Federal government shutdowns can cause major interruptions, leading to the furlough of thousands of workers, many of whom may face late paychecks. Taxpayers might struggle to get responses to their inquiries, airport lines may become longer during busy travel times, and a significant number of national parks could shut their gates.
Despite this, critical government activities — including national defense, the distribution of benefits, and postal services — will continue as usual.
ADVERTISEMENT
CONTINUE READING BELOW
The unique scenario of a partial government shutdown in the U.S. arises from a split government, a dysfunctional budgetary process, and constitutional requirements for consensus among the House, Senate, and the president on spending, affecting various federal agencies in distinct manners.
Legislation from the 19th century effectively prevents federal agencies from spending beyond the amounts appropriated by Congress. As Congress typically allocates funding on an annual basis, this creates a potential shutdown threat every October 1, marking the new fiscal year. This year, similar to prior years, Congress has approved a temporary funding extension through December.
Nonetheless, there are exceptions. Agencies dedicated to health, safety, and property protection are permitted to operate, encompassing military personnel, homeland security, and food inspections.
The president is required to perform his constitutional duties; therefore, several offices within the White House, including the Office of the Pardon Attorney and the U.S. Trade Representative, will remain active.
Furthermore, a selection of federal entities, such as the Federal Reserve and the Consumer Financial Protection Bureau, which are not dependent on annual Congressional appropriations, can continue operations funded by their own resources.
For those traveling by train or sending packages during the holiday period, both Amtrak and the U.S. Postal Service will remain operational throughout the shutdown.
The Office of Management and Budget requires each executive agency to develop a contingency plan for potential shutdowns — known as a “lapse in appropriation.” Here are some important details:
Federal employees
Approximately 40% of federal employees will be furloughed and unable to work due to laws prohibiting agencies from accepting volunteer labor. Essential personnel will work without pay.
High-ranking officials who have been confirmed by the Senate are exempt from furlough.
To prepare for the 35-day shutdown that began in December 2018, Congress enacted a law to ensure federal workers — both furloughed and essential personnel — receive retroactive pay following the shutdown’s conclusion. However, checks will be withheld during the shutdown, often resulting in higher absenteeism rates.
Moreover, constitutional officials — including the president, members of Congress, and federal judges — are entitled to their salaries under the Constitution.
Travel
The Federal Aviation Administration and the Transportation Security Administration will continue their vital safety operations. However, travelers may face delays since air traffic controllers and TSA agents will be working without compensation, a situation that has historically increased absenteeism during previous shutdowns.
U.S. consulates and passport offices will remain operational as long as they can utilize their fee revenues.
Parks and museums
The majority of national parks are expected to close, restricting visitor access and negatively impacting businesses within the $800 billion outdoor recreation industry. Generally open areas are likely to remain accessible, but they will lack regular staff and resources, leading to maintenance problems like unclean restrooms and littered spaces.
Institutions such as the Smithsonian and the National Gallery of Art could also close should the shutdown persist.
Cemeteries, monuments, and visitor centers managed by the American Battle Monuments Commission will remain closed as well.
Inauguration
Donald Trump speaks during the 58th presidential inauguration in Washington on January 20, 2017.
The inauguration of a new president is a constitutional obligation that will proceed even if a spending gap exists leading up to the January 20 event. Congress has already allocated $3.7 million for the inaugural festivities, and security measures surrounding the events will not be impacted by a shutdown. Inaugural balls and other celebrations are privately funded through the Trump-Vance Inaugural Committee, which has secured significant donations from corporations like Amazon.com Inc. and Meta Platforms Inc., along with contributions from prominent individuals such as Ken Griffin of Citadel Securities and Sam Altman of OpenAI.
Health and social security
Medicare benefits will continue, as will new and existing Social Security payments. However, some administrative tasks — such as verifying benefits, correcting earnings records, and issuing replacement cards — may experience delays.
The National Institutes of Health’s hospital in Bethesda, Maryland, will remain open to treat current patients, and research activities will continue to avoid halting ongoing clinical trials.
Safety-net food assistance programs will also continue unaffected.
Medical services at veterans hospitals and clinics will remain operational, including programs for suicide prevention, medical and prosthetic studies, and burial benefits.
Conversely, other veterans’ benefits, such as those concerning education, job training, and loans, might face delays.
National defense
Uniformed military personnel are exempt from furlough and will continue their roles without pay, while a majority of civilian employees within the Defense Department will be furloughed.
The Pentagon may maintain certain contracting operations that support service members under the historical Feed and Forage Act. Burials and tours at Arlington National Cemetery will also remain unaffected.
Intelligence agencies will provide limited details about their operations during a shutdown, but the Director of National Intelligence has stated that employees are not automatically exempt from furlough.
Labour department
Many agencies within the Department of Labor, including the Bureau of Labor Statistics, will be completely shut down. Should the shutdown extend through Inauguration Day, it could also delay crucial monthly reports such as employment figures, job vacancies, inflation rates, and import statistics. Policy-makers and investors depending on this data will need to find alternative sources for insights into the economic landscape.
ADVERTISEMENT:
CONTINUE READING BELOW
Health and safety functions, such as workplace inspections by the Occupational Safety and Health Administration, will continue. Many benefits programs will remain uninterrupted due to their permanent appropriations, including black lung benefits and COVID-19 assistance.
Treasury department
The Treasury Department has indicated that essential services related to market and economic updates, policy work, and other responsibilities necessary for the president’s constitutional functions will continue.
Many research and regulatory agencies funded by user fees will remain operational, including the Office of Financial Research, the Office of Recovery Programs, and the Financial Stability Oversight Council.
Processing cases at the Committee on Foreign Investment in the United States will halt, potentially leaving significant business decisions — such as the sale of U.S. Steel to Nippon Steel — in limbo if no recommendations reach President Joe Biden’s desk in time.
Internal Revenue Service
The IRS will stop responding to the approximately 46,000 calls it receives each day, while most tax administration functions will be put on hold.
The Treasury will continue to implement tax credits established or expanded under the Inflation Reduction Act. A shutdown will not delay tax withholdings or deadlines for any estimated tax payments due.
Regulatory agencies
The Federal Trade Commission will suspend “the vast majority of its competition and consumer protection investigations.”
The Securities and Exchange Commission will stop reviewing and approving registrations from investment advisors, broker-dealers, transfer agents, rating organizations, investment companies, and municipal advisors.
The Commodity Futures Trading Commission will maintain its crucial market oversight functions, citing a legal opinion highlighting the necessity of preventing “massive dislocations and losses to the private economy and disruptions to society.”
The Consumer Product Safety Commission may still issue recalls when there is an “imminent threat to human life,” but routine monitoring will be paused.
Federal Emergency Management Agency
The majority of emergency relief workers will remain on duty. However, disaster relief payments are already at risk of delays due to a projected $39 billion shortfall in the Disaster Relief Fund by 2025 if additional funding is not obtained.
Energy & environment
The Department of the Interior may process some permits for offshore oil and gas drilling, although these approvals may vary based on safety considerations and the government’s interests in the properties involved.
The Environmental Protection Agency will continue specific programs funded by the Inflation Reduction Act and activities backed by alternative funding sources, including cleanup efforts at Superfund sites.
The Energy Information Administration, which publishes status reports on U.S. oil inventories and fuel demand, will continue its data collection and publication schedule at least initially.
The National Nuclear Security Administration will focus on maintaining and securing nuclear weapons and deployed naval reactors.
The Nuclear Regulatory Commission will cease its licensing, certification, permitting, and inspection activities, along with emergency preparedness drills.
Housing
Mortgage programs managed by the Federal Housing Administration and Ginnie Mae will continue without interruptions. Many block grants from the Department of Housing and Urban Development have already been allocated to states, thus preventing disruptions.
Subsidized housing programs, including public housing and Section 8 vouchers, do not rely on annual appropriations, yet they face the risk of running out of funds.
“Nearly all” fair housing initiatives would be suspended, as specified in the contingency plans.
Small business
The availability of loans will depend on their funding sources. Many disaster relief and COVID-19 assistance programs will continue, while regular loan applications may face delays. Programs supporting veteran-owned businesses, exports, and mentorship initiatives will discontinue operations.
Federal Courts
Most judicial activities will continue during a brief shutdown, relying on funds from filing fees and various alternative sources.
Federal Reserve
The Federal Reserve’s operations will remain stable, allowing the central bank to adjust interest rates, regulate financial institutions, and conduct economic research as usual.
Congress
While Congress’s ability to fund itself may eventually diminish, it must function to resolve the shutdown. According to the 27th Amendment to the Constitution, members of Congress cannot alter their salary rates during their terms, so they will continue to receive paychecks. They also need staff support to help draft legislation.
However, other agencies associated with Congress — such as the Library of Congress and the U.S. Botanical Gardens — will close to visitors.
Biden’s last acts
A shutdown could impede efforts on various final policy decisions and regulations by the outgoing administration during President Biden’s last weeks, including executing contracts and spending as outlined in the Inflation Reduction Act.
© 2024 Bloomberg
Stay informed with comprehensive finance and business news from Moneyweb on WhatsApp here.
