It’s not deja vu. The United States is once again heading for a self-imposed financial crisis as lawmakers are deadlocked on a spending package to keep the federal government fully operational.
Congress faces two key deadlines – Friday and March 8 – to reach a spending deal and keep all government agencies operational. Alternatively, lawmakers could pass another continuing resolution, which is a stopgap measure, by the same deadlines to give themselves more time to negotiate a broader deal.
The latter path is one that Congress has already taken three times this fiscal year: An 11th-hour deal in September kept the government open for 45 days. Then, when the time came, in November, lawmakers passed another stopgap measure that split funding deadlines for several agencies and pushed the controversy into the new year. Last month they maintained the trend.
If they don’t pass a comprehensive spending package (or at least another continuing resolution), the government will close its doors and the consequences could be far-reaching.
“Every shutdown is a bad shutdown,” Andrew Lautz, senior policy analyst at the nonprofit Bipartisan Policy Center, tells Money. “Even if it’s a one-day closure.”
That’s because many government operations and agencies rely on discretionary appropriations, which is money that Congress must approve before each fiscal year. Fiscal year 2024 technically began on October 1, 2023. According to the center, about 30% of all government spending is authorized by this appropriations process, including federal workers’ salaries, some benefits, some loan programs, and more.
Without an agreement, many government functions that are not “deemed essential to the protection of life and property” could grind to a halt during a full lockdown, Lautz says.
On the other hand, because funding deadlines are now split, it is possible that Congress can meet one deadline but not the other; in that case, some government agencies would have to close while others remain open.
Agencies that would be affected by a partial shutdown with no action by Friday’s deadline include:
- Agriculture and Food and Drug Administration
- Energy and water development
- Military Construction and Veterans Affairs
- Transport, housing and urban development
The March 8 deadline has consequences:
- Departments of Commerce, Justice, Science
- Departments of Defense and Internal Security of the Territory
- Financial services and public administrations
- Departments of the Interior and Environment
- Departments of Labor, Health and Education
- Legislative branch
- State and foreign operations
While the consequences of a government shutdown are not as severe as the national debt default that the United States narrowly avoided last year, experts warn that there are several ways it could still affect citizens’ money.
1. Federal workers could be fired or paid late
Perhaps the group of people most directly affected during a government shutdown are federal workers and contractors who have nothing to do with political negotiations over spending. (Lawmakers still get paid during government shutdowns.)
“There are more than 2 million federal employees in the United States,” Lautz says, as well as “hundreds of thousands of federal contractors whose operations are largely dependent on the federal government.”
When the government shuts down, almost everyone is placed on furlough – meaning they are told to stay home without pay – or forced to work without pay because they are classified as “excluded” (read: essential) workers.
A 2019 law guarantees these workers pay when the shutdown ends, but in the meantime they are forced to make do without a clear timeline for their next payday.
“A missed paycheck can be a missed payment on your car, a missed payment on your mortgage.” says Lautz. “It can mean going into credit card debt.”
Given the size of the federal workforce, Lautz also notes that missing paychecks could also have a ripple effect on local economies with a high concentration of federal workers, as they will likely have to reduce spending during the shutdown.
2. FAFSA delays could get even worse
In the event of a government shutdown, the Department of Education says it would have to lay off about 3,700 employees, or about 90% of its workforce.
The department has already faced significant delays in launching its new Free Application for Federal Student Aid, or FAFSA, for the 2024-25 academic year. The agency was tasked with making the form much easier for families to fill out and at the same time becoming more generous to applicants with financial need, but the release of the new FAFSA was marred by setbacks and technical problems .
A closure would destroy the department’s available staff, adding further to the chaos.
Financial aid for students through the FAFSA – such as Pell Grants and Direct Student Loans – is funded by a separate apparatus and would not be directly affected by a government shutdown. But the administration of these programs would be severely hampered by furloughs.
Additionally, the Department of Education funds some of the college campus staff and contractors whose job it is to increase enrollment among underserved populations. Those workers would also be hit with a shutdown at the height of the college admissions season.
3. Government benefits could be stopped (but not Social Security payments)
Many federal benefit 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 eligibility verification, may be interrupted. The Social Security Administration says it plans to keep most of its staff on the job during the potential shutdown, but will likely still keep about 9,000 workers on furlough.
Social Security benefits are an example of “mandatory” government spending, meaning the government is obligated to pay these benefits even during a shutdown. Medicare and Medicaid benefits are also mandatory.
On the other hand, food benefits through SNAP, housing assistance under Section 8, and veterans benefits could be cut off during a government shutdown. New loans and grants from the Small Business Administration, which helps small businesses nationwide, would also be frozen.
4. Travelers may see flight delays and closed attractions
For travellers, the good news is that air traffic control and airport security continue during a closure period, so large-scale cancellations and delays should largely be avoided.
“But that’s not to say there aren’t potential disruptions,” Lautz says.
According to the nonprofit Committee for a Responsible Federal Budget (CRFB), some TSA agents and air traffic controllers failed to show up for unpaid work, even though they were supposed to, during the last government shutdown in 2019. This caused some delays in air travel. , says the CRFB.
Those traveling in March and beyond should also note that there may be national parks that are unstaffed or completely closed during the shutdown. Federally operated museums, galleries and zoos, such as the Smithsonian, may also be closed. Lautz recommends calling to confirm in advance.
5. Release of economic data may be delayed
Among the long list of agencies that are hampered by the government shutdown are those 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 regarding the nation’s gross domestic product, unemployment rates, inflation, and more. Economists, businesspeople and politicians – particularly the Federal Reserve – rely heavily on this data to make decisions.
When data is released, the stock market reacts quickly, so investors also monitor this information closely. In a prolonged shutdown scenario, Lautz says the release of this crucial data could be delayed, making some investment decisions more difficult.
“I can’t predict how markets would respond to a government shutdown, but one thing I can say is that markets don’t like uncertainty,” Lautz says. fuel for that fire of uncertainty.
More from Money:
What really happens if you don’t pay your student loan bills?
More and more home buyers are canceling sales at the last minute
Having a good credit score is especially important right now – here’s why