Federal Government Shuts Down – Top 5 Actions GFOA Members Can Take

Various communities could be hit significantly hard by the impending shutdown, particularly those dependent on government employment and federal fiscal interactions. The effects of a government shutdown may be particularly acute for certain communities, such those with high military populations and military installations, high ratios of federal workers or those with national parks and other landmarks dependent on tourism.   

For example, national parks could remain open, but even if they did, shuttle services and restrooms may be closed. Air traffic controllers and TSA officers may call in sick, grounding flights and producing longer wait times at security checkpoints across the country. Government shutdowns can also lead to delays processing passports and federal lending for small businesses. Overall, a shutdown could disrupt numerous services, put pressure on workers, create political turbulence, and have broader economic ramifications.  

The duration of the shutdown will affect the magnitude in which communities feel impact. The Congressional Budget Office estimated that during the five-week partial shutdown from 2018 to 2019, the United States economy lost around $3 billion and nearly $18 billion in federal discretionary spending was delayed.  

Before a shutdown, federal agencies will develop contingency plans that outline work that is considered non-essential and must be paused until funding resumed. Essential federal activities are generally considered those that are related to national security, providing support to nondiscretionary programs and essential activities protecting life/property. Everything else is considered non-essential. Government finance officers should consult federal agency contingency plans, available on each agency’s website, to determine what federal programs will be paused.  

During a federal government shutdown, federal agencies generally cannot obligate any discretionary funds on non-essential activities until federal funding is unlocked through the adoption of a CR or annual spending bills. Unobligated federal funds are effectively unavailable and cannot be obligated during the shutdown period. If state and local governments are waiting for already awarded grant funds to be obligated, a federal shutdown could delay this process and therefore the disbursement of funds.  

The Government Accountability Office (GAO) defines an obligation as “a definite commitment that creates a legal liability of the government for the payment of goods and services ordered or received.” An obligation occurs, for example, when an order is placed, a contract is signed, a grant is awarded, or a service is purchased.  

A federal government shutdown and the resulting pause in obligating federal funding is not an impoundment and a government shutdown does not trigger recissions. Once federal appropriations are restored by Congress, federal agencies are obligated by law to continue obligating and delivering appropriate funds. If federal agencies were to withhold federal funds following the end of a shutdown period, an impoundment would occur, and Congress would be required to enact legislation disapproving the deferral of funds or rescinding requested funds within 45-days. More on the Impoundment Control Act of 1974 and considerations for GFOA members is available here.  

Federal grant programs that support a wide range of activities are funded with mandatory spending and/or mechanisms other than annual appropriations may continue to operate during a shutdown although there could be delays in processing applications and providing support due to reduced staffing. 

For example, while the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) Program are classified as mandatory, they can still be impacted by a shutdown. The USDA has the authority to distribute SNAP benefits for a 30-day period, but the continuity of benefits may need to be determined.  

Other federal fiscal relationships that are more complex, i.e., Build America Bonds (BABs), Pay-As-You-Go (PAYGO), and any federal subsidy programs, may also be affected by a potential government shutdown. The status of BABs during a government shutdown hinge on whether interest payments are considered essential or non-essential. Necessary payments would continue as scheduled. 

While PAYGO may not be directly affected by a shutdown, the legislative process for addressing budgetary matters could be disrupted. Congress has until January 1 to adopt a PAYGO waiver to prevent statutory sequestration cuts that could automatically cut subsidy rates on federal subsidy programs like BABs.