Costs of the Government Shutdown Run Deep

January 11, 2019

By: Peter Goelz, Senior Vice President
Assisted by: Fiona Carroll, Account Coordinator

Shut out federal workers will not receive a paycheck Friday, January 11. The government shutdown is poised to be the longest in history, with little reason to believe a negotiated reopening is in sight.

The shutdown was spurred when President Trump said he would not sign any legislation to continue funding the government (usually, but not always, a non-partisan, procedural process) that did not include nearly $6 billion in starter funds dedicated for a physical wall along the U.S.-Mexico border.

The President’s demand has been met with steadfast opposition from Democrats and some Republicans who believe the multi-billion dollar demand is nothing more than expensive political pandering by the President.

Since the shutdown began on December 22, the House has passed legislation to fund federal agencies at their current levels through February without funding for the wall. This would have ended the shutdown and allowed more time for debate on solely border security.

Senate Republicans have deferred completely to the President on this topic saying they refuse to pass a bill that the President will not sign. Yet, as noted by James Fallows in The Atlantic, the Republicans chose not to pass legislation for a wall when they had congressional majorities over the last two years.

In a meeting with congressional leaders on January 4, President Trump warned a shutdown could last “months or even years.” Yesterday he walked out of a negotiating session after 15 minutes saying there was no reason to continue the meeting.

Sen. Graham also gave up on his efforts to broker a deal after Trump refused to budge.

Across the country, the shutdown is causing severe pain as federal entities are forced to shutter operations as they run out of options to stretch operations. As of January 3, 380,000 federal workers were told to stay home. An additional 420,000 have been told to work without pay.

The shutdown is also affecting the private sector. Companies that rely on the operations of the vast federal bureaucracy and critical contractors are trying to cope with the chaos and uncertainty of the shutdown.

A Colorado tech firm that produces software for the federal government is unable to pay its coders because of unfulfilled contracts. The firm fears that the shutdown could cause its workers to seek more stable jobs where pay isn’t held hostage by political maneuvers.

Mark Zandi of Moody’s Analytics fears the shutdown will impact the housing market as lenders are unable to verify salary and income levels of Federal employees wishing to buy or refinance a home.

“The fact that the IRS isn’t open and verifying tax returns and W-2 statements may mean that we might not get home closings,” he said. “The housing market could be severely disrupted, particularly during the spring selling season.”

According to S&P Global Ratings, the shutdown has already cost the economy $3.5 billion.

Travelers will start to feel the effects of the shutdown as increasing numbers of TSA employees call in sick to work, causing longer lines at airport security checkpoints.

The biomedical community in Massachusetts may also be impacted. Boston receives more funding from the National Institute of Health for research institutes, hospitals, and private companies than any other U.S. city. Patients who have long awaited government-run clinical trials slated to start in the last two weeks have not been able to enroll because half of the Department of Health and Human Services, which oversees NIH, is currently furloughed. Depending on how long the shutdown drags on, it could interrupt research that has been going on for years, according to NIH’s infectious disease chief, Dr. Anthony Fauci. “You can’t push the pause button on an experiment,” he said.

Despite these growing concerns, Washington remains locked in a standoff, with both Democrats and President Trump apparently equally resolute in their positions

President Trump is also now actively considering bypassing Congress, citing executive privilege, by declaring a national emergency at the border. This would allow the President to dip into defense or disaster funds and appropriate them to a wall unilaterally. A declaration by the President is likely to be met with legal challenges and criticisms of executive overreach. It is uncertain whether this executive action would stand up in court.

So far, the costs of the shutdown have been relatively modest. A government that is incapable of governing, however, will undermine economic confidence and further erode trust in our political institutions, a consequence far more costly than overflowing trash at the National Parks or closed Smithsonian Museums.

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