Government Shutdown: What It Means, Effect, History

What Happens When the Federal Government Shuts Down

The Statue of Liberty is closed during a shutdown. Anadolu Agency / Getty Images

A government shutdown is when non-essential Discretionary programs simply aren't funded.  It happens when the normal Federal budgetary process isn't followed. 

What Does a Government Shutdown Mean?

Federal government operations are funded in two ways.The first is through the Mandatory budget. These programs were created by a literal Act of Congress. They include Social Security, Medicare, Medicaid, TARP and now Obamacare.

The budget for these programs estimates how much it costs to keep those programs funded. The only way Congress can cut funding is by eliminating or changing the program with another Act. These programs are never affected by a so-called government shutdown because they receive funds automatically.

Funding for Discretionary programs must be approved every year as part of the budget process. It's negotiated between the President and Congress. The deadline to agree on the budget for each fiscal year is September 30. If a new budget isn't agreed upon, then Congress can submit an authorization bill to keep the Discretionary programs operating at current levels for an extended period of time. 

Most Federal Departments are funded by the Discretionary budget. Bit many include the essential services that are allowed to be funded during a shutdown. The major departments that suspend most of their services are: 

  • Commerce, except National Oceanic and Atmospheric Administration.
  • Education.
  • Energy (except functions that oversee the safety of the nation's nuclear arsenal, dams, and transmission lines).
  • Environmental Protection Agency.
  • Food and Drug Administration.
  • Health and Human Services.
  • Housing and Urban Development.
  • Interior, including National Parks.
  • Internal Revenue Service.
  • Labor, including Bureau of Labor Statistics.
  • NASA.
  • National Institute of Health.
  • Smithsonian.

Essential services are those that include defense, national safety, and security. Many agencies are set up so they can operate for weeks without a funding bill.  (Source: "Impact of a Government Shutdown," The Washington Post,September 29, 2013.)

Why Does It Occur?

Each year, the Federal budget must be approved by Congress. The President submits his budget proposal in February, and Congress usually sends him their version of the budget in September. He has 10 days to respond. 

If a budget isn't agreed upon by October 1, Congress can enact a Continuing Resolution (CR) to keep the government running. A shutdown means there has been a complete breakdown in this process.

What Are the Effects of the Government Shutdown?

The immediate effect is on the people who are furloughed, and those who use the services that are stopped. As the shutdown continues, agencies use up any excess or saved funds, and more services start to close.  

If the shutdown continues beyond two weeks, expect it to affect economic growth. That's because government spending is, itself, a component of GDP.


Government Shutdown History

2013 -  The government shutdown began on October 1, 2013, after the Republican-controlled House submitted a continuing resolution that did not include any administrative funds for Obamacare.  The Senate rejected the bill and sent one back that included Obamacare. The House ignored that bill, and sent one back that delayed the mandate that everyone should buy health insurance, and deleted the subsidies for Congress and their staffers. The Senate ignored that bill, and the government shut down.

Ironically, the shutdown did not stop the rollout of Obamacare. That's because 85% of its funding is part of the Mandatory budget, just like Social Security and Medicare.

It was already authorized by the Affordable Care Act, and the budget simply estimates how much would be spent. The Department Health and Human Services wisely already sent out the funds needed to launch the health insurance exchanges in anticipation of a potential shutdown.

October 1 - Day 1 of the shutdown.TV news highlight how veterans can't visit the WWII Memorial and cancer patients can't take advantage of treatment trials at the National Institute of Health. 

October 2 - Republicans feel they represent the majority of Americans, who oppose Obamacare. They submit a funding bill that delays Obamacare for a year and stand firm.

October 3 - Obama calls on the House to vote on the Senate's continuing resolution, which the entire government at the current rate.

October 4 - Boehner considers negotiating a budget proposal that will fund the government and raise the debt ceiling. At the same time, he calls on the Senate to negotiate on Obamacare.

October 5 - The Secretary of Defense calls back furloughed civilian workers.

October 6 - The House passes a bill to reimburse furloughed Federal employees, even though they aren't working. However, no on gets paid until a funding resolution is passed.

October 7 - Boehner won't fund the government or raise the debt ceiling unless Democrats agree to cut Medicare, Medicaid, and Obamacare. These Mandatory programs aren't even part of the Discretionary budget that is shut down.

October 8 - House Republicans propose another "Supercommittee" to negotiate a budget acceptable to both parties. However, House Democrats want the shutdown ended, and the debt ceiling raised, before establishing such a committee. In addition, Senate Democrats might propose a stand-alone bill to raise the debt ceiling.

October 9 - House Democrats meet with Boehner before meeting with Obama. 

October 10 - Boehner and a team of House Republicans meet with Obama. They propose raising the debt ceiling for six weeks to give time to negotiate.

October 11 - Following a successful meeting, the House Republicans will put together a budget in exchange for raising the debt ceiling for six weeks and reopening the government.

October 12 - As talks between Boehner and Obama broke down, the Senate created a plan to gain a bilateral support and force the House to an agreement, as it did during the 2011 debt ceiling crisis and the 2012 fiscal cliff crisis.

October 13 - Senate bilateral negotiations continue. Republicans want to extend the debt ceiling for three months, fund the government at current levels for six months, establish a bipartisan Congressional committee to agree on spending cuts to Medicare, delay Obamacare's tax on medical devices for two years, and give agencies more leeway in implementing sequestration.

October 14 - Senate Democrats want to increase spending $70 billion on the sequestration cuts that hit in January, and want the debt ceiling raised for a year. Republicans want cuts in Medicare and Obamacare and a 3-6 month extension of the debt ceiling. 

October 15 - The House submitted its own plan, which has thrown a wrench into the Senate's negotiations. Neither side of Congress will accept the other's proposal.

October 16 - - The House plan didn't get the support of Tea Party Republicans, so was dropped. Speaker Boehner put the Senate plan to a vote, where passed through Democrat and moderate Republican votes. The President signed it Wednesday night.

October 17 - The bill raised the debt ceiling until February 7, 2014, and reopened the Federal government until January 15, 2014. It set up a budget conference committee, led by Senate Budget Chairwoman Patty Murray (D-WA) and House Budget Committee Chairman Paul Ryan (R-WI), to submit a unified budget to the President by December 15, 2013.  

2011 - In April, the Republican-led House and President Obama agreed to $80 billion in spending cuts from the Fiscal Year 2011 budget, averting a shutdown. However, most of the cuts were programs that couldn't spend the funds and would have occurred anyway. In reality, only $38 billion was truly cut.

Republicans gave up an earlier proposal of $61 billion in cuts in non-defense discretionary spending,  including cuts to Planned Parenthood. This also allowed Obamacare and the Dodd-Frank bank reform act to remain unscathed.;Their cuts would have cost 800,000 jobs. Democrats gave up on $1.7 billion in cuts to defense. (Source: "Obama Prevent Cuts to Favorite Programs," Associated Press, April 11, 2011.)

Congress was six months late on approving the FY 2011 budget. It had until September 30 to approve the $3.7 trillion budget for Fiscal Year 2012. Instead, it risked defaulting on the U.S. debt by delaying raising the national debt ceiling in August.

1995 - The government shut down twice: November 14 - November 19, 1995, and December 16, 1995 - January 6, 1996.  Republican Speaker of the House Newt Gingrich won the Republican Party's 1994 Contract with America, which promised to slash funding and introduce a balanced budget amendment to the Constitution. However, no such amendment was passed, so Gingrich went after Democratic President Bill Clinton's FY 1996 budget.  He demanded steep cuts in Medicare, Medicaid, and other non-defense discretionary spending in return for raising the debt ceiling. To keep the U.S. from defaulting, a continuing resolution bill was passed until November 13. When no budget deal was reached. the government shut down until both sides agreed to balance the budget in seven years. 

However, they couldn't agree on which budget items would be cut by the time the resolution ended. The government shut down on December 15. By January 1996, both sides negotiated an agreement that cut some spending and raised some taxes, balancing the budget over the next seven years. (Source: "Slaying the Dragon of Debt," University of California, Berkeley.)