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

The Issue:

The nation narrowly avoided a federal government shutdown this past weekend. Legislators voted to keep the government open for a 45-day period, which means that the potential for a shutdown will arise again soon. Why are shutdowns a reoccurring challenge? What would the impact be on the government and the economy? Are there ways to avoid these problems?

There have been 47 continuing resolutions since 2010 and over 20 shutdowns in the last 50 years.

The Facts:

• About a quarter of federal spending depends on congressional appropriations. There are two types of federal spending. So-called “mandatory programs” – including Social Security, Medicare, and unemployment insurance – continue in operation until or unless they are changed. The same is true of tax laws. In contrast, discretionary programs – such as national defense, infrastructure investment, the national parks, public health research, and international assistance – require policy makers to pre-approve funding for a set period – typically, but not always, a year. 
• In most years since 2010, however, Congress has not even passed a budget resolution (which sets high-level tax and spending targets) much less detailed appropriations bills for specific spending areas. 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. Last Saturday, in the wake of the new fiscal year starting October 1, both Houses of Congress agreed to yet another continuing resolution. The bill extends funding for 45 days. The President signed the bill on Saturday night.
• Failure to agree on a spending bill can result in a government shutdown. Had political leaders not agreed on a bill at the last minute on September 30, there would have been a shutdown. This would have affected a wide spectrum of government agencies and services. The agencies include the Environmental Protection Agency, the Departments of Agriculture, Commerce, Justice, Homeland Security, Interior, State, Treasury, and Housing and Urban Development. Government services ranging from national parks and museums to IRS assistance and environmental and food inspection offices would close or operate with reduced staff. Hundreds of thousands of federal workers would have been furloughed. Crucial services like border protection and air traffic control would continue to operate, but, for example, air travel could still be negatively affected by reductions in operating or security staff at airports.
• Shutdowns do not provide 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 end 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.  
• Shutdowns can hurt the economy. The 2013 shutdown, which lasted 16 days, reduced GDP by $24 billion according to a Standard and Poor’s 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, is for Congress and the President to 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 automatic continuing resolution (ACR) idea 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 47 continuing resolutions since 2010. There have been more than 20 shutdowns in the last 50 years.
• Nothing in an automatic continuing resolution would prohibit Congress from changing policy. This is how more than 60% of government spending – on Social Security, Medicare, Unemployment Insurance, 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 lawmakers 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.