The Real Cost of a Government Shutdown

The federal government impacts most people in countless ways, from providing federal deposit insurance on bank accounts to regulating food safety to maintaining highways and interstates, and more. This day-to-day impact is usually so seamless and consistent that it goes completely unnoticed. Occasionally, some government services can come to a halt because of a government shutdown. This causes tangible economic and social impacts.

What is a Government Shutdown?

A government shutdown occurs when Congress fails to pass necessary appropriations (spending) bills before October 1, which is the start of a new fiscal year. During a shutdown, any non-essential government operations are paused. This is different from a government default, which means a government is not paying its debts.

How the Government Is Funded

Government agencies and services are funded by Congress via a series of appropriations bills. In fact, there are 12 appropriations bills that must be passed by both the House and Senate, and then signed by the President by October 1 of each year to keep services seamlessly running. If Congress is still working through details but want to keep government services open, they can pass a short-term Continuing Resolution as a stopgap. To pass these bills, Congress must agree to the method and process of the funding. In other words, they need to agree on where the funds will come from and how they will be used. It’s the goal of both parties in Congress to fund the federal government, but sometimes they cannot agree on how to do this. This inability to reach an agreement can result in a government shutdown.

Impact on Services and Employees

The law mandates that federal agencies cannot spend funds or take on debt obligations without approval from Congress. This is because of the The Antideficiency Act, which is the legal requirement that forces a government shutdown in the absence of funding. Not all government services must stop. The act divides government services into two categories: essential and non-essential. Essential services that regulate the safety of human life and protection of property continue during a shutdown. This includes services like mail delivery, air traffic control, law enforcement, and the military. Services that are deemed non-essential are paused during a shutdown. This can include research, processing of permits and applications, federal park operations, and more. During a shutdown, non-essential government workers are furloughed and sent home without pay. Essential workers must continue to work, but without immediate pay. Historically, Congress has authorized back pay for both groups after the government shutdown ends. But that doesn’t alleviate the financial stress for employees who are not being paid as expected. Government contractors are also impacted and do not receive back pay. Even those who are not government employees or contractors can expect to be impacted by a government shutdown. Public services like national parks and forests may be closed or understaffed. Financial loans may be delayed in processing. Federal economic data may not be collected or released on their regular cadence. There can also be delays in processing passports, veteran’s benefits, or other benefits, like SNAP food stamps.

Other Economic and Social Consequences

Economic uncertainty often leads to lack of spending, especially for furloughed workers uncertain about when their next paycheck will come. This can result in a loss of GDP, or gross domestic product, if the shutdown continues. A ripple effect can impact state and local economies, too. The social consequences are more subjective and less tangible. For some, a government shutdown can lead to an erosion of trust in the government and its services. How a Government Shutdown Ends There are two ways a government shutdown ends. Either Congress passes the appropriations bills it previously failed to, or passes a short-term Continuing Resolution that gets services up and running while the appropriations bills are hammered out. While a government shutdown and the lapse in funding that causes it are frustrating, it’s important to remember that it is a functional halt, not a collapse of the government.

A government shutdown is stressful, but not unprecedented. With proper education and preparation, you can make it to the other side with your finances stable and intact.