Government shutdown? 5 things businesses need to know

Washington DC at nightWith the U.S. government headed for a partial shutdown Friday night, business leaders should be prepared for the fallout — including how the Treasury Department and other federal agencies operating on a limited basis will impact their companies.

Those facing the biggest challenges include companies generating revenue from federal contracts and businesses with a significant number of customers who are federal workers, considering an estimated 800,000 won’t get paid during the shutdown.

And let’s not forget about the intrepid business traveler!

Why is the government about to shut down?A shutdown will occur if Congress fails to pass a spending bill that President Donald Trump could sign to keep the government fully operational past midnight Friday.

The president has been insisting that he won’t sign a spending measure unless it includes $5 billion to build his vaunted southern border wall. But the Trump administration signaled earlier this week that the president wanted to avoid a shutdown and was exploring other “legal” funding sources to get the $5 billion for the wall.

Democrats, whose votes are needed in the Senate to pass a spending bill, have offered a measure that includes roughly $1.3 billion for border security but zero for the wall.

Senate Republicans jumped in Tuesday with a potential compromise measure — a bipartisan, $1.6 billion homeland security spending bill, which would be paid with $1 million in unspent funds, though the money couldn’t be used for the wall.

However, congressional Democratic leaders quickly rejected the compromise offer.

Which agencies will close, why?Roughly 75 percent of federal agencies will remain open — through Congress having passed five of the 12 spending bills needed to keep much of the government fully operational until September 2019. Those agencies include the departments of Defense, Labor and Education.

The remaining 25 percent of agencies that will lose funding this week include the departments of Agriculture, State and Homeland Security as well as the Small Business and General Services administrations — in addition to Commerce and Treasury.

Which industries could suffer?Businesses with multi-year contracts with the federal government or with agencies funded into next year should continue to get paid. And those with contracts impacted by a shutdown have historically gotten paid when the government reopens.

“Businesses that depend on federal contracts would perhaps be wise to consider assigning employees or subcontractors to other tasks.”
Mary Moore Hamrick
National Managing Principal, Public Policy
Grant Thornton LLP
But the business challenges — or potential problems — don’t end there.

Though contractors will almost assuredly get paid for work done amid the shutdown, they should anticipate slow progress, considering, for example, contract questions to agencies could go unanswered because furloughed workers are not available to provide answers.

The Transportation Security Administration, whose agents conduct security screenings on airline passengers, is part of the Department of Homeland Security, one of the agencies unfunded after Friday.

TSA agents are considered essential personnel, so they are required to work during a shutdown without receiving a paycheck. But related confusion about who goes to work, combined with the typical big holiday travel, could cause additional delays for business travelers.

Part of the uncertainty is that the Office of Management and Budget, in collaboration with the agencies, determines who is essential personnel. And as of midweek, that information had not been made public.

How big?The 50,000 TSA agents are among the 800,000 federal workers who would be impacted by the shutdown and the roughly 420,000 required to work without a paycheck.

The other roughly 380,000 would be furloughed, which means they are not required to work and will not get paid during the shutdown.

Some economists and others have downplayed a shutdown, arguing that essential operations will continue and that the roughly 2 million federal employees account for less than 2 percent of the total U.S. workforce.

However, a prolonged shutdown — like the longest one, from Dec. 15, 1995 to Jan. 6, 1996 — could eventually take its toll, especially on local economies, like Washington, San Diego or Virginia Beach, Va., three of the five U.S. metro regions with the biggest federal employee population.

In addition, infrastructure and modernization initiatives at Treasury will likely be stalled. And the department will purportedly have to furlough thousands of IRS agents, at the start of tax season.

Financial rating agency Standard & Poor's found a 16-day shutdown in October 2013 took $24 billion out of the overall economy and “shaved at least 0.6 percent off annualized fourth-quarter 2013 GDP growth.”

Furthermore, Big Labor is also warning about the potential economic impact of another shutdown — the third since Trump took office in January 2017.

The American Federation of Government Employees, the largest federal employee union, says small businesses, as well as farmers and rural communities, will be among those impacted by another shutdown.

“Congress and the president should not hold agency funding hostage to controversial policies unrelated to the budget,” union President J. David Cox Sr. said Monday.

He also argued that members of his union take home about $500 a week and that interrupting their pay will have a “devastating impact” on their families and local economies.

What to do?Businesses that depend on federal contracts would perhaps be wise to consider assigning employees or subcontractors to other tasks. And they could reach out to their designated federal agency officers — to ask questions or get okays in advance. And they could seek alternative communication contacts during a shutdown.

Business leaders also could consider staying engaged with their congressional representatives about the urgency of reaching a bipartisan compromise to reopen the government and stay agile.

It’s no surprise that so many Americans are disillusioned with their elected officials. They expect them, at the very least, to agree on what can be funded to keep their government running — sparing federal workers and others the emotional toll of a shutdown during the holiday season.


Mary Moore Hamrick
National Managing Principal, Public Policy
T +1 202 521 1545

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