As reported in Governing, state and local government budget experts say the first federal government shutdown in 17 years shouldn’t be too disruptive to their operations in the short-term, but if it lasts more than a week, they could start to encounter serious challenges.
According to Governing, state budget experts find that an economic slowdown brought on by a shutdown could mean less tax revenue for all levels of government to spend on infrastructure and and services, and a prolonged shutdown could also negatively affect economic activity in states and localities with a particularly heavy federal presence, like Maryland.
As reported by Stateline, the news service of the Pew Charitable Trusts, not all states are created equal, in terms of pain from the shutdown. Pew provides a state-by-state comparison of the number of federal workers who could be affected, finding,
The heaviest concentration of federal civilian workers is near the heart of the federal government—more than 1 in 5 live in Virginia, Maryland and the District of Columbia. Virginia is home to 144,753 federal workers, or 7.82 percent of the total civilian workforce; the District of Columbia has 143,537 federal employees or 7.76 percent; and Maryland has 119,816, or 6.48 percent.
NACo, the National Association of Counties has posted an updated list of the county government programs impacted by a shutdown on their website.
Local governments could also feel the impact of the shutdown in the bond market, and public finance issuers would also be negatively affected by a failure to raise the debt ceiling by October 17, as described in Governing.
In the municipal market, some types of bonds that rely on payments from the federal government as their primary source of revenue to pay debt service are more exposed to the risk of a shutdown. Those bonds include highway and mass transit debt and Section 8 affordable housing.
But the bigger threat to state and localities could come in a few weeks. Government issuers are more vulnerable to a potential federal default on debt than they are a government shutdown. . . public finance issuers would also “likely face higher borrowing costs, and market access would be challenging,” Moody’s Investor Services said Monday. Most state and local issuers, however, have protected themselves against that possibility by already allocating funds or scheduling payments ahead of time.
For more information, see the full story in Governing, or our previous posts on Conduit Street: NACo: Shutdown Could Impact County Priority Programs, Federal Government Shutdown & Maryland’s Economy.