Congress Barreling Toward Government Shutdown: What to Expect
Washington, D.C. – As Congress approaches a critical deadline for approving funding for the federal government, many Americans are growing concerned about the potential impact of a government shutdown. With the start of the new fiscal year on October 1, here’s a guide to what you can expect.
A government shutdown occurs when Congress fails to pass the 12 appropriation bills that make up the discretionary spending budget and set funding levels for federal agencies. This results in a halt of many government operations until Congress takes action, although essential functions continue.
Federal agencies each create a contingency plan during a shutdown, outlining which services will continue and how many employees will be furloughed. This disruption in government functions can have significant implications for Americans’ day-to-day lives.
Notably, Social Security payments to seniors, Americans with disabilities, and other beneficiaries will continue to be distributed. The Postal Service will also maintain regular service, and some states may utilize their own funds to keep certain national parks, like the Grand Canyon, open.
However, millions of federal employees and military service members would not receive their pay until the shutdown ends. Essential employees, such as those in services that protect public safety or national security, will continue working. Non-essential employees, on the other hand, will be furloughed.
Both groups will need to rely on savings or find alternative means to manage their finances until back pay arrives. The number of workers affected depends on whether the shutdown is full or partial. During the last shutdown in 2018-19, an estimated 420,000 federal employees worked without pay, while 380,000 were furloughed.
Government contractors are in an even more precarious position. Unlike federal workers, they have no assurance of receiving back pay once the government reopens. Contractors, numbering in the millions, provide a range of services to federal agencies, such as IT or infrastructure repair.
Economically, government shutdowns can have far-reaching consequences, hampering growth and creating uncertainty, particularly if they last for an extended period. Costs may include an increase in the unemployment rate, a decrease in gross domestic product (GDP) growth, and higher borrowing costs. According to estimates by EY, each week of a government shutdown could cost the US economy $6 billion and shave 0.1 percentage points off fourth-quarter GDP growth in 2023.
Furthermore, a shutdown muddles the state of the US economy. If a shutdown occurs, the Bureau of Labor Statistics ceases releasing crucial data, such as figures on inflation and unemployment. This lack of information makes it challenging for the Federal Reserve and investors to assess the economy and make informed decisions, especially as the Fed is currently focused on combatting high inflation.
Businesses across the country also face significant disruptions during a government shutdown. In the last shutdown, the government paused two major Small Business Administration loan programs, which provide nearly $200 million per day to small and midsize businesses. New business growth was also delayed, as the Securities and Exchange Commission (SEC) was understaffed and unable to review and approve filings for initial public offerings.
As the deadline looms, all eyes are on Congress to determine whether a government shutdown can be averted. The implications for everyday Americans and the economy are substantial, underscoring the urgency for lawmakers to reach a resolution.