The trickle-down impact of a federal shutdown
Not all states and localities are the same when it comes to shutdowns.
Happy Finance Friday, readers. Well, here we are…again. Hours away from a federal government shutdown with no deal on the horizon. It’s probably safe to say Congress won’t pass a funding bill by midnight Saturday and a shutdown is inevitable. But it remains to be seen just how long it will last and what (if any) stop gap funding measures will be put in place for social programs.
At the Public Money Pod, we thought this was important enough of a topic to warrant a special episode which you can find by clicking here. The Government Finance Officers Association’s Emily Brock has some sage advice for local officials who may be wondering how to prepare.
This week’s newsletter is loaded with linked resources to give some context for the current shutdown, the historical impact of previous shutdowns and why this one could be even more significant for states and localities.
Why a shutdown is imminent
A bipartisan group in Congress is working on a spending bill to keep the government open through mid-November. But about 20 hard-right Republicans have enough sway over House Speaker Kevin McCarthy’s job that he has resisted bringing it to a vote. MSN noted that these holdouts represent only about 2% of the U.S. population.
“This is a whole new concept of individuals that just want to burn the whole place down,” McCarthy said last week.
Worse than last time?
The Congressional Budget Office has estimated that the 35-day shutdown between December 2018 and January 2019 — the longest in history — reduced national economic output by a total of $11 billion. That figure includes $3 billion that will never be recovered.
That was a “partial” shutdown because Congress had previously passed five of the 12 appropriation bills.
This time, we’re looking at a complete shutdown. If it drags on, the economic impact could be even more devastating, particularly for the states and localities listed below.
What won’t shut down?
Mandatory spending not subject to annual appropriations, such as for Social Security, Medicare, and Medicaid.
Essential workers will have to stay on the job (without pay). In prior shutdowns, that has included border protection, hospital care, air traffic control, law enforcement, and power grid maintenance have stayed on the job, along with some legislative and judicial staff.
The state and local programs at stake
States and localities administer most federally funded social programs for the lower-income population and that money stops flowing when the government shuts down. In prior shutdowns, states have kept most programs and services running and later been paid back by the feds. But sometimes, they aren't fully or quickly reimbursed.
Why a government shutdown is complex for states and localities - Route Fifty
From my 2019 archives: The Federal Shutdown's Impact on States and Localities
The most immediate concern is the Special Supplemental Nutrition Program for Women, Infants, and Children: Millions of women, children risk losing WIC's nutrition assistance - ABC News
The following programs are only funded through October and states may have to decide whether to pick up the tab:
Temporary Assistance for Needy Families. During the 2013 government shutdown, every state but Arizona opted to cover the costs for welfare.
Special Supplemental Nutrition Program (SNAP). During the last shutdown, SNAP funding was temporarily halted until a deal was reached to fund benefits through February 2019.
Ten states delegate the administration of SNAP to counties: California, Colorado, Minnesota, New Jersey, New York, North Carolina, North Dakota, Ohio, Virginia and Wisconsin.
Read more: Priorities for Strengthening SNAP (naco.org)
The places that will feel it most
States and localities with lots of public land. National parks stayed open during the last shutdown but were not staffed, leading to trash build up and damage at many sites. Emily Brock told us that in the event of an extended shutdown, municipalities reliant on tourism revenue from parks and public lands may have to consider municipal or business tax grace periods.
The governors of Arizona, Colorado and Utah have already announced they will pay to keep national parks open in the event of a shutdown to avoid any loss of tourism spending.
Military communities. Base personnel will still be required to work but the supports they rely on — a paycheck, childcare and WIC — will stop.
Hawaii faces the double-whammy of having a lot of military personnel and major national parks that draw tourists. The state’s tourism industry has been struggling since the Kilauea eruptions began in May, but so far, no plans have been announced to keep parks open.
Wherever there are a lot of federal workers.
D.C., Maryland, Virginia: More than 400,000 people in “the DMV” work for the federal government, and that doesn’t include contractors who also make up a notable chunk of the workforce in Virginia and Maryland. In the more immediate D.C. region, federal employees make up nearly 9% of the total workforce.
California is also one of the top states for most federal workers. But other than in Susanville, home to a federal prison and not much else, they make up a small share of regional workforces.
From the Washington Post: See where federal employees live in the U.S.
Other ways a shutdown could impair state and local operations
Infrastructure. A shutdown would halt federally required environmental reviews and reviews of grant applications for funding from the Infrastructure Investment and Jobs Act (IIJA). Rulemaking for the IIJA and the Inflation Reduction Act may also be paused. The status of Community Block Development Grant funding beyond October is also in question, as is whether the newly created Office of Recovery Programs — which liaises with states and localities on their recovery funding financial reports — will stay open.
Commercial airports (which are owned by municipalities or districts). Transportation Secretary Pete Buttigieg has said that a shutdown “could potentially disrupt the training of new air traffic controllers, which could lead to further disruption to an airline industry that has struggled to handle a crush of passengers in the wake of the pandemic.”
From the Committee for a Responsible Federal Budget: During the 2018-2019 shutdown, air travel was strained as a result of fewer air traffic controllers and TSA agents, who were all working without pay. Travelers faced longer lines at security checkpoints while the absence of ten air traffic controllers temporarily stopped travel at LaGuardia Airport and caused delays at several major airports.
Questions? Comments?
Hit me up via email or by commenting on this post and I’ll do my best to answer or direct you to other resources.
Let The White House decision makers and all the American public agree to disagree. Ukraine needs our help. Let's continue a support effort without deleting them from the upcoming budget. We are our brothers keeper.
This is crazy talking a bout. A other Shut down