It’s not deja vu. The U.S. is again barreling toward a self-imposed financial crisis as lawmakers are gridlocked over a spending package to keep the federal government fully operational.
Congress has until midnight Sept. 30 to pass a spending deal and get it to President Joe Biden’s desk for his signature. Alternatively, lawmakers could pass what’s known as a continuing resolution by that same deadline to give them more time to negotiate. If they don’t, the government will shut down — and the consequences could be wide-reaching.
“Any shutdown is a bad shutdown,” Andrew Lautz, a senior policy analyst at the nonprofit Bipartisan Policy Center, tells Money. “Even if it’s a one-day shutdown.”
That’s because many government operations and agencies rely on discretionary appropriations, which is money that Congress must approve ahead of each fiscal year. The 2024 fiscal year starts on Oct. 1. About 30% of all government spending is authorized by this process, according to the center, including federal workers’ salaries, some benefits, certain lending programs and much more.
Without a deal, many government functions that are not “deemed essential to the protection of lives and property” could grind to a halt during a full shutdown, Lautz says. Though the consequences are not as severe as the national debt default that the U.S. narrowly avoided in June, experts warn there are several ways a government shutdown could affect people’s money.
1. Federal workers could be furloughed or paid late
Perhaps the most directly impacted group of people during a government shutdown are federal workers and contractors who have nothing to do with the political negotiations over spending. (Lawmakers still get paid during government shutdowns.)
“In the U.S., there are over 2 million federal employees,” Lautz says, plus “hundreds of thousands of federal contractors whose businesses in large part depend on the federal government.”
When the government shuts down, many of them are either furloughed — which means they are told to stay home without pay — or forced to work without pay because they are classified as “excepted” (read: essential) workers.
A 2019 law guarantees back pay for these workers when the shutdown ends, but they are forced to make do in the meantime with no clear timeline for their next payday.
“One missed paycheck can be a missed payment on your car, a missed payment on your mortgage.” Lautz says. “It can mean going into credit card debt.”
Given the size of the federal workforce, Lautz also notes that the missed paychecks could also have a ripple effect on the local economies with a high concentration of federal workers, given that they will likely have to curtail spending throughout the shutdown.
2. Benefits might be disrupted (but not Social Security payments)
Many federal benefits programs could be affected during a government shutdown, but Lautz wants to make one thing clear: “Social Security benefits will continue to flow.”
However, the actual administration of the program, including customer service and verification of eligibility could be halted. The Social Security Administration says it expects to keep most of its staff on the job during the potential shutdown but will likely still furlough about 9,000 workers.
Social Security benefits are one example of “mandatory” government spending, meaning the government is obligated to pay out these benefits even during a shutdown. Medicare and Medicaid benefits are also mandatory.
On the other hand, food benefits through SNAP, Section 8 housing assistance and veterans benefits may be cut off during a government shutdown. New loans and grants from the Small Business Administration, which help small businesses nationwide, would also freeze.
3. Student loan borrowers may only get ‘skeletal’ customer service
Just as some 40 million borrowers are gearing up to restart federal student loan payments in October, the Department of Education may be performing only “skeletal program operations,” according to the agency’s latest shutdown contingency plan from 2021.
Funding such as need-based Pell Grants and Direct student loans should continue to flow, but customer service may be severely limited as the agency is expected to furlough the vast majority of its workforce during the shutdown.
It’s not clear exactly how student loan servicers — who receive student loan payments and contract with the Education Department but are separate entities — would be impacted by a government shutdown. (The Education Department directed Money’s request for details to the federal Office of Management and Budget, which did not respond.)
The timing of a potential shutdown could be particularly rough given that student loan payments — which haven’t been required since March 2020 — restart next month. After not making payments for 3.5 years (or in the case of newer borrowers, ever) many people may be confused about the repayment process. If the government shuts down, the Education Department may not be there to fully assist them.
4. Travelers could see flight delays and closed attractions
For travelers, the good news is that air traffic control and airport security continue during a shutdown, so wide-scale cancellations and delays should largely be avoided.
“But that’s not to say there aren’t potential interruptions,” Lautz says.
According to the nonprofit Committee for a Responsible Federal Budget (CRFB), some TSA agents and air traffic controllers did not report to work unpaid — even though they were supposed to — during the last government shutdown in 2019. That did cause some air travel delays, the CRFB says.
Folks traveling in October and beyond should also note that there could be unstaffed or fully closed national parks during a shutdown. Museums, galleries and zoos run by the federal government, such as the Smithsonian, may also be closed. Lautz recommends calling to confirm in advance.
5. The release of economic data may be held up
Among the long list of agencies that are hobbled by a government shutdown are ones that monitor and report on the economy, namely the Department of Labor’s Bureau of Labor Statistics and the Bureau of Economic Analysis.
These agencies regularly release data related to the nation’s gross domestic product, unemployment rates, inflation and more. Economists, businesspeople and policymakers — especially the Federal Reserve — rely heavily on this data to make decisions.
When the data is released, the stock market reacts quickly, so investors also carefully monitor this information. Under a prolonged shutdown scenario, Lautz says the release of these crucial data could be delayed — making some investing decisions more difficult.
“I can’t predict how markets would respond to a government shutdown, but one thing I can say is that markets do not like uncertainty,” Lautz says. “A government shutdown and the delay of this economic data that markets depend on could add fuel to that uncertainty fire.”
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