What will happen if the federal government stops funding itself and has to close its doors?

Commentary about business and finance.
Feb. 22 2011 6:20 PM

Working for the Shutdown

What will happen if the federal government stops funding itself and has to close its doors?

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For the moment, all eyes are on Wisconsin's budget impasse, which has spawned similar battles in Ohio and Indiana. But it won't be long before attention turns to Washington, where things are getting dicey as well.

Unlike most state governments, the federal government is not required to balance its budget—nor does it even need to pass one. But it does need to OK money periodically in order to keep the lights on. As of March 4, the temporary bill keeping government workers paid and federal agencies going will expire. Congressional leaders and the White House have worked to bring the two parties together, but the impasse threatens to shut the federal government down.                             

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On Saturday morning, House Republicans passed a "continuing resolution," a budgetary stopgap, after an all-night session. It slashes about $61 billion from current levels of spending between now and September, taking money from the Environmental Protection Agency and banking regulators, among others. President Obama has said he would veto the bill, and the Senate has refused to take it up in its current condition. With the Senate gone until Monday, the full Congress will have just four working days to get its fiscal house in order.

Otherwise, come March 4, the government will shut down. It is not a likely outcome. But it is possible. House Minority Leader Nancy Pelosi has said she hopes to avoid the possibility by continuing funding at current levels. But deficit hawks say no. "We are not looking for a government shutdown, but at the same time we are not looking at rubber-stamping these really high, elevated spending levels that Congress blew through the joint two years ago," Rep. Paul Ryan, the chairman of the House budget committee, told CBS. Speaker John Boehner was more blunt: "I am not going to move any kind of short-term [continuing resolution] at current levels," he said. "When we say we're going to cut spending, read my lips: We are going to cut spending."

So what actually happens if Congress fails to pass a continuing resolution and the coffers dry up? Certain necessary activities would continue—anything related to defense, inpatient or emergency medical care, air traffic control, securing prisoners, or disaster assistance, for instance. But legally, federal agencies would have to wind down nonessential business. That means hundreds of thousands of employees would go on furloughs, from Treasury to Health and Human Services to the Department of Education, to be paid whenever a continuing resolution passed. Thousands more contractors would just lose their gigs. Parks would shut down. Offices would clear out. Phones would go unanswered.

Nobody knows exactly how it would shake out, not just yet. The president has broad discretion to decide what counts as necessary and what does not, says Stan Collender, a longtime budget expert and a partner at Qorvis, a D.C. communications firm. Right now, the White House Office of Management and Budget says it is helping agencies review their protocols in the event that March 4 comes and goes without a continuing resolution on Obama's desk. (The OMB has required federal agencies to keep an updated contingency plan on file since 1980.) Officials are looking at who will go and who will stay, and how they will tell whom to go where, just in case.

But everyone dreads the prospect. The last time the government shut down was during the Clinton administration. For five days in November 1995 and 21 days between December 1995 and January 1996, the lights went off. In the first shutdown, 800,000 workers stopped heading into the office. In the second, about 284,000 stayed at home, with an additional 475,000 working on "non-pay status." These were not just pencil-pushers either. The Centers for Disease Control and Prevention gave up on monitoring the outbreak of diseases. Workers at 609 Superfund toxic-waste sites stopped cleaning up.

Alice Rivlin, who was the head of the OMB at the time and recently served on the White House's deficit commission, recalls that scientists at the National Institutes of Health "were ruled inessential and went home," she says. "But they needed someone to keep on feeding the test animals. So the technicians were allowed to stay, so that the animals did not die." Collender remembers that federal agencies were well prepared for the shutdowns—the problem was not chaos at the Department of Energy or the Justice Department. "The chaos was among users of services," he says. "I have vivid memories of angry people in their mobile homes, who had booked a campsite two years before, getting turned away at national parks."

The impact proved economic as well. For instance, the United States stopped processing about 30,000 foreign applications for visas per day, so many of those tourists just stayed home. The Interior Department reported that businesses and local governments lost out on $295 million when national parks shut. An OMB analysis at the time estimated that the 1995-1996 shutdown cost the economy about $1.4 billion. But Rivlin says the true costs were paid by citizens—"people who lost out on services they had paid for in their taxes."

Shutdowns also introduce significant, economically detrimental "uncertainty." With the government shuttered for some unknown amount of time, businesses that take government contracts do not know how many workers to hire or whether they will be paid. Many furloughed workers, uncertain about their income, simply stop spending. Given the relatively crummy state of the economy, with employers just starting to look at picking up new workers, that job-killing uncertainty seems particularly worrisome. Moreover, fighting over the continuing resolution has kicked up more worry about raising the debt ceiling—another pathway to a shutdown of sorts, and another big fiscal fight that needs to happen this spring.

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