will stop processing alcohol, tobacco, firearms and explosives applications. Many federal government contract workers will not get paid.
While annoying, it is unlike the type of shutdown that occurs once the U.S. Treasury has reached the debt ceiling limit. That has far more serious repercussions. On those occasions the Treasury can roll over its outstanding debt, but is unable to raise any new cash. Thus, it can live off its cash balance for a while but, eventually, it will run out of cash and be forced to default on its debt obligations. That has never happened, but the specter that it could occur is enough to send a wave of fear through the financial markets.
The way the budget process works, every year Congress must pass 12 different appropriations bills which specify the amount of money each federal agency is permitted to spend in the upcoming fiscal year. These bills are rarely passed by the time the new fiscal year begins on October 1. Instead, Congress will pass a “continuing resolution” which allows each agency to spend temporarily at the same rate as in the prior fiscal year. This year the first continuing resolution provided funding through December 8. It has since been extended through January 19. Republicans and Democrats always vie over spending priorities and this year is no exception. Each side tries to achieve the best possible deal. But, inevitably, each side also wants to attach unrelated legislation to these spending bills. In this case, the Republicans want to include funding for President Trump’s wall along the border with Mexico. The Democrats want to extend the Deferred Action for Childhood Arrivals (DACA) program which will permanently prevent the deportation of about 700,000 undocumented immigrants who were brought to the U.S. as children. Each side blames the other. How all this will be resolved is uncertain but, at the very least, a government shutdown expedites the process.
Stephen D. Slifer
NumberNomics
Charleston, S.C.
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