In all honesty, I never knew government shutdowns were a thing. The idea that, in the 21st century, a nation's operations could grind to a halt due to budgetary hiccups seemed almost surreal. Yet, here we are, on the verge of another potential standoff in Congress, with a looming October 1, 2023 deadline.
It's a scenario rooted in legal intricacies dating back to the Antideficiency Act of 1884, a law amended in 1950 that asserts federal agencies can't spend a dime without Congress's nod. When those crucial 12 appropriations bills don't get the green light, we find ourselves in the midst of a government shutdown.
But what exactly transpires during these episodes? Some federal employees find themselves on an unplanned hiatus, though rest assured, they'll eventually receive their well-deserved paychecks retroactively. Meanwhile, essential services like air traffic control and law enforcement soldier on, even if the paychecks momentarily pause.
Every year, Congress faces the task of approving a dozen appropriation bills that dictate the financial allocations for a diverse range of federal agencies and programs. These bills cover crucial facets of government operations, from the salaries and benefits of federal employees to grants for local and state governments, and even acquisitions from private enterprises.
As per federal statute, all 12 appropriation bills should be ratified before the dawn of a new fiscal year, which officially kicks off on October 1. If this deadline slips through the cracks, and a provisional measure to sustain operations isn't put in place, we're faced with the possibility of a full or partial shutdown.
Now, you might be curious about which federal departments and agencies fall under the umbrella of each appropriation bill. For fiscal year 2023, only about a quarter of the projected spending stems from the 12 appropriation bills that were greenlit back in December 2022. The rest, encompassing mandatory spending and net interest, is governed by permanent laws that typically don't go through the annual appropriation process. This means that the funds allocated through the appropriation bills only make up about 25 percent of federal spending in 2023.
To grasp how this process unfolds in Congress, it kicks off with the adoption of a budget resolution, which sets the overarching spending cap (known as 302a allocations) for the upcoming fiscal year. Subsequently, the House and Senate Committees on Appropriations distribute this total across their respective 12 subcommittees. Guided by these allocations, each subcommittee then crafts its own appropriation bill, and this whole process is replicated in both chambers.
The 12 appropriation bills:
1. **Agriculture** - Covers funding for the Department of Agriculture (except Forest Service) and the Food and Drug Administration, ensuring support for agricultural programs and food safety regulations.
2. **Commerce, Justice, and Science** - Encompasses funding for the Department of Commerce, Department of Justice, NASA, and the National Science Foundation, supporting various scientific research and law enforcement activities.
3. **Defense** - Addresses funding for the Department of Defense (excluding Military Construction), providing resources for national defense and military operations.
4. **Energy and Water** - Covers funding for the Department of Energy, Corps of Engineers, and Bureau of Reclamation, ensuring support for energy programs and water resource management.
5. **Financial Services** - Includes funding for the Department of Treasury, District of Columbia, Executive Office of the President, and Judicial Branch, supporting financial oversight and government operations.
6. **Homeland Security** - Provides funding for the Department of Homeland Security, ensuring resources for border security, immigration enforcement, and emergency response.
7. **Interior and Environment** - Encompasses funding for the Department of the Interior (except Bureau of Reclamation), Forest Service, Indian Health Service, and Environmental Protection Agency, supporting conservation efforts and environmental protection.
8. **Labor, HHS, and Education** - Covers funding for the Department of Labor, Department of Health and Human Services (excluding FDA and Indian Health Service), Department of Education, and Social Security Administration, ensuring support for labor, health, and education programs.
9. **Legislative Branch** - Addresses funding for the operations of the U.S. Congress, ensuring resources for legislative activities.
10. **Military Construction and VA** - Encompasses funding for Military Construction and the Department of Veterans Affairs, providing resources for military infrastructure and veteran services.
11. **State and Foreign Operations** - Provides funding for the Department of State and the Agency for International Development, supporting U.S. foreign policy and international development efforts.
12. **Transportation and HUD** - Covers funding for the Department of Transportation and the Department of Housing and Urban Development, ensuring support for transportation infrastructure and housing programs.
These bills collectively shape the financial framework of the federal government, addressing a wide range of crucial areas that impact the nation.
Now back to what interests me the most… how is this going to affect the economy?
A government shutdown might not seem like a blockbuster for the economy, especially in the short term. But if it stretches on, that's when things start getting dicey.
Alright, let's talk numbers. The cost of a shutdown largely depends on how long it lasts. The most recent one in 2018-19 lasted a whopping 34 days, delaying over $18 billion in spending. And that's money that only got rolling again once the government reopened. In total, it set the nation back $11 billion at the time, with about $3 billion lost for good, according to the Congressional Budget Office.
That 2018-19 shutdown didn't do any favors for U.S. economic growth either. It dealt an $8 billion blow to the real gross domestic product, or about a 0.2% loss. Fast forward to today, and the Bipartisan Policy Center's crystal ball predicts a shutdown could cost over a billion dollars a week.
Alright, what about Wall Street? Surprisingly, past shutdowns haven't sent the markets on a rollercoaster ride. Investors generally expect the government to sort itself out eventually. So, they don't usually hit the panic button based on headlines from Capitol Hill. In fact, during the last two shutdowns, the S&P 500 actually saw gains – about 10% in 2018-19 and 3% in 2013.
Now, let's talk about the Federal Reserve. Their Chairman Jerome Powell mentioned that shutdowns typically don't have a huge impact on the economy. But here's the twist: the Fed relies heavily on government reports to steer interest rates. If those reports are MIA due to a shutdown, it's like navigating with a blindfold on. This could ruffle the feathers of an already-sensitive inflation situation.
So, while a short government shutdown might not trigger alarm bells for the economy, a prolonged one? That's when the plot thickens, and not in a good way. Here's hoping Congress can whip up a budgetary masterpiece before the clock strikes midnight!
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