The Sun Rises on the Government Shutdown

The earlier 60-40 Senate vote was accomplished amidst the acrimony of a lingering bitterly partisan divide principally related to including an extension of the Affordable Care Act (ACA) subsidies in the bill. Democrats sought to set a line in the sand on the issue to prevent participant healthcare premiums from skyrocketing post December, while Republicans insisted that any negotiations on the matter would occur following the government reopening. As part of the deal, Senate republicans agreed to hold a vote in mid-December on Democrat-crafted legislation focused on extending the ACA subsidies. However, it is worth noting that at the current time, the Speaker of the Republican-controlled House has not committed to holding a similar vote on the ACA extension, even if passed by the Senate.

Government operations and workforce, as well as the broader public and the economy have all been impacted by the prolonged shutdown in a variety of ways:

• Approximately 650,000 federal workers were furloughed, and an additional 600,000 “essential” workers were required to work without pay, according to the Office of Personnel Management (OPM). Four thousand federal employees were laid off by the Trump administration.
• Domestic air travel remained snarled and dislocated as the shutdown progressed, with the FAA reducing air traffic to maintain safety in the face of controller and TSA staff outages. According to industry reports, approximately 5.2 million passenger travel plans were disrupted over the last 43 days, with over 4,100 flight cancellations experienced from October 30 through November 9.
• Supplemental Nutritional Assistance Program (SNAP), which provides food assistance to 42 million Americans, was disrupted in November, with limited payments made during the shutdown. Some benefits were paid according to a federal court order (that was appealed) or by certain states, but the situation remained uneven across the country with some participants receiving full or partial payments, while others, none.
• Delayed federal appropriations for goods and services is projected to affect the Q4 GDP growth rate, along with decreased consumer spending from federal employees being furloughed or working without pay. According to the Congressional Budget Office (CBO), federal government outlays will be $54 billion less than otherwise during the six-week shutdown period, which suggests that the Q4 annualized real growth rate will be 1.5 percent lower than expected. While it is anticipated that most of the GDP decline will be recoverable following the restoration of federal funding and operations, between $7-14 billion of lost economic output is estimated to be unrecoverable. Additionally, if furloughed workers and those on the job without pay are counted, the unemployment rate for the past month would increase by 0.4 percent.
• Data blackouts from closed key federal agencies blocked the release of critical economic monitoring statistics such as employment numbers and inflation, which inhibited policy-makers’ ability to accurately gauge the health of the economy.

So, with the legislative deal now signed by the President, what’s next? The bill will reverse the 4,000 worker layoffs ordered by the administration during the shutdown and prevent further reductions through January 30. Back pay will be issued to federal employees furloughed or working without salary. SNAP funding will be restored through September 30, 2026. Additionally, flight delays and cancellations will be reduced by the return to work of the air traffic controllers and TSA employees who went on sick leave when paychecks stopped. Federal offices servicing small business and farm loans and other benefit programs will reopen, as will the national parks.

However, even with the passage of the bill and the restoration of full government operations, there remains some uncertainty. Congress still needs to pass nine other appropriations bills before the current continuing resolution spending package terminates at the end of January. Political tensions will likely flare when the Democrats offer their ACA healthcare proposal to extend subsidies for a Senate vote in mid-December. Visibility to some recent key economic data such as October jobs and inflation numbers may never be available, according to the White House, although the Bureau of Labor Statistics is planning to provide updated release dates for delayed economic data shortly.

With the interim spending bill running only until the end of January, it is reasonable to ask whether the risk of another shutdown looms ahead? Hopefully, the situation experienced over the last six weeks was bad enough that neither party would like to see it repeated. But on the other hand, we may be headed to a new normal of shutdowns again post-year-end. As the legendary baseball player Yogi Berra would say, “It’s déjà vu, all over again.”