The U.S. government shut down on October 1 as Republican and Democratic funding bills failed to reach the necessary number of votes in the Senate and efforts to prevent a shutdown failed. Government shutdowns such as this one shutter nonessential agency operations, furlough some government workers, and cost taxpayers.
We asked Linda Bilmes, the Daniel Patrick Moynihan Senior Lecturer in Public Policy and Public Finance, about why shutdowns happen, what they cost us, and how we can avoid them. Bilmes is a budgeting expert who served as the assistant secretary for management and budget, and chief financial officer of the U.S. Department of Commerce under President Bill Clinton.
Q: What’s the economic price tag of a government shutdown?
Shutdowns cost taxpayers a fortune, not just during but even before they happen. Agencies have to spend days preparing to secure their facilities and contracts and freeze payments, and it’s an all-hands-on-deck effort to wind down the government.
The second reason that they’re very costly is that contractors—who play a huge role in the federal government—pad their contracts because they are always aware that there might be a shutdown or disruption to government payments.
Then there is the knock-on cost throughout state and local governments and county governments, all of which rely on federal funding. They are forced into crisis mode, having to juggle budgets and delay services and maintenance and cover expenditures, which are normally paid through the federal government. This is a big expenditure problem that’s ricocheting through the economy, as well as disruption to actual services.
The Congressional Budget Office estimated that the last federal shutdown, in 2018, which lasted 35 days, delivered a $3 billion long-term hit to the economy. But even when Congress avoids a shutdown at the very last minute, there’s a large cost associated with an “almost-shutdown.”
We are currently in the twenty-third actual shutdown since 1974, but there have been hundreds of “almost-shutdowns” in which Congress ends up adopting short-term stopgap budgets called “continuing resolutions.” It’s like getting ready for a hurricane that might not hit. We have already incurred a lot of costs that won’t be recovered.
Q: What is it about the U.S. budget process that makes shutdowns a recurring threat?
In 1974 Congress passed a sweeping budget reform law that shifted the way the budget was put together. From 1921 through 1974, it was essentially led by the president. Congress responded to President Nixon’s attempt to impound funds that Congress had appropriated by changing the law to restore more power of the purse to Congress.
However, that means that many people are now in charge of the budget. The reforms added an additional layer of committees in the Senate and the House, as well as the fiscal committees and the appropriations committees. The process is horribly messy and over-complicated.
It should be noted that most shutdowns happen because of budget disagreements, but the current one is different. Republicans now control a trifecta of the House, the Senate, and the presidency—so their goal is to stay aligned with President Trump and what he wants. The Democrats are drawing a line to protect some core programs that were enacted under prior Democratic leadership, including the Affordable Care Act and Medicaid.
“It is pernicious because over time, these government shutdowns and ‘almost-shutdowns’ and ‘almost-defaults’ lead to a loss of public confidence in the ability of the government to function and to get things done.”
Q: What are the grievances?
A key grievance on the Democratic side is that there was an impasse last March, and the government nearly shut down, but the Republican majority promised that it would seek compromise on several key disagreements in exchange for Democrats supporting a short-term continuing resolution. But these disagreements were never resolved or even seriously considered. There are certainly Republicans who are in favor compromising, but not enough. So, right now, Democrats don’t have much trust in Republican promises.
For Democrats, this is about taking a stand around the fact that health care is a core Democratic issue and an issue that they’re going to fight for. I think for Republicans it is about supporting the direction in which the president is taking the country, even if they don’t agree with every single action by the Trump administration.
It is pernicious because over time these government shutdowns and “almost-shutdowns” and “almost-defaults” lead to a loss of public confidence in the ability of the government to function and to get things done.
Q: Are there any concrete reforms that Congress could or should adopt to get us out of this cycle of shutdowns in the future?
A series of reforms could help make the budget process work better. These include reorganizing and realigning the committee structure in Congress. For example, the budget committees, which are supposed to do long term budgeting, are relatively toothless. They get the most junior members, there’s a term limit for membership on the committees, and they don't have any real power to enforce anything. So, they need to be strengthened or reimagined completely.
Secondly, the budget process as it is structured right now doesn’t give Congress a full overview of the full US expenditures—including the annual “discretionary” spending that has to be enacted every year and the so-called “entitlements” that are based on formula controlled by separate congressional committees, which don’t get revisited annually.
There are several reforms we could adopt relating to federal budgeting and accounting to provide better visibility around costs. For example, in every municipality and state government, they use capital budgets, which separate longterm capital expenditures from short-term operating expenditures. If you are building a bridge, you separate out how you’re going to finance it from the operating expenses for workers who build and maintain the bridge. In the federal government, it’s all lumped together.
In the Congressional Budget Office, the requirement is forecast expenditures for ten years. So, some of the biggest costs—for example, the accrued costs of paying disability benefits to veterans—will grow massively in thirty years, but nobody is tasked with making those kinds of forecasts. The whole way that we look at budgeting could be improved significantly.
Of course, all of that requires a bipartisan appetite to do that and a leadership that is interested in having that kind of conversation.
Q: What's the effect on government workers of a shutdown?
For federal workers, this shutdown is really personal. At the most basic level, missed paychecks force them to scramble, delaying their mortgage payments and their credit card payments and borrowing money and so on. Beyond the paycheck, it’s really a gut punch to morale.
Most people who work for the federal government are mission driven. They are invested in the mission of the agency they work for and have devoted their careers to these missions—whether it’s weather forecasting or producing GDP statistics or cybersecurity or whatever. A shutdown is like telling them that their work doesn’t matter.
That’s already a real hit to morale, but particularly this year when the federal workforce has been through the turmoil of DOGE and has already lost about 150,000 people—the highest number ever to retire in a single year. For example, I served on the National Parks Board for ten years, and I have friends and former students who work in the National Park Service. Throughout everything that’s been going on this year, these people have been thinking about protecting the redwoods, protecting the special places in America. But it’s pretty tough for them now since the government has shut down in a way that feels entirely unnecessary.
—
Banner image by Mehmet Eser/Middle East Images/AFP; portrait by Martha Stewart