What Happens When There Is a Government Shutdown
September 30, 2013
A government shutdown looms large as the House and the Senate have yet to agree on a continuing resolution to keep the government funded.
If the House and Senate fail to reconcile on a continuing resolution to fund the government before midnight tonight, then we will have the first “government shutdown” since 1995. That shutdown was the longest, starting in 1995 and ending in 1996, lasting 21 days.
Historically, though, government shutdowns are not that uncommon.
From 1976 to present there have been 17 shutdowns and like this shutdown, many were caused by political disagreement. For instance, the government shutdown for 12 days in 1977 over a political fight between the House and the Senate over Medicaid policy.
The average length of past government shutdowns is 6.4 days, but this is no indication of how long this shutdown will last. During the Reagan administration there were several shutdowns that only lasted one day.
In a government shutdown, only “non-essential” functions of the federal government close down, while all “essential” functions of the government remain operating. Generally, all government functions that ensure safety and protect property remain open and in operation, even during a shutdown. This means that many civilian workers are furloughed for the length of the shutdown, but the military, Social Security, Medicare, and the IRS continue functioning and money still flows in and out of the Treasury Department.
Overall, a government shutdown is far less dangerous than a default on our debt, but before we get to that debate, there are still plenty of questions to answer.
How long does a shutdown last?
The length of the shutdown all depends on how long it takes Congress and the White House to agree on a continuing resolution.
The last shutdown lasted 21 days, beginning on December 16, 1995 and ending on January 6, 1996. This was the longest a government shutdown has lasted.
In the 1980s there were government shutdowns on a near annual basis, usually lasting 2 or 3 days.
Is the entire government affected in a government shutdown?
No. Only the non-essential components of the federal government shutdown for as long as Congress and the White House don’t agree on a continuing resolution.
The federal government is split into two components: essential and nonessential.
Much of the essential component of the government is funded through mandatory spending, for instance, Social Security and Medicare, which continues to provide their services.
The continuing resolution, which is required to avert the government shutdown, deals with the discretionary component of government spending, which largely consists of nonessential government functions.
What happens to the nonessential components of the government during a government shutdown (civilian workers, government contractors, etc.)?
The nonessential components of the government are shutdown during a government shutdown. This means nonessential workers are furloughed, which is leave without pay. In the past, though, furloughed workers have been given back pay for the days they were furloughed.
What economic impact would a government shutdown have?
The government shutdown will have a much greater effect on D.C. than it does on the rest of America.
Past evidence shows that the long term impact of a government shutdown is minimal. The 1995/96 shutdown was in the heart of the booming '90s and the economic impact was nonexistent:
“Real GDP grew 2.3% in the year before the shutdown, a 2.9% annual rate in Q4-1995 and then at a 2.6% pace in Q1-1996, despite the shutdown and the East Coast Blizzard, a multiple day massive snowstorm in January that was followed by large floods.”
Furthermore, the shutdowns are always temporary and in the past, furloughed employees have received back pay.
However, outside the beltway, there is little concern for major macroeconomic effects. Most of the workers in the nation are not federal employees and will not see their pay stop. Life will go on as it normally does for the vast majority of workers.
What does a government shutdown do to Obamacare?
The Obamacare rollout will continue as planned. As scheduled, the Obamacare exchanges will open on October 1st whether the government is shutdown or not.
What components of the government continue to operate during a government shutdown and what components do not?
Below is a list, largely compiled from an AP article, of what stays open and what doesn’t when the government shuts down. This list is not all inclusive as the Office of Budget and Management does not release this information until necessary. The Washington Post has a department by department breakdown of which segments a government shutdown affects.
- Social Security
- Unemployment benefits
- National Weather Service
- IRS – you still have to pay your taxes, but auditing and taxpayer services will be down
- Treasury Department
- Federal Reserve
- Embassies and Consulates
- Visa and passport processing (no new passport applications accepted)
- Department of Homeland Security (86 percent stay)
- U.S. Citizenship and Immigration Services continues to process green card applications.
- Air Traffic Control
- Border Agents
- Coast Guards
- Secret Service
- Postal Service
- FDA – food safety inspections continue (but many civilian workers are furloughed)
- Department of Veterans Affairs (most services)
- Much of the Department of Health and Human Services
- Center For Disease Control and Prevention (minus much of the support staff)
- NIH (No new patients accepted, but existing patients remain)
- Department of Justice
- Federal Courts (for about 10 days, followed by furloughs of nonessential personnel)
- National Parks/Department of Interior
- Smithsonian Museums
- National Zoo in Washington, DC
- Federally Funded Visitor Centers (Washington Monument, Ellis Island, the Statue of Liberty, and others)
- Many civilian workers and contractors will be furloughed
- Some Head Start programs reliant on federal funds
- Federal housing loans – the Federal Housing Administration won’t underwrite or approve new loans
- U.S. Geological Survey
- EPA (except emergency personnel)
- NASA (Those working with those on the space station will stay.)
- Most of the Department of Education
- Most of the Department of Housing and Urban Development
- Much of the Department of Commerce
- Much of the Department of Energy
- Most of the Department of Labor (Many of the economist will be sent home, so forgive us for delays in any expected data updates.)