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Government Shutdown

The cessation of government-sponsored services

What is a Government Shutdown?

A government shutdown occurs when the US Congress does not approve or cannot resolve disagreements about the federal budget for the upcoming fiscal year. When the US Government shuts down, non-essential federal agencies cease operating, resulting in the non-delivery of services and non-payment of the salaries of government workers.

 

Government Shutdown

 

During a typical budget process, American lawmakers need to fund by September 30 for the upcoming fiscal year. Otherwise, they will enact a continuing funding resolution. A government shutdown will happen if Congress cannot agree on one resolution, indicating a complete breakdown in the budget process.

 

Consequences of a Government Shutdown

Since most federal departments get their funds from the discretionary budget, services that are deemed non-essential close until lawmakers reach an agreement on the budget. Federal workers in non-essential services are sent home and will be paid later and retroactively for the time off.

During the shutdown, agencies will need to use their saved funds, but if it goes beyond two weeks, it will already result in an impact on the country’s economic growth. Government spending accounts for 18% of the US Gross Domestic Product (GDP), so if there’s no budget, the domestic economy will suffer.

 

Essential Federal Services and Agencies Not Affected by a US Government Shutdown

Here are the essential federal services and agencies that remain open in a government shutdown:

  • Defense, National Safety, Security – They are set up in such a way that they can operate for several weeks without a funding bill
  • Border Protection and Immigration
  • Transportation Security Administration (TSA)
  • US Justice Department – Except for the issuance of gun permits, which is suspended
  • US Postal Service – The USPS can access a different source of funds
  • Social Security, Medicare, Medicaid – Funding is automatic and are part of the mandatory budget

 

Non-essential Federal Services and Agencies Affected by a US Government Shutdown

Here are the non-essential federal services and agencies that close in a government shutdown:

  • National Aeronautics and Space Administration (NASA)
  • Department of Housing and Urban Development
  • Department of Commerce, except the National Oceanic and Atmospheric Administration
  • Environmental Protection Agency
  • Department of Interior, including National Parks
  • Food and Drug Administration
  • Department of Education
  • Health and Human Services
  • Internal Revenue Service, except those in-charge of processing tax returns
  • Department of Labor, including the Bureau of Labor Statistics
  • National Institute of Health
  • Department of Energy, except those that oversee the safety of the nuclear arsenal, dams and transmission lines

 

Twelve government shutdowns were reported in the US beginning in 1981, with varying durations of one day to 21 days. Before 2018, the last shutdown in the US occurred in 2013 and lasted 16 days.

 

US Government Shutdown in 2018

For almost three days in 2018, the federal government shut down, starting at midnight on January 19, when the US Senate was not able to pass a continuing resolution that would extend spending until February 16. It was a temporary measure so there would be more time to pass the budget for the fiscal year 2018.

The Republicans needed 60 votes but couldn’t get enough Democrats on their side. On the other hand, the Democrats were pushing for the Deferred Action for Childhood Arrivals (DACA) bill, which some Republicans were not in favor of since they wanted to focus on the permanent budget. The shutdown ended on January 22 when the US Congress passed a continuing resolution that ends at midnight on February 8.

 

Related Readings

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Capital Account
  • Federal Reserve (The Fed)
  • Gross National Product
  • Monetary Policy

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!