As the United States hurtles towards yet another potential government shutdown, a sense of déjà vu hangs in the air. This looming crisis is driven by the familiar gridlock among lawmakers, entangled in the negotiations over a spending package essential for keeping the federal government operational.
The critical deadline for Congress looms large: they must pass a spending deal and deliver it to President Joe Biden’s desk for his signature by midnight on September 30th. Alternatively, lawmakers may resort to a “continuing resolution” by the same deadline, buying more time for negotiations. The dire consequence of inaction, however, is a government shutdown, with far-reaching ramifications.
Andrew Lautz, a senior policy analyst at the Bipartisan Policy Center, aptly sums it up, stating, “Any shutdown is a bad shutdown, even if it’s a one-day shutdown.”
The crux of the matter is that numerous government operations and agencies depend on discretionary appropriations – funds that Congress must greenlight each fiscal year. With the 2024 fiscal year scheduled to kick off on October 1st, this process accounts for roughly 30% of total government spending, including federal employee salaries, select benefits, lending programs, and more.
In the absence of a deal, non-essential government functions may grind to a halt during a full shutdown, albeit not as dramatically as the near miss of a national debt default in June. Still, experts warn of several ways in which a government shutdown could impact the public’s finances.
1. Federal Workers: Facing Furloughs or Delayed Pay
The immediate and most significantly affected group during a government shutdown are federal workers and contractors, individuals with no involvement in the political negotiations. Andrew Lautz notes, “In the U.S., there are over 2 million federal employees,” alongside “hundreds of thousands of federal contractors whose businesses in large part depend on the federal government.”
During a government shutdown, many of them either face furloughs – essentially unpaid leave – or are compelled to work without pay, labeled as “excepted” or “essential” workers. Although a 2019 law promises back pay once the shutdown concludes, the lack of a clear timeline for their next paycheck can prompt financial difficulties, possibly leading to credit card debt.
The ripple effect of missed paychecks also extends to local economies with a high concentration of federal workers, as they are likely to cut back on spending throughout the shutdown.
2. Benefit Programs: Disruptions Expected (Except Social Security)
While Social Security payments remain unaffected, the administration of several benefit programs could encounter disruptions. Notably, food benefits through SNAP, Section 8 housing assistance, and veterans’ benefits may be impacted. Additionally, new loans and grants from the Small Business Administration, essential for aiding small businesses across the nation, would come to a halt.
3. Student Loan Borrowers: Limited Customer Service
As approximately 40 million borrowers gear up to resume federal student loan payments in October, the Department of Education may operate with a skeletal workforce. While funding for need-based Pell Grants and Direct student loans is expected to continue, customer service may suffer, with the majority of the agency’s staff expected to be furloughed during the shutdown.
The impact on student loan servicers, separate entities that receive student loan payments and contract with the Education Department, remains unclear, adding to the uncertainty for borrowers as they navigate the repayment process after a hiatus of 3.5 years.
4. Travelers: Potential Flight Delays and Attraction Closures
For travelers, the comforting news is that air traffic control and airport security will remain operational during a shutdown, minimizing widespread cancellations and delays. However, potential interruptions are not ruled out, as past shutdowns saw instances where some TSA agents and air traffic controllers did not report to work due to unpaid wages, resulting in air travel delays.
Travelers planning trips in October and beyond should also keep in mind the possibility of unstaffed or completely closed national parks. Museums, galleries, and zoos managed by the federal government, including the Smithsonian, may also shutter temporarily. It’s advisable to confirm these details in advance.
5. Economic Data Delay: Impact on Investors
Among the casualties of a government shutdown are agencies responsible for monitoring and reporting economic data, including the Department of Labor’s Bureau of Labor Statistics and the Bureau of Economic Analysis. These agencies regularly release crucial data on the nation’s gross domestic product, unemployment rates, inflation, and more – information that economists, business leaders, policymakers, and investors rely heavily upon to make decisions.
Any delay in the release of this data could add a layer of uncertainty to financial markets, impacting investment decisions. As Andrew Lautz notes, “Markets do not like uncertainty,” and a government shutdown coupled with delayed economic data release could exacerbate market instability.
In conclusion, while the exact outcomes of a government shutdown are uncertain, it is essential to be prepared and informed. Staying proactive and making financial contingency plans can help mitigate the impact of a potential government shutdown on your finances.
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