WASHINGTON — If the House and Senate can’t agree on a government funding bill by Sept. 30, the federal government will shut down. And, right now, the House and Senate can’t agree on a bill. They’re wrangling over the Affordable Care Act.
So … it’s time to start thinking about what a federal government shutdown would actually look like.
Not all government functions would simply evaporate come Oct. 1 – Social Security checks would still get mailed, and veterans’ hospitals would stay open. But many federal agencies would shut their doors and send their employees home, from the Centers for Disease Control to financial regulators, the Department of Education and hundreds of national parks.
Here’s a look at how a shutdown would work, which parts of the government would close, and which parts of the economy might be affected.
Q: Wait, what? Why is the federal government on the verge of shutting down?
A: 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 is 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 this week. But the Democratic-controlled Senate and Republican-controlled House are at odds over what that stopgap should look like. The House version included an item that would defund Obamacare. The Senate’s bill will almost certainly strip that provision out. So we have a standoff.
Q: Does a shutdown mean everyone who works for the federal government has to go home?
Nope. 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.
Q: Which parts of government stay open?
A: 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.
• Any employee who conducts “essential activities to the extent that they protect life and property.” So, for example: Air traffic control stays open. So do all emergency medical care, food-safety inspections, border patrol, federal prisons, 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.
• All agencies with independent sources of funding remain open, including the U.S. Postal Service and the Federal Reserve.
• Congress also stays open, since its funding is written into permanent law. Some White House employees may have to go home, however.
Q: Do these “essential” employees who keep working get paid?
They don’t get a paycheck during the shutdown. They do, however, receive retroactive pay if and when Congress decides to fund the government again.
A: So which parts of government actually shut down?
Everything else, basically. It’s a long list.
We can see what happened in 1995 and 1996, the last two times the government actually shut down for a few weeks. These examples all come from a big Congressional Research Service report:
Health: The National Institutes of Health stopped accepting new patients for clinical research and stopped answering hotline calls about medial questions. The Centers for Disease Control stopped monitoring disease.
Law enforcement: The Bureau of Alcohol, Tobacco, and Firearms stopped processing applications for firearms and alcohol. The federal government stopped work on about 3,500 bankruptcy cases as well as a number of child-support cases. The Border Patrol put a hold on hiring 400 new agents.
Parks and museums: The National Park Service closed 368 sites, such as Yosemite National Park in California. All told, 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 closes down almost entirely during a shutdown. So do certain financial regulators, including the Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission. Although corporations can still file documents like 10Ks through automated systems, there’s no one around to scrutinize the paperwork.
(Small parts of) Social Security: During the last shutdown, the Social Security Administration was able to keep on enough employees to make sure the checks kept going out. But the agency didn’t have enough staff to do things like answer phone calls or help recipients who needed to change addresses.
So some disruptions are possible.
Visas and passports: During the shutdown, around 20,000 to 30,000 applications from foreigners for visas went unprocessed each day. The State Department also had to let some 200,000 applications from Americans for visas gather dust.
Veterans: Although some key benefits continued and the VA hospitals remained open, “multiple services were curtailed, ranging from health and welfare to finance and travel.”
Rep. Rush Holt, D-N.J., has a list of other possible effects of a shutdown: Funds to help states pay unemployment benefits could get disrupted, IRS tax-refund processing for certain returns would be suspended, new home-loan guarantees could cease, farm loans and payments would stop, and Small Business Administration approval of business loan guarantees and direct loans would likely cease.
Q: How many federal employees would be affected by a government shutdown?
A: Roughly half. Back in 2011, the government estimated that 1.2 million federal employees (out of 2 million or so) would likely get furloughed and sent home without pay in the event of a shutdown.
Note that this is actually a higher number than in 1995-1996 shutdowns, when only 800,000 (out of 2 million or so) were sent home. That’s because the earlier shutdown was actually less widespread: At the time, Congress had already funded a few select parts of government, including the Department of Defense and the FDA. That hasn’t happened this time around, at least not yet. So more employees will be affected.
Q: Do “non-essential employees” who get sent home ever get paid?
A: That’s unclear. On the first day of the shutdown, these employees do have to come to their offices to secure various files 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.
Q: Is the government even prepared for a shutdown?
A: Maybe? As mentioned before, the Office of Management and Budget has asked federal agencies to develop contingency plans for a shutdown. But chaos is certainly 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.
Q: Which parts of the economy would be most affected by a shutdown?
A: In a research note earlier this week, 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 foreign visas were going unprocessed and in part because so many parks were shutting down. The passport and visa holdup can also disrupt business trips, both here and abroad.
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 the shutdown. Employees of contractors were reportedly furloughed without pay.
Energy: The federal government would have to take a break from working on drilling permits and processing applications for liquefied natural gas exports.
Pharma and biotech: This one’s hard 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 might 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.
Q: Would a government shutdown stop Obamacare from happening?
A: Nope. 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.” The government would continue to set these up.
Q: How do you end a government shutdown?
A: 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.
Q: How often has the government shut down before?
A: Since 1976, there have been 17 different government shutdowns. The longest came in 1995-1996 and lasted 21 days, as Bill Clinton wrangled with congressional Republicans over budget matters. But there were 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.
Q: Is a government shutdown the same thing as breaching the debt ceiling?
A: 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. 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.