Can We Put a Stop to the Recurrent Threat of Government Shutdowns? (Updated)

The Issue:

The government shutdown has entered its second week, grinding large swaths of the government to a halt for the first time since 2019, with both Republican and Democratic leaders digging in. Why are shutdowns a re-occurring challenge? What is the impact on the government and the economy? Are there ways to avoid these problems?

An automatic continuing resolution could keep the government open while still encouraging policymakers to address key issues.

The Facts:

• About a quarter of federal spending depends on Congressional appropriations. Federal spending falls under two general categories: mandatory and discretionary. Discretionary programs require policy makers to pre-approve funding for a set period – typically, but not always, a year. Government functions and programs such as national defense, infrastructure investment, the national parks, public health research, and international assistance fall under discretionary spending. In 2024, spending on discretionary programs amounted to $1.8 trillion, about one quarter of the $6.8 trillion in federal outlays. In contrast, spending on so-called “mandatory programs” does not depend on periodic authorization by policy makers and is determined by existing laws such that these programs continue in operation until or unless the laws are changed. Mandatory spending makes up the largest share of federal spending and includes spending on Social Security, Medicare, and unemployment insurance. 
• In most years since 2010, however, Congress has not even passed a budget resolution (which sets high-level tax and spending targets), much less the full suite of detailed appropriations bills for specific discretionary spending areas. In fact, since the modern budget process began in the 1970s, Congress has passed all of its required appropriation bills on time only four times. When they cannot agree on spending totals for the subsequent year, Congress and the President sometimes enact a short-term “continuing resolution” (CR) to fund discretionary programs, typically at the previous year’s level until they can agree on new spending. 
• Failure to agree on a spending bill resulted in a government shutdown. Because political leaders did not agree on spending figures, the federal government shut down effective October 1st. This affects a wide spectrum of government agencies and services, with more than 750,000 federal employees furloughed as of October 7th, a number that is expected to climb the longer the shutdown continues. While each agency differs, upwards of 75 percent of workers have already been furloughed at the Departments of Labor, Commerce, and Education, along with the National Science Foundation, the Federal Communications Commission, NASA, the Environmental Protection Agency, the Security and Exchange Commission, and the Equal Employment Opportunity Commission. Some services deemed “essential” such as air traffic control and Social Security payments continue during a shutdown, with pay for those federal workers delayed until the government reopens. Beyond that, some agencies and services continue to operate under carryover funds from prior year appropriations. But these funds typically will only last for a few weeks at most, soon forcing even more federal workers into furlough or to work without pay. 
• Past shutdowns have not provided net savings for the government. Shutdowns are not a new phenomenon. There were lengthy shutdowns in 1995-1996, 2013, and 2018-2019 (see here). Ultimately, they ended up costing the government more than regular operations, because there are losses from uncollected fees, expenses related to execution of contingency plans, compensation for non-working federal employees, plus all the time and effort that agencies have to spend preparing shutdown and contingency plans. In past shutdowns, federal workers have ended up receiving pay for time lost, a practice that was codified in law for all future shutdowns after 2019 – although a new memo from the Office of Management and Budget disputes the obligation to back pay furloughed workers. The potential for deeper and more permanent reduction of government capacity has been raised by Office of Management and Budget director Russell Vought, who has repeatedly threatened to use the shutdown as an opportunity to force widespread elimination of federal jobs deemed inconsistent with White House priorities. 
• Shutdowns can hurt the economy. Government spending is an important component of GDP. The extent to which a shutdown can hurt economic growth depends in part on the duration of the stoppage and whether spending is delayed rather than eliminated. The longer that government activity is suspended, the more likely it is that the impact spreads beyond government to private sector contractors and businesses, or lead to indirect effects – if households change their spending patterns or if it affects consumer, business, or investor confidence (see here). The 2013 shutdown, which lasted 16 days, reduced GDP by $24 billion according to one estimate. The confidence-sapping effect on the public was probably far larger. In a Gallup survey taken during the 2013 shutdown, 33 percent of Americans cited dissatisfaction with government and elected officials as the nation’s top issue – the highest percentage since the organization began polling in 1939 – and double the 16 percent figure when the government was open just a month before. 
• One option to avoid the costs and uncertainties of future government shutdowns would be to adopt some form of automatic continuing resolution. Congress and the President could enact a rule that says that if appropriations bills are not passed on time, Congress would automatically fund the government at the previous year’s levels, after adjusting for inflation. There have been several proposals from both sides of the aisle for this type of fix (see here). Indeed, after the shutdown in 2019, some federal lawmakers, including California Democrat Nancy Pelosi and Iowa Republican Chuck Grassley expressed support for legislation that would prohibit future shutdowns. But some of the bills included provisions that made them difficult to gain traction. A Republican bill that would prevent future shutdowns, for instance, built in automatic spending cuts over time. It was seen as a backdoor way to cut spending without ever holding a vote. 
• Some critics dislike the idea of an automatic continuing resolution (ACR) because they claim it would dull policymakers’ willingness to address pressing issues and let them abdicate their age-old responsibility to appropriate funds. However, the current budget process has failed, time and again, to generate the outcomes needed. There have been 61 continuing resolutions since 2010! There have been more than 20 "funding gaps" in the last 50 years.
• Nothing in an automatic continuing resolution would prohibit Congress from changing policy. This is how about three quarters of government spending – on Social Security, Medicare, Unemployment Insurance, interest payments, etc. – already works, not to mention virtually the entire tax system. Just like tax laws continue forward but Congress can, and does, consider tax reform, under an ACR, discretionary spending would continue forward but Congress could and would consider spending changes. Just like tax laws are indexed to inflation, discretionary spending would be indexed to inflation. The ACR just says that if Congress can’t reach new agreements – and recent history shows that it often cannot – then the government stays open and the economy does not have to suffer. Moreover, no one says they are abdicating responsibility for retirement saving when they set a contribution rate and then leave it at that amount in the future. Congress would be doing the same here – by passing an ACR, they would be making a choice about spending. Just as one can re-set one’s retirement contribution, Congress could re-set spending whenever they wanted to. 
• Incentives could be included in the design of an ACR such that law makers would still feel pressure to tackle difficult issues without having to put government employees and services on the line. For instance, one could supplement the ACR with the idea that Congress members would not get paid until or unless they pass all 12 appropriations bills.