27/12/2019 Government Shutdown Definition

ECONOMY GOVERNMENT & POLICY

Government Shutdown
By MAYA DOLLARHIDE | Updated May 2, 2019

What Is a Government Shutdown?

A government shutdown happens when nonessential government offices can no longer
remain open due to lack of funding. The lack of funding usually occurs when there is a delay
in the approval of the federal budget for the upcoming fiscal year. The shutdown remains in
effect until parties can reach a compromise and a budget bill passes. During a government
shutdown, many federally run operations will halt. Some organizations may still stay open
by running on cash reserves, but once these funds run out, they will also close. Any office
which does not receive funding from Congress would continue to operate during the
shutdown.

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KEY TAKEAWAYS
A government shutdown happens when nonessential government offices can no
longer remain open due to lack of funding. Government shutdowns happen when a
federal budget is not approved.
Most government agencies will close during a shutdown, however some essential
workers must continue to work but may be furloughed for pay.
Veterans' benefits and unemployment payments will continue, unaffected.
Long duration government shutdowns will affect the entire American economy.

Open Agencies and Essential Government Workers

Some agencies will remain open during a government shutdown. These services are those
that, if suspended, it would endanger the health, life, or personal safety of the public. Also,
essential employees will continue to work. However, these employees may not earn a
paycheck during the time of the government shutdown unless a specific spending bill is
passed to fund those work hours.

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Essential employees include those working in the Drug Enforcement Agency (DEA), the
Transportation Security Administration (TSA), the Customs and Border Protection (CBP), and
the Federal Bureau of Investigation (FBI). The Federal Reserve would continue its operations,
as would the Post Office since it is government-owned but does not receive federal funds. 

According to the Military Benefits website, the disbursement of payments from government
sources to citizens for veterans’ benefits or unemployment insurance will continue. These
programs receive money from specially earmarked budgets and funds from advanced
Congressional appropriations. Also, furloughed federal employees may apply for temporary
unemployment, but the processing of claims may be prolonged.

Seeing the Effects of a Government Shutdown

Government shutdowns can affect many government processing functions. Nonessential
agencies who cannot self-fund, through the collection of fees or other revenue sources may
be forced to furlough, or give unpaid leave, to its employees. Most of the public will see the
effect of the government shutdown in the lessening of services they may expect or receive.
Perhaps the most visual of these closing is in the shutting down of national parks and
monuments.

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However, the real effects of a government shutdown are widespread. It may take longer or
be impossible to process new loans for homes, businesses, and education. New applications
for Social Security benefits and the processing of unemployment will also slow. According to
the military benefits website, death benefits and travel reimbursements will not be paid to
the surviving family of service members killed in action.

Other effects may extend to:

The inspection of some food products for safety

Recall of unsafe products by the Consumer Product Safety Commission (CPSC)
The inability of gun owners to obtain permits
Travelers will not receive new passports
Preschool or after school program cancelation
The Center for Disease Control Prevention (CDC) being unable to identify and track
outbreaks of illness

If the government shutdown remains in place long enough, more agencies will close or
reduce the services they provide to the public as a whole, and a larger portion of the
American population will begin to see the direct effects.

Government Shutdown Effects on the Economy

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As government operations slow or stop altogether, the effects may spread to impact other
businesses in the private sector. The entire economy may lose money as a result of the
disruption in government operations. The overall cost and lasting impact of government
shutdown on the economy may vary. As reported by The Washington Post, the government
shutdown of 2013 lasted for 16 days and may have cost an estimated $24 billion to the U.S.
economy.

Furloughed, or unpaid, workers often curtail their spending and will impact local businesses.
So, as substantial numbers of federal workers are furloughed and not spending as expected,
the companies that typically serve them may see a revenue decrease. Companies which tend
to the needs of open and running agencies, such as office supply businesses, will see the
impact in reduced sales. Also, the hotels, restaurants, and other hospitality services which
cater to the visitors of the national parks and monuments will lose notable business during a
shutdown. 

Further, banks, while not government-controlled, would not be able to access the
information they need to process loan applications. Such information as income submitted
on the applicant's tax records are essential during the loan application process. The fees
which banks charge to process loans would affect the bank's revenues, and the inability to
finance a new home will impact the housing market as a whole.

How Funding Requests Lead to Government Shutdown

The funding of the federal budget is a long and complicated procedure, involving the
coordination and cooperation of many diverse entities including the President, the members
of both houses of Congress, and the federal agencies and departments who will receive the
funding. Many events may delay the budget's approval including economic downturns,
political politics, and the efforts of lobbyists.

35 days
The length of the longest government shutdown in U.S. history,
which occurred in January 2019 under President Trump.

The government's fiscal year begins on October first, and the President will send his request
to Congress in February. Each year, governmental agencies will submit outlines for the
amount of money they need to continue operations to the White House. The sitting
President and his staff will review and revise these funding requests, and then petition
Congress to provide the requested funds. The House and Senate Congressional
Appropriations Committees will consider the President's funding request. The committees

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will also make adjustments to the amounts the agencies initially asked to receive. After they
reach a consensus on budgets amounts, a Bill goes to the floors of the House and Senate
where there can be a debate followed by a floor vote. Next, the Bill will return to the White
House for it to be signed into law or vetoed.

Real-World Example
At midnight on December 21, 2018, the United States went into a government shutdown.
President Trump and the members of Congress were unable to agree on 2019 fiscal year
funding. According to a January 13th article in Forbes, the government shutdown affected
approximately 800,000 federal employees. In a fact sheet released by Senator Patrick Leahy,
the Democratic vice chairman of the Senate Appropriations Committee, it finds "more than
420,000 federal employees were expected to work without pay" and "more than 380,000
federal employees would be placed on furlough, effectively on leave without pay."

Related Terms
Federal Budget
The federal budget is an itemized plan for the annual public expenditures of the United States. more

How a Cash Flow Statement Shows a Company's Appropriation of

Cash
Appropriation is the act of setting aside money for a specific purpose. Appropriations for the federal
government are decided by Congress through various committees while a company might
appropriate money for short-term or long-term needs. more

Furlough
A furlough is a temporary layoff, involuntary leave or other modification of normal working hours
without pay for a specified duration. more

Congress
Congress is the legislative branch of the United States government responsible for making laws, and
helping to balance out the power of the executive and judicial branches. more

Dynamic Scoring
Dynamic scoring is a measure of the impact that proposed tax budgets would have on the budget
deficit and the overall economy over time. more

Fiscal Cliff
The fiscal cliff refers to a combination of expiring tax cuts and across-the-board government spending
cuts that was scheduled to become effective Dec. 31, 2012. more

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