As most of you know by now, the government officially shutdown this morning at 12:01am. Below is an article that was in the Washington Post that I think gives an unbiased approach (which has been difficult to find) to what happens when the government gets “shut down” or in this case, “slows down”. I’m sure this will be at the top of every news report, but the markets seem to be taking this news in stride so far. However, if this goes on for another week or so, the markets may not react so benign.
Jon Houk, CFP®
BY: BRAD PLUMMER
So… it’s shutdown time. Let’s take a look at how this will work.
Not all government functions will simply evaporate come Oct. 1 — Social Security checks will still get mailed, and veterans’ hospitals will stay open. But many federal agencies will shut their doors and send their employees home, from the Environmental Protection Agency to hundreds of national parks.
Here’s a look at how a shutdown will work, which parts of the government will close, and which parts of the economy might be affected.
Wait, what? Why is the federal government on the verge of shutting down?
Short answer: There are wide swaths of the federal government that need to be funded each year in order to operate. If Congress can’t agree on how to fund them, they have to close down. And, right now, Congress can’t agree on how to fund them.
To get a bit more specific: Each year, the House and Senate are supposed to agree on 12 appropriations bills to fund the federal agencies and set spending priorities. Congress has become really bad at passing these bills, so in recent years they’ve resorted to stopgap budgets to keep the government funded (known as “continuing resolutions”). The last stopgap passed on March 28, 2013, and ends on Sept. 30.
In theory, Congress could pass another stopgap before Tuesday. But the Democratic-controlled Senate and Republican-controlled House are at odds over what that stopgap should look like. The House passed a funding bill over the weekend that delayed Obamacare for one year and repealed a tax on medical devices. The Senate rejected that measure. They voted a few more times and still no agreement. So… we’re getting a shutdown.
Does a shutdown mean everyone who works for the federal government has to go home?
Not exactly. The laws and regulations governing shutdowns separate federal workers into “essential” and “non-essential.” (Actually, the preferred term nowadays is “excepted” and “non-excepted.” This was tweaked in 1995 because “non-essential” seemed a bit hurtful. But we’ll keep things simple.)
The Office of Management and Budget recently ordered managers at all federal agencies to conduct reviews to see which of their employees fall into each of these two categories. If a shutdown hits, the essential workers stick around, albeit without pay. The non-essential workers have to go home after a half-day of preparing to close shop.
Which parts of government stay open?
There are a whole bunch of key government functions that carry on during a shutdown, including anything related to national security, public safety, or programs written into permanent law (like Social Security). Here’s a partial list:
– Any employee or office that “provides for the national security, including the conduct of foreign relations essential to the national security or the safety of life and property.” That means the U.S. military will keep operating, for one. So will embassies abroad.
– Any employee who conducts “essential activities to the extent that they protect life and property.” So, for example: Air traffic control stays open. So does all emergency medical care, border patrol, federal prisons, most law enforcement, emergency and disaster assistance, overseeing the banking system, operating the power grid, and guarding federal property.
– Agencies have to keep sending out benefits and operating programs that are written into permanent law or get multi-year funding. That means sending out Social Security checks and providing certain types of veterans’ benefits. Unemployment benefits and food stamps will also continue for the time being, since their funding has been approved in earlier bills.
– All agencies with independent sources of funding remain open, including the U.S. Postal Service and the Federal Reserve.
– Members of Congress can stick around, since their pay is written into permanent law. Congressional staffers however, will also get divided into essential and non-essential, with the latter getting furloughed. Many White House employees could also get sent home.
Do these “essential” employees who keep working get paid?
The 1.3 million or so “essential” civilian employees who stay on could well see their paychecks delayed during the shutdown, depending on the timing. They should, however, receive retroactive pay if and when Congress decides to fund the government again.
The 1.4 million active-service military members, meanwhile, will get paid no matter how long the shutdown lasts. That’s because the House and Senate specifically passed a bill to guarantee active-duty military pay even when the government is closed. Obama signed it into law Monday night.
So which parts of government actually shut down?
Everything else, basically. It’s a fairly long list, and you can check out in detail which activities the agencies are planning to halt in these contingency plans posted by each agency. Here are a few select examples:
Health: The National Institutes of Health will stop accepting new patients for clinical research and stop answering hotline calls about medical questions. The Centers for Disease Control and Prevention will stop its seasonal flu program and have a “significantly reduced capacity to respond to outbreak investigations.”
Housing: The Department of Housing and Urban Development will not be able to provide local housing authorities with additional money for housing vouchers. The nation’s 3,300 public housing authorities will also stop receiving payments, although most of these agencies have enough cash on hand to provide rental assistance through the end of October.
Immigration: The Department of Homeland Security will no longer operate its E-Verify program, which means that businesses will not be able to check on the legal immigration status of prospective employees during the shutdown.
Law enforcement: Although agencies like the FBI and the Drug Enforcement Agency will continue their operations, the Justice Department will suspend many civil cases for as long as the government is shut down.
Parks and museums: The National Park Service will close more than 400 national parks and museums, including Yosemite National Park in California, Alcatraz in San Francisco, and the Statue of Liberty in New York. The last time this happened during the 1995-96 shutdown, some 7 million visitors were turned away. (One big exception was the south rim of the Grand Canyon, which stayed open only because Arizona agreed to pick up the tab.)
Regulatory agencies: The Environmental Protection Agency will close down almost entirely during a shutdown, save for operations around Superfund sites. Many of the Labor Department’s regulatory offices will close, including the Wage and Hour Division and the Occupational Safety and Health Administration. (The Mine Safety and Health Administration will, however, stay open.)
Financial regulators: The Commodity Futures Trading Commission, which oversees the vast U.S. derivatives market, will largely shut down. A few financial regulators, however, such as the Securities and Exchange Commission, will remain open.
(Small parts of) Social Security: The Social Security Administration will retain enough staff to make sure the checks keep going out. But the agency won’t have enough employees to do things like help recipients replace their benefit cards or schedule new hearings for disability cases.
Visas and passports: The State Department says it will keep most passport agencies and consular operations open so long as it has the funds to do so, although some activities might be interrupted. (For instance, “if a passport agency is located in a government building affected by a lapse in appropriations, the facility may become unsupported.”)
During the previous shutdown in 1995-1996, around 20,000 to 30,000 applications from foreigners for visas went unprocessed each day. This time around, the State Department is planning to continue processing visas through the shutdown, since those operations are largely funded by fees collected.*
Veterans: Some key benefits will continue and the VA hospitals will remained open. But many services will be disrupted. The Veterans Benefits Administration will be unable to process education and rehabilitation benefits. The Board of Veterans’ Appeals will be unable to hold hearings.
What’s more, if the shutdown lasts for more than two or three weeks, the Department of Veterans Affairs has said that it may not have enough money to pay disability claims and pension payments. That could affect some 3.6 million veterans.
Women, Infants, and Children: The Department of Agriculture will cut off support for the Women, Infants and Children program, which helps pregnant women and new moms buy healthy food and provides nutritional information and health care referrals. The program reaches some 9 million Americans. The USDA estimates most states have funds to continue their programs for “a week or so,” but they’ll “likely be unable to sustain operations for a longer period” — emergency funds may run out by the end of October.
Rep. Rush Holt (D-N.J.) has a list of other possible effects of a shutdown. Funds to help states administer unemployment benefits could get disrupted, IRS tax-refund processing for certain returns would be suspended, farm loans and payments would stop, and Small Business Administration approval of business loan guarantees and direct loans would likely cease.
Would the city of Washington D.C. be affected?
Only if the shutdown goes on longer than a few weeks. In theory, the District of Columbia is supposed to shut down all but its most essential services during a government shutdown. But Mayor Vincent Gray has said that he will label all city services “essential” and use a cash reserve fund to keep everything going for as long as possible.
Some background: The District of Columbia is the only city barred from spending funds during a federal government shutdown, save for a few select services. During the 1995-’96 shutdown, the city was only able to keep police, firefighters and EMS units on duty. Trash collection and street sweeping came to a stop until Congress finally intervened.
This time, however, the District is taking a more defiant stance. Gray has recently said that he will declare all city services “essential” and keep them running. And the city has $144 million in funds to carry out services like trash collection and street sweeping for two weeks. If the shutdown drags on longer, however, it’s unclear what will happen…
How many federal employees would be affected by a government shutdown?
The government estimates that roughly 800,000 federal workers will get sent home if the government shuts down.
That leaves about 1.3 million “essential” federal workers, 1.4 million active-duty military members, 500,000 Postal Service workers, and other employees in independently-funded agencies who will continue working.
Can you give me an agency-by-agency breakdown of the impacts?
Yes. We’ve been compiling a detailed list here at the Post, but here’s a brief overview, showing how many employees are furloughed, and examples of who stays and who goes:
Department of Commerce: 87 percent of the agency’s 46,420 employees would be sent home. (The Weather Service would keep running, for instance, but the Census Bureau would close down.)
Department of Defense: 50 percent of the 800,000 civilian employees would be sent home while all 1.4 million active-duty military members would stay on. (Environmental engineers, for instance, would get furloughed, and the agency could not sign any new defense contracts.)
Department of Energy: Thanks to multi-year funding, parts of the agency can actually operate for “a short period of time” after Sept. 30. But eventually 69 percent of the agency’s 13,814 employees will be sent home. (Those in charge of nuclear materials and power grids stay. Those conducting energy research go home.)
Environmental Protection Agency: 94 percent of the 16,205 employees will be sent home. (Those protecting toxic Superfund sites stay. Pollution and pesticide regulators get sent home.)
Federal Reserve: Everyone would stay, since the central bank has an independent source of funding.
Department of Health and Human Services: 52 percent of 78,198 employees would be sent home. (Those running the Suicide Prevention Lifeline would stay, those in charge of investigating Medicare fraud would go home.)
Department of Homeland Security: 14 percent of the 231,117 employees would go home. (Border Patrol would stay. Operations of E-Verify would cease. The department will also suspend disaster-preparedness grants to states and localities.)
Department of Housing and Urban Development: 95 percent of the 8,709 employees would go home. (Those in charge of guaranteeing mortgages at Ginnie Mae would stay, as would those in charge of homelessness programs. Almost everything else would come to a halt.)
Department of Interior: 81 percent of the 72,562 employees would be sent home. (Wildlife law enforcement officers would stay, while the national parks would close.)
Department of Justice: 15 percent of the 114,486 employees would go home. (FBI agents, drug enforcement agents, and federal prison employees would stay. The department would continue running background checks for gun sales. Some attorneys would go home.)
Department of Labor: 82 percent of the 16,304 employees would be sent home. (Mine-safety inspectors will stay. Wage and occupational safety regulators will go home. Employees compiling economic data for the Bureau of Labor Statistics will also get furloughed.)
NASA: 97 percent of the 18,134 employees would be sent home. (Scientists working on the International Space Station will stay. Many engineers will go home.)
U.S. Postal Service: Everyone would stay, since the Postal Service is self-funded.
Social Security Administration: 29 percent of the 62,343 employees would be sent home. (Claims representatives would stay; actuaries would go home.)
Department of Treasury: 80 percent of the 112,461 employees will be sent home. (Those sending out Social Security checks would stay; IRS employees overseeing audits would go home.)
Department of Transportation: 33 percent of the 55,468 employees will get sent home. (Air-traffic controllers will stay on; most airport inspections will cease.)
Department of Veterans Affairs: 4 percent of the 332,025 employees would go home. (Hospital workers will stay; some workers in charge of processing benefits will go home.)
A much, much more detailed list can be found in the agency contingency plans prepared here.
Do “non-essential employees” who get sent home ever get paid?
That’s unclear, as my colleague Lisa Rein has reported. On the first day of the shutdown, these employees do have to come to their offices to secure their files, set up auto-reply messages, and make preparations necessary to halt their programs.
The last time this happened, Congress later agreed to pay these employees retroactively when the government reopened. But that’s completely up to Congress.
Is the government even prepared for a shutdown?
Maybe? As mentioned before, the Office of Management and Budget has asked federal agencies to develop contingency plans for a shutdown. But chaos is always possible. Back during the 1995 shutdown, the Social Security Administration initially sent home far too many workers and had to recall 50,000 of them after three days in order to carry out its legal duties.
Which parts of the economy would be most affected by a shutdown?
A few points:
– The local economy around Washington, D.C. is expected to lose some $200 million in economic activity for each day that the government is shut down.
– Economist Mark Zandi has estimated that a short government shutdown, which would send more than 800,000 federal workers home, could shave about 0.3 percentage points off economic growth in the fourth quarter of 2013 (though the economy would likely bounce back in the following quarter). A more extended shutdown could do even more damage.
– Alternatively, we can look at what happened back in 1995 and 1996, the last two times the federal government actually shut down for a few weeks. In a research note earlier this month, Chris Krueger of Guggenheim Partners passed along some thoughts about the possible economic impacts of a shutdown in a few areas:
Tourism: U.S. tourist industries and airlines reportedly sustained millions of dollars in losses during the 1995 and 1996 shutdowns, in part because visas were going unprocessed and in part because so many parks were shutting down, turning away 7 million visitors.
Federal contractors: Of the $18 billion in federal contracts in the D.C. area back in 1995-1996, about one-fifth, or $3.7 billion, were put on hold during that era’s shutdown. Employees of contractors were reportedly furloughed without pay.
The effects would be considerably larger today, given that the number of private contractors has swelled over the past two decades. In Fairfax County, Virginia, alone there are currently 4,100 contractors that bring in about $26 billion per year. It’s still unclear exactly how many of those contracts would be affected.
Energy: The Department of Interior would temporarily stop reviewing permits for onshore oil and gas drilling as well as applications for renewable energy projects on public land. (The Department of Energy can keep processing applications for liquefied natural gas exports for the time being, though it’s not clear how long that funding will last.)
Pharma and biotech: This one’s harder to game out. The Food and Drug Administration didn’t have to shut down in 1995 and 1996 because it was already funded. This time around, however, the FDA won’t be spared, and the review process for new drugs is likely to get bogged down. The shutdown could also put a cramp on the grant process from the National Institutes of Health. “If prolonged,” Krueger writes, “that could negatively impact life sciences/diagnostics companies.
Would a government shutdown stop Obamacare from happening?
No. As Sarah Kliff has explained, the key parts of Obamacare rely on mandatory spending that isn’t affected by a shutdown. “That includes the new online marketplaces, known as exchanges, where uninsured people will be able to shop for coverage. The Medicaid expansion is funded with mandatory funding, as are the billions in federal tax credits to help with purchasing coverage.”
That means uninsured Americans will be able to start shopping for plans when the exchanges launch Oct. 1, although there are likely to be some glitches.
How do you end a government shutdown?
Congress needs to pass a bill (or bills) to fund the government, and the White House has to sign them. They can do this at any time. Or they can sit at home and keep the government closed. Nothing requires them to do anything. It depends what sort of political pressure they’re facing.
How often has the government shut down before?
Since 1976, there have been 17 different government shutdowns. The longest came in 1995-’96 and lasted 21 days, as Bill Clinton wrangled with congressional Republicans over budget matters.
But there were also six shutdowns in the 1970s, all lasting longer than eight days, and there was even a one-day shutdown in 1982 when Congress couldn’t agree on funding for Nicaraguan Contras.
Is a government shutdown the same thing as breaching the debt ceiling?
Nope! Different type of crisis. In a government shutdown, the federal government is not allowed to make any new spending commitments (save for all the exceptions noted above).
By contrast, if we hit the debt-ceiling then the Treasury Department won’t be able to borrow money to pay for spending that Congress has already approved. In that case, either Congress will have to lift the debt ceiling or the federal government will have to default on some of its bills, possibly including payments to bondholders or Social Security payouts. That could trigger big disruptions in the financial markets — or a long-term rise in borrowing costs.
The Bipartisan Policy Center estimates that we’re on pace to breach the debt ceiling sometime between Oct. 18 and Nov. 5. So if a government shutdown isn’t thrilling enough for you, good news: There’s another fiscal crisis just around the corner.
* Clarification: During the 1995-’96 shutdown, many visas and passports went unprocessed. This time around, however, the State Department has said it will keep as many consulates and embassies open as it can using existing funds.
Brad Plumer covers energy and environmental issues, which ends up including just about everything from climate change to agriculture to urban policy and transportation.