On September 30 the government will run out of money for the next fiscal year. That means that, unless a compromise is reached in Washington, there will be a government shutdown.
Of course, with that kind of doomsday scenario, Congress must be working desperately to resolve the budget. Or not.
Congress hasn’t actually made any real effort to address the budget woes. In fact, the House and Senate went on summer break knowing that they would return on September 9, just a few weeks before the deadline, without any serious proposals on the table. That’s kind of par for the course for the current Congress: they've only passed a handful of public laws. The rate of passage puts them on pace to accomplish only half as much as last year’s Congress – and that Congress pushed through fewer laws than any Congress since World War II.
The one thing they have been busy at is trying to repeal Obamacare. They’ll try again today for the 40th time. The next vote is tied to a short-term government funding bill that would keep the lights on in government.
That bill won’t pass.
The result of a failure to compromise could be a government shutdown. And that worries a number of economists, including Fed Chair Ben Bernanke. The threat of a government shutdown on the heels of the debt ceiling debate (again) could do serious damage to the economy.
Consider previous government shutdowns. In November 1995, a budget impasse led to a five-day shutdown; a second shutdown in December 1995, lasted 21 days (not unlike today, disagreements about health care issues played a key role in the budget dispute leading to both shutdowns). President Clinton reported that the combined shutdowns cost taxpayers $1.5 billion; the Congressional Research Service pegged it just under, at $1.4 billion (report downloads as pdf). In addition to the loss of funds, the shutdown resulted in widespread confusion for taxpayers and for government workers.
Parts of the shutdown were characterized at the time as “disorganized and illogical at best and chaotic in other instances” as questions swirled about who would report to work and who would not – and whether anyone would get paid.
The December 1995 shutdown furloughed an estimated “non-essential” 260,000 federal employees; to put that into perspective, that workforce is roughly the size of the entire city of Lincoln, Nebraska. Another 475,000 “essential” federal employees continued to work but were not paid for their work until the shutdown was over.
A similar scenario would likely play out with an October 2013 shutdown. Who is “non-essential” and who isn't? And what would stay open and what would close? Those questions are the subject of quite a bit of discretion but judging from what happened in the prior shutdowns, here’s what would likely happen:
- Non-essential employees, about 1/3 of the federal workforce, would be furloughed. The distinction between non-essential employees and those who are needed is discretionary but is guided by instructions from the Office of Management and Budget (OMB) and the Office of Personnel Management (OPM). A memorandum issued by OMB in 1980 defines “essential” government services and “essential” employees as those providing for the national security, including the conduct of foreign relations essential to the national security or the safety of life and property; providing for benefit payments and the performance of contract obligations under no-year or multi-year or other funds remaining available for those purposes; and conducting essential activities to the extent that they protect life and property. With that (and subsequent guidance), federal agencies are required to determine which of their employees are “essential.”
- Other federal employees would continue to work but, as in the mid 1990s, they would not be paid until the shutdown was resolved. And yes, that includes the President and the Congress.
- Federal contractors could work, in theory, since those funds have already been approved – but there may not be adequate staffers to issue paperwork for jobs. And you know how D.C. loves paperwork.
- HeadStart programs – those grants for preschool children to attend school – would not be funded, meaning that school would be out for thousands of children.
- Federal courts would remain open – for about 10 days. If the shutdown goes beyond 10 days, only “essential” work would continue. Most of the judiciary, including staffers, would not be paid until the shutdown was resolved. But Supreme Court justices and federal judges would collect paychecks.
- Social Security benefits would still be paid out but if the shutdown continues beyond a few days, other services provided by the Social Security Administration – including Medicare applications and the issuance of Social Security cards – would likely be put on hold.
- Foster care and adoption assistance services funded with federal funds or reliant on processing of federal paperwork would cease.
- Agencies that focus on public safety would remain open. That means air traffic and border controls would not be affected. National Security Agency offices would likely remain open (monitoring those emails and phone calls can’t wait) as well disaster assistance. Remarkably, however, the Center for Disease Control would likely be shut down as it was in the 1990s: that means no disease surveillance in the heart of flu season.
- Small business loans and mortgage insurance applications tied to government funding or agencies would not be processed.
- Workplace safety inspections would stop.
- Visas and passports would not be processed. In 1995, 20,000-30,000 applications by foreigners for visas went unprocessed each day of the furlough and 200,000 U.S. applications for passports went unprocessed. The loss to the tourism industry was said to be acute.
- Internal Revenue could see some furloughs (something they’re familiar with) but personnel to collect taxes would stay at work. As a rule of thumb, most of the folks who handle money would be safe from the shutdown. But the folks following the money? Agents and investigators would likely be told to stay home.
- The Bureau of Alcohol, Tobacco and Firearms would delay processing alcohol, tobacco and firearms applications.
- National parks would close their doors; in 1995, that meant the loss of 7 million visitors, including those hoping to see the Grand Canyon, which was closed for the first time in its history. National museums would also remain shuttered; in 1995, that was an estimated loss of 2 million visitors. The loss to surrounding communities reliant on tourist dollars was estimated to be $14.2 million.
- Closures would extend to national cemeteries, where, among other things, headstones would not be laid. Additionally, medical and financial services for veterans would likely be put on hold.
- The mail would continue to run: remember, the U.S. Post Office is not reliant on government funds.
After the two shutdowns in 1995 through 1996, Congress thought it might be a good idea for such a thing not to happen again. On June 17, 1997, Representatives Thomas M. Davis (R-VA) and George W. Gekas (R-PA) introduced bills that would prevent government shutdowns by, among other things, extending appropriations bills into the next fiscal year. Those bills got furloughed.
Forbes Article written by the Tax Girl, Kelly Phillips Erb - 9/20/13
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