Another government shutdown? Here’s the cost

Getty Images Storm clouds fill the sky over the U.S. Capitol Building in Washington, DC.

Getty Images
Storm clouds fill the sky over the U.S. Capitol Building in Washington, DC.

Here we go again.

A possible U.S. government shutdown this Friday has once again raised the prospect of throwing federal agencies into chaos, costing taxpayers billions of dollars in lost government productivity, along with a wide range of interruptions that will put a damper on billions more in business and personal financial transactions.

While the economic fallout from any repeat impasse will likely be limited, former top Treasury official Roger Altman told CNBC, “There’s no guarantee of that.”

Read More Altman: Government shutdown probable—here’s why

Unlike the last congressionally self-inflicted upheaval two years ago, the political squabble threatening to bring Washington to a crawl is based on allegations that Planned Parenthood was involved in the illegal sale of aborted fetal tissue for medical research. The allegations stem from a video produced by an anti-abortion group, which Planned Parenthood officials say was heavily edited to “significantly distort and misrepresent” the group’s activities.

Several dozen Republicans are threatening another shutdown Friday unless federal funding for the women’s health organization is cut off.

Planned Parenthood in its latest annual report said it gets about $450 million a year in federal funds, according to the Congressional Budget Office, or less than two-tenths of 1 percent of the roughly $3.6 trillion federal budget.

But that budget authority runs out at the end of the fiscal year this Friday, setting up a showdown that could once again force federal agencies to suspend services and send government workers home.

Estimates of the overall economic impact are difficult to make, largely because some of the fallout would be indirect.

In January 2014, the Bureau of Economic Analysis estimated the direct impact of the last shutdown, in October 2013, lopped about three-tenths of a percent off real gross domestic product growth in the 2013 fourth quarter. That was in line with estimates from private economists, who figured the impact of the shutdown came to, at most, a few tenths of a percent of GDP.

The 16-day shutdown also sidetracked the creation of an estimated 120,000 new jobs, according to a report from the Council of Economic Advisers.

The immediate impact would be felt by government workers, whose paychecks would be suspended and jobs would be subject to furlough. In October 2013, those furloughs amounted to 6.6 million days’ worth of federal employment spread across dozens of agencies. More than 2 million of those days were lost to furloughs at the departments of Defense and Treasury alone.

Because those workers were ultimately paid retroactively, the government didn’t save any money by suspending their paychecks, which amounted to about $2.5 billion, according to a November 2013 report from the Office of Management and Budget. And the lost productivity cost taxpayers in other ways.

While the total impact on a $16 trillion economy may be relatively small, the chaos unleashed from a shutdown would once again be felt by millions of businesses and individuals, as mortgage applications are delayed, vacations to national parks interrupted and payments postponed to tens of thousands of small businesses that do business with the federal government.

Read More Jamie Dimon: Government Shutdown is Just Bad Management

Defense contractors would be among the biggest losers, which is one reason several trade groups wrote a letter to congressional leaders last week urging them to head off a funding impasse. Last time around, small-business defense contracts dropped by almost a third during the shutdown, and spending declined 40 percent, according to the OMB report.

Some government revenues would also take a hit. During the last shutdown, the National Park Service lost millions in fees, and businesses that rely on tourism missed out on some $500 million in lost visitor spending, OMB estimated.

Roughly 200 applications for oil and gas drilling permits went unprocessed; the delayed opening of the Alaskan crab fishing season cost fisherman thousands of dollars a day in lost revenue; and more than 2 million liters of beer, wine and other alcohol shipments sat at U.S. ports because the Treasury was not able to issue export certificates, according to OMB.

Consumers and small businesses could also face costly delays if the government shuts down again. In October 2013, the Small Business Administration couldn’t process some 700 applications for $140 million in small-business loans, and mortgage applicants couldn’t get their income verified by various agencies. Two weeks into the last shutdown, the IRS reported a backlog of 1.2 million verification requests that could not be processed.

And, just like you get dinged when you don’t pay your credit card bill on time, Uncle Sam would once again also owe billions of dollars in late fees if the government shuts down again this Friday.

Under the Prompt Payment Act and the Cash Management Improvement Act, the federal government has to pay interest on billions of dollars of payments, ranging from IRS refunds to payments to contractors.

This entry was posted in US Economy. Bookmark the permalink.

Leave a Reply