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. Read all of MACo’s Policy Deep Dives.

What happens if Congress misses the deadline to fund the government?

Maryland counties, home to hundreds of thousands of federal workers and contractors, face another shutdown scenario that could disrupt paychecks, delay services, and squeeze local revenues.

This Deep Dive explains the shutdown process, what continues, what stops, and why Maryland faces disproportionate risks.

Federal Funding Standoff Sets Stage for Another Shutdown

The federal government’s fiscal year ends on September 30, and Congress has not yet sent the President the appropriations bills needed to keep agencies running into FY 2026. Without either a set of new spending bills or a short-term continuing resolution, the federal government will shut down most operations on October 1.

Marylanders recall the most protracted shutdown in US history — the 35-day partial closure that lasted from December 2018 into January 2019. That stoppage affected only agencies without enacted funding because Congress had already passed five of the twelve discretionary spending bills.

Even that partial shutdown resulted in an $11 billion reduction in national GDP, with $3 billion lost permanently. It delayed approximately $18 billion in federal spending on compensation and purchases, and it reduced GDP by $3 billion in late 2018 and by $8 billion in early 2019. A 2019 US Senate report found that the three government shutdowns in 2013, 2018, and 2019 resulted in nearly $4 billion in wasted taxpayer dollars.

This time, none of the twelve regular appropriations bills has cleared Congress. Unless lawmakers pass a stopgap spending bill, the entire federal government will shut down — a scenario broader and more damaging than the partial closure in 2018–2019.

What Is a Government Shutdown?

Congress must pass twelve appropriations bills each year to authorize discretionary spending. When lawmakers fail to pass those bills or a continuing resolution, funding lapses, and agencies shut down activities supported by discretionary dollars.

Agencies divide workers into two groups: “excepted” employees, who keep working without pay to protect life and property, and “non-excepted” employees, who face furloughs. Neither group receives pay until Congress restores funding. Without new appropriations, agencies cannot initiate new programs or incur additional spending.

A shutdown is not a “default.” The Treasury still pays US debt, and mandatory programs like Social Security, Medicare, and Medicaid continue. However, many other federal benefits and services stop until Congress acts.

What About a Continuing Resolution?

A continuing resolution (CR) keeps the government open when Congress fails to pass regular appropriations bills. CRs typically extend funding at prior-year levels, sometimes with minor adjustments or “anomalies” to address specific needs. They buy time, but they don’t resolve underlying budget questions.

Even if lawmakers approve a CR, it only delays the crisis. Reliance on short-term measures highlights the dysfunction of the federal budget process, where deadlines dictate decisions and lawmakers sideline long-term planning.

For state and local governments, this uncertainty makes it harder to plan budgets, sustain essential services, and provide stability for residents. Counties cannot make confident fiscal choices when federal funding operates on stopgaps instead of reliable appropriations.

Why Maryland Is Particularly Vulnerable

According to the Comptroller’s Office, an estimated 229,000 Maryland residents work in the federal civilian and defense workforce (not including active-duty service members), with combined annual earnings of $26.9 billion. These jobs account for 6% of the state’s overall employment and 10% of overall wages — far above the national average.

Maryland’s exposure goes beyond the sheer number of federal jobs. When paychecks stop, the state’s high concentration of federal contractors (approximately 225,000) and small businesses suffer losses that they rarely recover, compounding the impact on local communities.

As previously reported on Conduit Street, during the 2018–2019 shutdown, 172,000 Marylanders lost $778 million in wages. That meant $57.5 million less in state and local income tax withholding and $2.1 million less in sales tax collections. A new shutdown could deliver an even sharper fiscal shock.

Federal agencies support county priorities both directly and through State pass-throughs, including transportation, public health, and emergency management. When Washington shuts off funding, counties face uncertainty, manage cash-flow gaps, and must communicate clearly with residents who depend on federal programs.

Q&A: What Happens During a Shutdown?

How are federal employees affected?

Agencies must identify who is “excepted” (essential to protect life or property) and who is furloughed (non-essential). Excepted employees must continue working without pay until Congress restores funding. Furloughed employees are not permitted to work or perform official duties. Once the shutdown ends, both groups will receive retroactive pay under the Government Employee Fair Treatment Act of 2019.

Will Social Security, Medicare, and Medicaid benefits continue?

Yes. Social Security retirement, disability, and Supplemental Security Income checks continue to be issued. Medicare, Medicaid, and disability benefits continue for short shutdowns. The Social Security Administration still issues new cards, but it stops benefit verifications and processing overpayments.

What about food assistance programs like SNAP and WIC?

SNAP can continue to operate through October with its current funding, but a prolonged shutdown would deplete its reserves. WIC runs out of federal money almost immediately. States may front their own funds to cover gaps, but benefits shrink or face delays if the shutdown drags on.

Do veterans continue receiving benefits?

Yes. Veterans’ benefits and health services continue. The VA operates with advance appropriations, so benefits payments do not stop. However, a shutdown delays new claims and slows appeals because support staff get furloughed.

Will federal retirees and Postal Service workers get paid?

Yes. Federal retirees continue to receive pensions because the Civil Service Retirement and Disability Fund operates outside the appropriations process. Postal Service workers continue to deliver mail because the USPS relies on postal revenues, not annual appropriations.

Do military service members and law enforcement agents still work?

Yes. Active-duty military personnel, federal law enforcement officers, air traffic controllers, and Transportation Security Administration screeners all remain on the job, but they do not receive pay until funding resumes.

What happens to air travel?

Air traffic controllers, TSA screeners, and Customs and Border Protection officers continue to work, ensuring that airports remain open. However, a prolonged shutdown can lead to staffing shortages and delays, as employees work without pay.

Can businesses still get loans?

The Small Business Administration suspends guaranteeing new loans during a shutdown, but it continues processing disaster loans. Many small businesses rely on SBA loans and will face delays.

What about homebuyers?

The Federal Housing Administration, the US Department of Agriculture, and the Department of Housing and Urban Development stop insuring or processing new mortgages during a shutdown. However, the VA continues to guarantee loans for veterans. Borrowers using FHA, USDA, or HUD programs may need to postpone closings.

Do students lose access to financial aid?

Existing Pell Grants and federal student loans remain in effect. If a shutdown lasts more than a few weeks, delays occur because furloughed staff are unable to process new aid applications or disbursements.

Will passport and immigration services still be operational?

Yes, generally. Fees fund passport and visa services, not appropriations. However, offices inside closed federal buildings may shut down. Immigration courts carry on proceedings for detained individuals but postpone cases for those not in custody.

Does FEMA still respond to disasters?

Yes. FEMA continues emergency response operations but delays long-term recovery projects if funds run low.

Are food safety inspections suspended?

Partly. In the past, the Food and Drug Administration paused routine domestic food inspections while continuing high-risk inspections.

What about tax refunds, audits, and phone calls?

In past shutdowns, the IRS delayed refunds, paused audits, and answered only a fraction of calls because many employees went on furlough.

Do national parks and museums close?

The National Park Service maintains outdoor spaces while closing visitor centers, restrooms, and other facilities. Trash and safety concerns can eventually lead to site closures. Tours of popular federal landmarks also stop during a shutdown.

How Is This Different From the 2018–2019 Shutdown?

The 2018–2019 closure was partial. Congress had enacted five appropriations bills covering agencies such as Defense and Veterans Affairs before the shutdown began.

About 25% of discretionary funding — and roughly 800,000 employees — were affected. The CBO estimates that the five-week lapse reduced GDP in late 2018 and early 2019, and permanently cost the economy approximately $3 billion.

As of September 29, 2025, Congress has not enacted any of the twelve appropriations bills. Without action by the September 30 deadline, every agency funded through appropriations will close. That would result in furloughing more employees, halting more services, and bringing about more severe economic fallout than the partial shutdown in 2018–2019.

What Counties Should Watch For

Local budgets and cash flow: A prolonged shutdown could stall federal reimbursements and delay funding streams counties count on, from transportation to emergency management. Counties may need to draw on reserves or postpone projects to maintain steady operations.

Essential services and community needs: Residents will still need food, healthcare, and public safety. If programs like WIC or SNAP run short on funds, counties may see increased strain on local nonprofits and emergency response networks. Emergency managers should be ready to adjust if federal disaster support slows.

Clear communication: Residents look to local officials first for answers. Counties should deliver straightforward updates on which services continue, which face delays, and where residents can turn for help.

Fiscal stability: Among the most pressing concerns is the potential cascading effect. If Washington’s stalemate reduces revenue or shifts responsibilities without providing additional resources, counties face mounting pressure to balance their budgets while protecting essential services.

Conclusion

State and local governments stand on the front lines when federal policies falter. As another shutdown looms, the mix of lost paychecks, stalled projects, and delayed reimbursements threatens local economies and county budgets. Social Security and other core benefits continue, but counties still face the ripple effects.

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.

MACo will continue to monitor developments in Washington and assess the impacts on county governments and communities across Maryland.

Stay tuned to Conduit Street for more information.