What Is A Government Shutdown?

Federal Budget

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The Summary

Understand what a government shutdown is, the current controversies over the budget, and some potential consequences of the government shutting down.

On November 15, 2023, Congress passed a stopgap funding bill to fund the government into the new year, giving members some breathing room to negotiate long-term spending bills after the holiday recess and narrowly avoiding a government shutdown (source).

But what is a government shutdown? Why does it matter? How would a government shutdown affect our day-to-day lives? Read on to understand what a government shutdown is, the current controversies over the budget, and some potential consequences of the government shutting down. 

What is a government shutdown?

Throwing it back to Civics 101, you might remember Congress has the power of the purse. This means that Congress is responsible for approving all government spending and deciding on the budget. Like a business, the U.S. government operates on a fiscal year. If Congress cannot pass the necessary legislation to approve funding before the new fiscal year starts, a government shutdown occurs (source).

The government funding process, also known as the appropriations process, requires Congress to pass 12 appropriations bills each fiscal year. The Senate and the House each have respective committees responsible for developing the appropriations legislation that make up discretionary spending. If the appropriations bills aren’t passed by September 30, the end of the fiscal year, Congress may pass what is known as a continuing resolution (CR) to provide temporary funding while negotiations continue (source).

The continuing resolution passed in November was the second CR passed last year. It is unusual in that it establishes two separate deadlines for lawmakers, funding agencies covered by four appropriations bills (Agriculture, Energy and Water, Military Construction-Veterans, and Transportation-HUD) until January 19, 2024, and the rest (including Defense and Labor-HHS-Education) until February 2, 2024 (source). This means Congress must pass the appropriations bills before their respective deadlines or risk a shutdown of the government functions covered by the relevant bill. 

By law, federal agencies are barred from spending or obligating funds that Congress has not approved through appropriations. A government shutdown occurs if Congress fails to pass all 12 appropriations bills or provide temporary funding through a CR. In this situation, federal agencies must cease all nonessential functions until Congress takes action. If some but not all appropriations bills are enacted before the deadline, it is known as a partial government shutdown (source). 

What is the controversy over passing the budget?

The budget has proven to be a contentious issue for the 118th Congress, particularly among House Republicans who have struggled to find consensus within their caucus. Earlier this fall, former House Speaker Kevin McCarthy lost the gavel after negotiating a deal with House Democrats to avoid a shutdown. A contingent of the party is demanding deep spending cuts and hard limits to additional government spending that have stifled negotiations over nondefense spending, supplemental military funding, and “emergency” spending, a maneuver used to get around funding caps put in place by the debt ceiling deal (source).

Consequences of a Shutdown

During a government shutdown, affected agencies are barred from nonessential spending, so their employees don’t report to work unless they provide essential services like air traffic controllers, congressional staffers, and military service members. These workers are only paid once the shutdown ends, regardless of whether they show up to work (source). Each federal agency has a contingency plan detailing what functions and which employees remain active during a shutdown (source). With many federal employees continuing to work through a government shutdown, you can expect minor disruptions to your daily life. 

Importantly, programs like Social Security, Medicare, and Medicaid, also known as mandatory spending, aren’t subject to the annual appropriations process. As a result,  this spending, which includes Social Security benefits payments and interest payments on the debt, would be unaffected by a government shutdown(source). 

There are also broader economic effects of a government shutdown. The Congressional Budget Office estimates that the partial government shutdown of 2019 reduced GDP growth by 0.2% in the first quarter of 2019 ($8 billion), contributing to an estimated GDP that is 0.02% lower because of the shutdown (source). According to Goldman Sachs, “a government-wide shutdown would directly reduce growth by around 0.15 percentage points for each week it lasted, or about 0.2 percentage points per week once private sector effects were included, and growth would rise by the same cumulative amount in the quarter following reopening” (source).

Moreover, a government shutdown would be a bad look for the U.S. on the global stage, feeding into narratives of unreliability and dysfunction. Elaine McCusker, Senior Fellow at the American Enterprise Institute, says, "the inability of our national leaders to accomplish even the most basic tasks must only encourage countries to continue hedging strategies, allowing China and Russia to capitalize on our divisions to achieve their aims.” 

As lawmakers return to Washington after the holiday recess, they have until January 19, 2024, to pass the first four appropriations bills (Agriculture, Energy and Water, Military Construction-Veterans, and Transportation-HUD) and until February 2, to agree on the remaining eight bills. If a deal is not met, then a government shutdown will ensue. 

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