Federal Shutdown Looms as October 1st Nears

September 24, 2013

With less than a week until the end of the federal fiscal year, it remains uncertain how Congress will act to keep the government funded when fiscal 2014 begins on October 1. Amidst conflict between Republicans and Democrats over spending levels, and demands from some members of Congress that a continuing resolution (CR) also defund the Affordable Care Act, a failure to compromise in Washington could lead to a government shutdown for the first time since the mid-1990s. Speculation continues on whether a government shutdown will take place, and views on the question largely vary. Meanwhile, the threat of a shutdown and “crisis budgeting” at the federal level create uncertainty for states that make planning difficult and can also have negative economic effects, which are difficult to measure.

NASBO has received several questions about how a federal shutdown might affect states. A short shutdown, lasting a few days or weeks, would be inconvenient and possibly create some cash flow challenges for states, while a longer-term shutdown would be more problematic for federally-funded projects and programs administered by states. An issue brief published by NASBO in 2011, when a shutdown loomed due to gridlock in Congress, provides more insight into how a shutdown would impact states, and is still relevant and a good resource today.

While funding for mandatory programs that are not dependent on annual appropriations would continue in the event of a shutdown, reimbursements to states may be delayed if administration of these programs rely on appropriations. Also, some mandatory programs, such as Temporary Assistance for Needy Families (TANF), are up for reauthorization on October 1, and failure by Congress to extend these programs under a CR or other legislative vehicle would cause funding authority for these programs to expire. As explained in a recent Congressional Research Service memo, implementation of the Affordable Care Act might largely continue despite a temporary government shutdown, since the federal government can rely on discretionary funds still available from past appropriations as well as mandatory funds. How agencies interpret what activities are excepted and may continue in the absence of appropriations under the Anti-Deficiency Act will also play a role in the impact of a government shutdown. Last week, the Office of Management and Budget (OMB) instructed federal agencies in a memo to begin updating their contingency plans to ensure that only legally “excepted” activities would continue to be performed during any lapse in the appropriation for those activities. Agencies’ contingency plans, last updated in 2011, are available online here. A recent report by the Congressional Research Service also provides more detail on the causes, procedures, and effects of federal government shutdowns.

NASBO continues to monitor legislative activity around the CR and provide updates in the biweekly Washington Report newsletter.