Discretionary funding for Fiscal Year (FY) 2024 is set to expire on September 30th. As of now, Congress has not passed any of the 12 annual appropriations bills necessary to fund the government for FY 2025. Unless policymakers act before the midnight deadline on September 30th, a government shutdown will ensue.
What is a Government Shutdown?
Many agencies and programs within the federal government depend on annual funding approved by Congress. Each year, Congress is required to pass, and the President to approve, budget legislation for the upcoming fiscal year. This legislation consists of 12 appropriations bills, each dedicated to a specific Appropriations subcommittee. Currently, Congress has not enacted any of the 12 bills that constitute the discretionary spending budget for FY 2025.
A “shutdown” occurs when federal agencies are compelled to cease all non-essential discretionary operations until new funding legislation is passed and signed into law. Crucially, essential services continue to operate, as do mandatory spending programs, even during a shutdown.
What Services Are Affected and How?
Every federal agency prepares its own shutdown plan, guided by previous shutdown experiences and coordinated by the Office of Management and Budget (OMB). These plans specify which government activities must be halted until funding is restored. This often leads to furloughs for non-essential employees and a significant reduction in agency operations.
Essential services, primarily those related to public safety, remain operational. Payments for obligations incurred during the shutdown are typically covered once appropriations are enacted. Historically, essential services during shutdowns have included border protection, in-hospital medical care, air traffic control, law enforcement, and power grid maintenance. Certain legislative and judicial staff are also generally considered essential. Mandatory spending programs, such as Social Security, Medicare, and Medicaid, which are not subject to annual appropriations, also continue without interruption. Furthermore, activities funded by permanent user fees, like immigration services funded by visa fees, are also unaffected. Programs with advance appropriations, such as those within the Veterans Health Administration, have experienced minimal disruption during past shutdowns.
Despite these exemptions, government shutdowns have tangible impacts on the public. Here are some key examples of the potential effects of a full government shutdown:
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Social Security and Medicare: Benefit checks are typically issued, but services like benefit verification and card issuance are suspended. During the 1995-1996 shutdown, it’s estimated that over 10,000 Medicare applicants were turned away daily.
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Environmental and Food Inspection: The Environmental Protection Agency (EPA) significantly reduces its inspection activities. In the 2013 shutdown, the EPA halted inspections at 1,200 sites, including hazardous waste, drinking water, and chemical facilities. The Food and Drug Administration (FDA) also delays inspections, impacting food safety. In the 2013 shutdown, nearly 900 FDA inspections were delayed, and during the 2018-2019 shutdown, some high-risk food inspections were reinstated after several weeks.
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National Parks: National Parks are often significantly impacted. In 2013, the National Park Service (NPS) had to turn away millions of visitors from over 400 parks, national monuments, and other sites. The NPS estimated over $500 million in lost visitor spending due to the shutdown. While some parks remained open without services during the 2018-2019 shutdown, issues like damage and trash accumulation were reported.
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Air Travel: Air travel can experience strain. During the 2018-2019 shutdown, air traffic controllers and Transportation Security Administration (TSA) agents worked without pay, leading to longer lines, security checkpoint closures due to TSA agents not reporting to work, and even temporary ground stops at airports like LaGuardia due to air traffic controller absences.
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Health and Human Services: The National Institutes of Health (NIH) is affected, potentially preventing the admission of new patients and delaying grant application processing. State governments may need to front funds for programs like Temporary Assistance for Needy Families (TANF) during shutdowns, as seen in 2013.
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Internal Revenue Service (IRS): While some essential IRS operations, particularly those funded by the Inflation Reduction Act, would continue, a significant portion of the IRS workforce would be furloughed. Past shutdowns have caused backlogs in income and Social Security number verification requests, delaying loan approvals. Tax refunds can also be delayed. During the 2018-2019 shutdown, recalling furloughed IRS employees to prepare for tax season was challenging, with a significant number not returning to work without pay.
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Supplemental Nutrition Assistance Program (SNAP): Although SNAP funding is mandatory, benefit distribution can be affected. Continuing resolutions typically only authorize the Department of Agriculture (USDA) to issue benefits for 30 days into a shutdown. The 2018-2019 shutdown saw February SNAP benefits paid early, and March benefits would have been jeopardized if the shutdown had continued. Additionally, stores cannot renew their Electronic Benefit Transfer (EBT) licenses during a shutdown, potentially preventing SNAP recipients from using their benefits at stores with expired licenses.
Government Shutdown Preparedness
The OMB maintains a public list of contingency plans that federal agencies will implement during a shutdown. Most of these plans are updated regularly, though some may not have been updated recently. These plans are crucial for agencies to navigate the complexities of a funding lapse.
Impact on Federal Employees
A full government shutdown has a wider reach than partial shutdowns. A full shutdown would be comparable to the shutdowns in 2013 and early 2018, where approximately 850,000 out of 2.1 million non-postal federal employees were furloughed. In 2013, furloughed Defense Department civilian employees were recalled within a week. Furloughed employees are prohibited from working and do not receive paychecks during the shutdown, but legislation passed in January 2019 guarantees them back pay once the shutdown ends. However, federal contractors are not typically guaranteed back pay.
At the start of the partial 2018-2019 shutdown, around 380,000 employees were furloughed. Another 420,000 essential employees were required to work without pay until the shutdown concluded. As that shutdown extended, agencies like the IRS and State Department recalled more employees to manage critical functions.
Continuation of Mandatory Programs
Mandatory spending programs continue during shutdowns because their funding is authorized for multiple years or permanently, unlike discretionary spending which requires annual appropriation. However, services linked to mandatory programs can still be affected if they have a discretionary funding component. For example, while Social Security checks continued during past shutdowns, services like new enrollments, address changes, and new Social Security card requests were sometimes initially curtailed. The specifics of service disruptions within mandatory programs can vary across different shutdowns. In the 2018-2019 shutdown, the USDA utilized a special authority in a continuing resolution to ensure continued SNAP benefit issuance.
History of Government Shutdowns
Since the modern budget process was established in 1976, there have been 20 funding gaps, including the 2018-2019 shutdown and a shutdown in January 2018. Before 1980, government operations typically continued despite funding gaps. Since 1981, many funding gaps have been brief, often over weekends, causing minimal disruption.
However, there have been four “true” shutdowns with significant operational impacts lasting more than one business day. The first two occurred in 1995-1996 due to budget disagreements between President Clinton and the Republican Congress, totaling 26 days. The third was a 16-day shutdown in 2013 stemming from a standoff over Affordable Care Act (ACA) funding. The fourth, and longest, was the 35-day partial shutdown in December 2018 and January 2019, triggered by a dispute over border wall funding.
Economic Impact: Do Shutdowns Save Money?
Despite potential perceptions of cost savings, evidence indicates that government shutdowns generally cost money. Implementing contingency plans incurs expenses. Revenue from user fees and other charges is lost during shutdowns. Federal contractors may increase bids to compensate for payment uncertainty. While furloughed employees are idle, they are typically granted back pay, negating potential salary savings.
OMB estimates for the 2013 shutdown revealed $2.5 billion in back pay and benefits for furloughed employees for time not worked, along with roughly $10 million in penalty interest and lost fee revenue.
Shutdowns also negatively impact the broader economy. The Congressional Budget Office (CBO) estimated that the 2018-2019 shutdown reduced GDP by $11 billion, with $3 billion being permanently unrecoverable. Longer shutdowns can deter private-sector investment and hiring due to delays in federal permits, certifications, and loan access. A 2019 Senate report concluded that the shutdowns in 2013, 2018, and 2019 wasted nearly $4 billion in taxpayer dollars.
Avoiding Government Shutdowns
There are two primary methods to prevent a government shutdown: passing appropriations bills or enacting a continuing resolution. Ideally, the House and Senate Appropriations committees should pass 12 individual appropriations bills, based on budget resolution funding levels. These bills are often combined into omnibus or minibus legislation.
To avert a shutdown, Congress must pass all 12 appropriations bills through both chambers and have them signed by the President before October 1st (the start of the new fiscal year). This can be done individually or as a package. Alternatively, Congress can pass a continuing resolution (CR) to maintain government funding at FY 2024 levels temporarily. Currently, neither chamber has passed a CR for FY 2025.
Continuing Resolutions Explained
A continuing resolution (CR) provides temporary government funding when full appropriations bills are not yet enacted. CRs typically extend funding at the previous year’s levels, allowing lawmakers more time to finalize appropriations. CRs can be for specific appropriations areas or for the entire discretionary budget for a specified period, even a full year.
CRs often simply “continue” prior year funding levels or use formulas based on those levels. Sometimes, they include “anomalies” to adjust funding for specific items or “policy riders” to impose policy restrictions. A “clean CR” ideally avoids policy riders and politically motivated funding changes.
Frequency of Continuing Resolutions
Congress frequently uses CRs when appropriations deadlines are missed. Multiple CRs can be used to fund the government throughout an entire fiscal year. Presidential transition years often see CRs. In FY 2001, intense negotiations led to ten one-day CRs and a total of 21 CRs in the first three months.
CRs have been common recently. FY 2011 and FY 2013 were entirely funded by CRs. In multiple fiscal years (2012, 2014, 2015, 2016, 2020, 2021, 2023), CRs funded roughly a quarter of the year. For FY 2024 and FY 2022, CRs funded nearly half the fiscal year. FY 1997 was the last year without any CRs, with all appropriations bills passed before the fiscal year began.
Disadvantages of Continuing Resolutions
Continuing resolutions have negative consequences for budget efficiency. They maintain previous funding levels without considering changing needs or program effectiveness. CRs disregard the detailed program evaluations and justifications in agency budget submissions, including proposed program eliminations or reductions. They disrupt agency operations, hinder planning, and require staff time to repeatedly revise work plans.
Current Congressional Funding Actions
Congress has not yet passed any FY 2025 appropriations bills. The House has passed five of its 12 bills, while the Senate has not passed any. Disagreements exist regarding overall funding levels, spending allocations, and policy riders. Both chambers must agree on identical bill versions before they can be sent to the President. Another CR is anticipated to provide more time for appropriations negotiations.
Shutdowns vs. Defaults
A government shutdown differs significantly from a default. A shutdown involves temporarily halting payments to government employees and contractors. A default, however, is far broader and more severe. A default occurs when the government exceeds the statutory debt limit and cannot meet its financial obligations, potentially impacting all government payments, including mandatory spending, debt interest, and payments to bondholders. While shutdowns are disruptive, defaults could be catastrophic for the economy.
Shutdowns vs. Sequestration
A government shutdown is due to a lack of funding, closing non-essential operations. Sequestration, on the other hand, is a process of broad spending reductions to address spending exceeding certain limits. Sequestration was associated with discretionary spending caps up to FY 2021 and is being used again for FY 2024 and FY 2025 caps set by the debt limit agreement. If discretionary spending exceeds these caps, automatic, across-the-board spending cuts are triggered. Sequestration mechanisms have been used in the past, such as in the Gramm-Rudman-Hollings Act of 1985 and the Budget Control Act of 2011. While Congress has previously provided partial relief or reversed sequestration cuts, it remains a potential mechanism for automatic spending reductions if appropriations exceed set limits.
Further Information
For more detailed information, refer to: Appropriations Watch: FY 2025.
