This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day. A new article is added each week – read all of MACo’s Policy Deep Dives.
The US government is approaching yet another possible shutdown as Congress struggles to reach a consensus on a series of appropriations bills that fund government operations before the start of the new fiscal year on October 1.
And while memories remain fresh of the most protracted shutdown in US history — lasting 35 days from late 2018 into early 2019 and significantly impacting federal employees and related segments of the Maryland and regional economies — that was only a partial shutdown, a fiscal 2024 shutdown could be far worse.
What is a government shutdown?
Every year, Congress must pass, and the President must sign, budget legislation for the next fiscal year — a series of bills that make up the discretionary spending budget, one from each Appropriations subcommittee. However, Congress has yet to enact any spending bills for fiscal 2024 as Democrats and Republicans struggle to reach a funding agreement.
The discretionary budget funds most federal departments. If Congress does not reach a spending agreement by September 30 — the end of the federal government’s fiscal year, these departments must close unless they have surplus funds.
In a “shutdown,” federal agencies must discontinue all non-essential discretionary functions until new funding legislation is passed and signed into law. Essential services continue to function, as do mandatory spending programs.
What’s the holdup in Congress?
Democratic and Republican lawmakers have acknowledged that there will not be enough time before the September 30 deadline for either chamber to pass all 12 appropriations bills. Instead, all hope lies in passing what’s known as a continuing resolution — a temporary spending bill that allows federal government operations to continue when final appropriations have not been approved by Congress and the President — to stave off another shutdown.
But House Republicans are struggling to whip votes in their fractured caucus, and just this week failed to advance a procedural motion that would clear the path for a vote on a potential temporary funding plan, which would give lawmakers time to strike a long-term appropriations deal. Even if House Republicans wrangle the votes necessary to pass a short-term spending plan, the measure would likely include a series of policy riders that would be dead on arrival in the Democratic-controlled Senate.
And while a continuing resolution temporarily ensures that the government will remain open, it would signal that lawmakers are again unable to agree on a series of year-long spending bills before the ones from the previous year lapse at the end of September. According to the US Government Accountability Office, there have been 47 continuing resolutions between fiscal 2010 and 2022. These ranged from 1 to 176 days (just under six months).
How is this potential shutdown different from the one in 2018-2019?
According to the Congressional Budget Office (CBO), the 2018-2019 shutdown reduced Gross Domestic Product (GDP) by $11 billion, including $3 billion that will never be recovered. But that was only a partial government shutdown, as Congress had passed five of the 12 discretionary spending bills before the end of the fiscal year.
As Congress has yet to pass any discretionary spending bills, a shutdown in fiscal 2024 would affect all federal activities covered by discretionary appropriations, as opposed to the 2018-2019 shutdown that affected only departments and agencies covered by the seven appropriations bills that Congress had not yet enacted.
For example, at the beginning of the partial 2018-2019 shutdown, an estimated 380,000 employees were furloughed, a smaller number than usual since large federal employers such as the Veterans Affairs and Defense Departments were already funded.
Why is Maryland particularly vulnerable to government shutdowns?
The CBO estimates that the historic 2018-2019 five-week shutdown delayed approximately $18 billion in federal discretionary spending for compensation and purchases of goods and services and suspended some federal services. In addition, a 2019 US Senate report found that the three government shutdowns in 2013, 2018, and 2019 cost taxpayers nearly $4 billion.
Maryland has a disproportionate number of federal employees and contractors because of its proximity to Washington, D.C. Maryland is home to more than 150,000 federal employees, tens of thousands more federal contractors, and many Maryland businesses tied directly to providing services to those workers.
Under a shutdown scenario, most federal employees are told not to report for work as all but essential services are suspended. Federal workers are not paid while the government is shut down, even if they are working. Even though they will eventually get paid, many workers cannot afford to go without a paycheck.
As previously reported on Conduit Street, approximately 172,000 Marylanders affected by the 2018-2019 partial government shutdown missed out on an estimated $778 million in wages, resulting in $57.5 million less in state and local income tax withholding and $2.1 million less in sales tax collections. While furloughed federal workers received back pay once the shutdown ended, it’s unlikely that federal contractors could recoup lost wages.
In response, the Maryland General Assembly passed the Federal Shutdown Paycheck Protection Act, which provides no-interest loans to essential government employees who must report to work without pay.
How does a shutdown differ from a default?
In a shutdown, the federal government temporarily stops paying employees and contractors who perform government services, whereas in a default the list of parties not paid is much broader. In a default, the government exceeds the statutory debt limit and is unable to pay some of its creditors (or other obligations).
Without enough money to pay its bills, all the federal government’s payments are at risk — including all government spending, mandatory payments, interest on our debts, and payments to US bondholders. While a government shutdown would be bad, a government default could be disastrous. See our previous coverage for more information on what a default could mean for Maryland.
In addition to imploring Congress to avoid a government shutdown that could have severe consequences for federal workers and the Maryland economy, counties urge bipartisan support for fiscal policies that strengthen the federal-state-local partnership and help achieve our shared goals of keeping communities healthy, safe, and vibrant.
Stay tuned to Conduit Street for more information.