What you need to know about a US government shutdown

VIDEO: REUTERS
Legislation to avoid a US government shutdown at midnight on Friday advanced in Congress as the House of Representatives on Thursday night approved an extension of federal funds through Feb 16.
During government shutdowns, employees in all three branches of government are vulnerable to furlough, or temporary unpaid leave.
During government shutdowns, employees in all three branches of government are vulnerable to furlough, or temporary unpaid leave. PHOTO: AFP

WASHINGTON - The United States government officially shut down on Saturday (Jan 20) after US Senate Democrats blocked passage of a month-long stopgap spending bill to keep the government funded past the midnight deadline.

During government shutdowns, employees in all three branches of government are vulnerable to furlough, or temporary unpaid leave.

Other "essential" workers, including those dealing with public safety and national security, will continue working, some with and others without pay.

After previous government shutdowns, Congress passed measures to ensure that essential and non-essential employees received retroactive pay.

Past shutdowns have done little lasting economic damage but these events can hurt federal workers, rattle markets and shake confidence in the United States abroad.

Here is what you need to know about a US federal government shutdown:

WHAT CAUSES A GOVERNMENT SHUTDOWN AND HOW TO AVOID IT?

A shutdown happens when Congress and the President fail to sign into law 12 appropriations bills in order to continue providing funding for government operations, according to Fox News. These bills determine spending for specific government agencies.

To avoid a shutdown, members of Congress can give themselves an extension, known as a continuing resolution. The temporary funding measure keeps the federal government open and allows lawmakers more time to negotiate the remaining appropriations bills.

 

HOW LONG DOES A SHUTDOWN LAST?

"As long as it takes," Marc Goldwein, senior policy director of the non-profit Committee for a Responsible Federal Budget told Fox News, adding that it usually takes a weekend for this to happen.

"We're talking days or weeks - not months," Goldwein said.

HAS IT HAPPENED BEFORE?

According to Goldwein, the US government has shut down 18 times since 1976, the year Congress introduced the Congressional Budget and Impoundment Control Act, Fox News said. Half of the shutdowns occurred over a weekend. Goldwein added there have really only been three significant government shutdowns in the history of the US.

November 1995: Government funding elapsed for five full days from Nov 14 to 19 and about 800,000 workers were furloughed after Democratic President Bill Clinton vetoed spending legislation passed by the Republican-controlled Congress, according to a Congressional Research Service (CRS) report.

December 1995 and January 1996: Clinton's continued clash with congressional Republicans over funding levels for the Medicare health insurance program for the elderly, education and other issues resulted in a second lapse in government funding for 21 full days from Dec 16, 1995 to Jan 6, 1996, when about 280,000 workers were furloughed, according to the CRS.

October 2013: During this standoff, government funding elapsed for 16 full days from Oct 1 to 17 and about 800,000 federal workers were furloughed, according to the CRS. More than 1 million more reported to work without knowing when they would be paid, according to media reports.

The last shutdown occurred after conservative Republicans in the House of Representatives attempted to use the budget process to delay or defund implementation of Democratic President Barack Obama's Affordable Care Act, known as Obamacare.

WHAT'S AFFECTED UNDER THE SHUTDOWN?

The last government shutdown in October 2013 lasted more than two weeks and about 850,000 federal employees were furloughed.

DEFENCE, SECURITY AND TRAVEL 
The 1.5 million uniformed members of the US military, mostly in the Defence Department but also 40,000 with the Department of Homeland Security, will remain at work. All military personnel performing active duty will continue in a normal duty status, the Pentagon said Thursday.  But a large number of civilians in both departments, including about three-fourths of the roughly 740,000 civilians who work for the Pentagon, will stay home.

Officials at the Customs and Border Protection, Immigration and Customs Enforcement, and US Citizenship and Immigration Services will remain on the job checking and processing people entering the country by land, sea and air.

The Federal Aviation Administration, which oversees air traffic control, will remain at work, and airports will remain open for travellers.

KEY GOVT OPERATIONS: The White House, Congress, federal courts and the Veterans Administration will all continue to operate. The investigation by special prosecutor Robert Mueller into possible collusion between Russians and President Donald Trump’s election campaign will remain active.

MAIL DELIVERY: The US Postal Service will continue to deliver the mail. 

PARKS AND MUSEUMS: According to tentative plans, national parks and museums will remain open, but some public employees at the parks could be furloughed. Private contractors, who supply food and other services, will maintain operations. 

The parks were closed during the last shutdown in 2013, which upset many tourists and resulted in the loss of US$500 million (S$660 million) in visitor spending in areas around the parks and at the Smithsonian museums.

HEALTHCARE:  Disease monitoring and prevention will slow. About 61 per cent of the staff of the Centers for Disease Control will be furloughed, according to The Washington Post, and much of the research-focused National Institutes of Health will be shuttered.

FINANCIAL OVERSIGHT: The stock market-policing Securities and Exchange Commission funds itself by collecting fees from the financial industry, but its budget is set by Congress. It has said in the past it would be able to continue operations temporarily in a 
shutdown. But it would have to furlough workers if Congress went weeks before approving new funding. 

The Commodity Futures Trading Commission, meanwhile, would have to furlough 95 per cent of its employees immediately. An agency spokeswoman said the derivatives regulator could, however, call in additional staff in the event of a financial market emergency.

OTHER PUBLIC SERVICES: Other agencies will largely shut down, including the Internal Revenue Service, the Department of Housing and Urban Development, the Department of Education, the Commerce Department, the Labour Department, and the Environmental Protection Agency. That means people and businesses will not get documents and permissions processed, contractors will have difficulty moving ahead on their projects, and disaster relief will slow.

HOW MUCH WILL A SHUTDOWN COST?

The 16-day government shutdown in 2013 cost the country US$24 billion of lost economic activity, according to an analysis from ratings agency Standard & Poor's, Fox News said.

"The payroll cost of furloughed employee salaries alone - that is, the lost productivity of furloughed workers - was US$2 billion," the Office of Management and Budget reported in 2013.

Goldwein told Fox News that shutdowns "waste money" more than they "cost money."

"We're not going to spend more money. We're just going to spend it on worse stuff," he explained. "Instead of paying employees to work, we're paying them not to work."

WHAT IS THE IMPACT ON FINANCIAL MARKETS?

Investors have shrugged off the latest threat of a federal government shutdown, saying they are not worried about a major pullback in shares even if US lawmakers fail to strike a deal. If history is any guide, a shutdown would not be enough to knock the market off course.

And investors have already shown they can ignore political risks at home and abroad, focusing instead on earnings and economic data to drive shares to record highs.

Wall Street strategists were hopeful a deal would be reached in the nick of time. Congress on Dec 21 averted a shutdown just one day before federal funding was due to expire, sending Trump a bill to provide just enough money to keep agencies operating through Jan 19.

But even if a shutdown does occur, strategists expect investors to take it in stride, given the muted reaction during the three past shutdowns that have occurred when equity markets were open.

The first of these was in November 1995 and the last was in October 2013. And even with the S&P 500 Index at near-record highs after rising 19 percent in 2017, investors were skeptical the reaction to a 2018 shutdown would be any different.

"The market impact is likely to be limited simply because the US Treasury still has enough money to pay its bills through March," said Peter Donisanu, global research analyst for Wells Fargo Investment Institute in St. Louis. "We'd see pullback in markets as buying opportunity."

WHAT'S NEXT?

On a mostly partisan vote of 230-197, the Republican-controlled House of Representatives approved the stopgap funds on Thursday night, sending the bill to the Senate for consideration before the looming deadline.

Despite the passage, the bill still faced uncertain prospects in the Senate, where lawmakers are expected to begin considering later on Thursday, with a first procedural vote likely.

WILL IT AFFECT OPERATIONS AT THE US EMBASSY IN SINGAPORE?

When contacted by The Straits Times on Friday (Jan 19), US Embassy Singapore spokesman, Ms Camille Dawson, said in an email: “To prepare for this possibility that a lapse in funding could occur, the US Department of State and the US Embassy in Singapore are updating plans and will decide which activities will continue in the event of a shutdown.”

“As of this time, we do not anticipate that embassy operations will be significantly affected if there is a short-term lapse in funding,” Ms Dawson said, adding that should that change, the embassy will provide updates via social media and its website.

SOURCES: REUTERS, FOX NEWS, AGENCE FRANCE-PRESSE