Government Shutdown Looming in December: What You Need to Know

Funding for various agencies of the U.S. federal government is due to expire at the end of the day on December 7, presenting the likelihood of a government shutdown that may last until Christmas Eve, according to Greg Valliere, chief strategist at Horizon Investments. The main issues that may create a lengthy deadlock, according to Valliere, are President Trump's proposed wall on the border with Mexico and special counsel Robert Mueller's investigation of attempts by Russia to influence the 2016 U.S. presidential election.

Trump has threatened to veto a budget deal that does not include funding for the border wall. He also has been vocal in his displeasure with Mueller's probe, which acting Attorney General Matthew Whitaker does not appear to support. Meanwhile, all Democrats and several Republicans will insist on an amendment that keeps Mueller's probe going. Explicit funding for the border wall is unlikely to be included in any budget measure that passes Congress, given solid Democratic opposition to it, and division among Republicans. Given the past history of budget fights, in which deals typically are not made until the last minute. Valliere believes that a shutdown will last until Christmas Eve.

Significance For Investors

According to the Committee for a Responsible Federal Budget, if Congress has not passed a bill funding the operations of a given agency beyond December 7, it must "discontinue all non-essential discretionary functions until new funding legislation is passed and signed into law." Essential services and mandatory spending programs will continue to function, however. Each agency has a shutdown plan that determines which services are essential, which are not, and which employees will be put on furlough.

In the 2013 shutdown, which lasted 16 days,about 850,000 of the 2.1million non-postal federal employees were furloughed. However, 350,000 civilian employees of the Department of Defense went back to work after a week.

Essential services are generally those related to public safety, such as law enforcement, border protection, air traffic control, in-hospital medical care, and power grid maintenance. Among the mandatory spending programs that continue during a shutdown, because they are not subject to annual appropriations, are Social Security, Medicare, and Medicaid. The U.S. Postal Service would continue to operate as normal.

While current beneficiaries of mandatory spending will continue to receive payment, it is possible that new applications for enrollment in Social Security or Medicare will not be processed during a shutdown. However, this last happened during the 1996 shutdown.

In the 2013 shutdown, the National Parks were closed, and inspections by the Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA) were suspended. The National Institutes of Health (NIH) stopped admitting new patients, and grant programs such as Temporary Assistance for Needy Families (TANF), or cash welfare halted disbursements, forcing states to make up the difference during that shutdown. The Internal Revenue Service (IRS) stopped verifying income and Social Security numbers, which led to delays in the granting of mortgages and other loans.

Looking Ahead

Only 5 of the necessary 12 appropriations bills necessary to fully fund the federal government for the current fiscal year, which ends on Sept. 30, 2019, have been passed, per the Committee for a Responsible Federal Budget. The other 7 appropriations bills have been replaced, temporarily, by a continuing resolution (CR) that lasts through Dec. 7. CRs are stopgap measures that temporarily extend the funding levels from previous appropriations bills, sometimes with specific changes, until new appropriations bills are written and passed. To prevent a shutdown on Dec. 8, before that date Congress has to pass, and the president sign, one or more of the 7 pending appropriations bills, while also passing yet another CR to substitute for any of those 7 bills that are not enacted by that time.