New Fiscal Year, No Federal Budget: Breaking Down the Shutdown

As we wake up this morning, October 1st, we celebrate the new fiscal year but unfortunately the Government is shut down. Since the federal fiscal budget was not passed by end of day yesterday and the Constitution requires Congress to approve spending, without a budget or a continuing resolution many federal government activities legally cannot continue. So, what does that mean? In short, it does not mean the entire government stops, but it does mean non-essential services halt, federal employees and contractors face pay delays, and many day-to-day functions of government pause until funding is restored.

What stays open? Essential services: national security, law enforcement, emergency response, air travel, postal service (USPS is funded separately), and Medicare/Medicaid/Social Security payments. Military operations. Federal Reserve and Congress itself (not affected as they have separate funding.) There are agencies that are fully funded or funded outside of the federal budget such as the VA and GSA that should still be operating.

The government has shut down 10 other times ranging from a couple of days to the longest which was a 35-day shutdown. The most recent shutdowns were the 35 day shutdown under President Trump in 2018, the 16-day shutdown under President Obama in 2013 and the 21-day shutdown under President Clinton in 1996.

What is the economic impact of a shutdown? Federal workers and contractors miss paychecks until the government reopens (employees will be compensated with back pay when the government reopens.) Businesses that rely on federal spending (like tourism around national parks or companies waiting on federal contracts) take a hit.

How does a shut down end? Congress must pass and the President must sign the new budget or a temporary resolution.

For those of us working with or around federal contracts, awareness is key. Shutdowns cause disruption, but they don’t erase opportunity. Staying informed and prepared ensures we’re ready to move quickly when funding is restored.