The Price of Budgetary Uncertainty, Part 1: The Fiscal Pain
When they hit, they hurt.
President Biden gave his State of the Union address Thursday evening, and today released his FY 2025 budget request (that’s a whole other can of worms). A previous post discussed the symbolic importance of the address, especially given that it was to come between two budget deadlines. Blissfully for Biden, he did not have to give the speech in the midst of a shutdown, as Congress had just passed a continuing resolution pushing the first deadline to the day after. Convenient!
Just in time, they then passed the first tranche of appropriations bills on that deadline. Next comes the other six, set for March 22nd. These will prove even more difficult, as this package will comprise the lion’s share of federal funding, in several contentious policy areas. Not a lot of runway left, either, before the guillotine of mandatory cuts falls if they can’t get a full budget through by April.
At this point, we are all used to it. It’s a mess - I won’t beat a dead horse. However, I do want to explore what the mess actually costs us, implicitly and explicitly. Parts of the answer are obvious, others less so. I plan to break this down in a series of posts.
When shutdowns actually happen, the costs are intuitively clear. We can separate them into fiscal and economic components. Today, we will address the former.1
During a shutdown, federal employees in the affected agencies are furloughed. They virtually always receive back-pay, despite performing no work during that time. According to the Center for American Progress, 55% of DoD employees are furloughed, 67% of IRS, 75% State, 93% NASA, 90% NRC, 94% NTSB, 84% Commerce, just to name a few highlights. Remember this for later.
Danny Vinik wrote on this for Politico in 2018:
[During the 1995-6 shutdown], roughly $1.1 billion was salary paid to federal workers who stayed home and didn't work. … The Internal Revenue Service, the report [on the 2013 shutdown] found, couldn't pursue its normal enforcement activities during the shutdown, which typically bring in roughly $1 billion a week.
Affected federal employees are literally not allowed to work during shutdowns, in any capacity. In a Federal News Network interview, former Postal Service Manager Abe Grungold said:
You’re not allowed to turn on your government phone. You’re not allowed to use your government computer and all your assignments or duties that you are working on on a day to day. Regardless of how urgent they are, they come to a full stop.
Note that fees - a nontrivial amount of money [e.g. $7m for the National Park Service during the 2013 shutdown] - cannot be collected either. If federal payments on debts incurred are late (since they cannot be made without Congressional authorization), the interest cost is higher as well, although I have not been able to find reliable data on this.2
A significant amount of time and energy is wasted on preparing for shutdowns and restarting operations once they are over. OMB requires agencies to prepare contingency plans3, reducing some of the chaos, but the lost time ultimately cannot be avoided. 2017 testimony from GAO stated:
… officials at the Department of Energy’s Office of Environmental Management estimated that budget, procurement, and management officials spent at least 50 percent of their time in September 2013 preparing for the shutdown.
A study by public administration scholars William Resh, Yonjin Ahn and Donald Moynihan investigated the micro-effects of shutdowns on the federal workforce and concluded:
The results suggest that employees at agencies that experienced a shutdown were more likely to observe administrative dysfunction, reflected in unmanageable workloads, missed deadlines, unrecoverable losses, delayed work, and projects that were abandoned or reduced
Plus, federal contracts incur higher costs, as they end up taking longer than planned, and the government may be held liable for some of the wasted resources by private-sector partners. For long-term or investment-heavy projects in particular, such as large research studies or construction, work stoppages can lead to massive inefficiencies beyond just these preparations. For example, from an OMB report on the 2013 shutdown:
The National Nuclear Security Administration (NNSA) at the Department of Energy (DOE) devoted time and resources to placing nuclear weapons labs into safe standby condition, only to direct additional resources to restoring normal operations at these facilities days later.
As a metaphor, think about the physical energy wasted in bringing a freight train to a stop, turning off the engine, unloading/reloading the cargo, and then later bringing it back up to full speed. Even if managed in an orderly manner, momentum matters.
How much does this actually cost the public fisc in total? The truth is that nobody knows. Seriously. In a 2019 report by the Permanent Subcommittee on Investigations, the authors reveal:
The Subcommittee based its cost estimate of nearly $4 billion on the information provided by 26 federal agencies. Some agencies, however, were unable to provide one or more categories of the requested financial information. … Some agencies provided quantitative data or estimates representing certain costs, while others stated that they were unable to do so, or unwilling to calculate estimates due to concerns about accuracy. … OMB noted that the total amount paid to federal employees who were furloughed during the FY 2014 shutdown was “roughly” $2.0 billion, but that estimate was based on the average salary costs for furloughed employees by agency. By using the average salary rather than actual data from the agencies—particularly for larger agencies—the estimates are likely lower than the actual costs.
There is a Wikipedia article with a table that contains the “cost to government” of each shutdown, but upon investigating the sources cited, these prove to be very rough estimates. All of them. When Congress has directed CBO/GAO/CRS to investigate the fiscal wounds, they have come back with incomplete information. The 2019 Subcommittee put it this way:
This is not a new problem. For several decades, agencies have been unable to provide accurate data on shutdown costs to Congress and other oversight entities.
To a degree, this in fact makes sense, considering that we cannot fully account for man-hours and potential revenue lost, for example, in accommodating shutdowns.
For what it’s worth, the Subcommittee found:
The three government shutdowns in the past five years cost the taxpayers nearly $4 billion—at least $3.7 billion in back pay to federal workers, and at least $338 million in other costs associated with the shutdowns, including extra administrative work, lost revenue, and late fees on interest payments. Since federal workers were furloughed and unable to work during the shutdowns, taxpayers lost the equivalent of 56,938 years of work.
The report goes in-depth for each agency, the effects on each for recent shutdowns and their contingency plans. I highly recommend reading through it if you are curious about particular agencies.
Also worth noting is (again, this has not been comprehensively measured) the downstream effects of disruption in federal grants to state/local governments. Presumably, they are not too dire, as these other jurisdictions can make up the funding on their own, but we can assume that similar varieties of costs are incurred at devolved levels of government for similar reasons. Some states are better managed than others, so these costs are likely heterogeneous across them.
Readers should remember that everything I’ve covered above is the fiscal cost of shutdowns. The economic effects are another animal. The next post will analyze that aspect, but that’s not even the end of it. Budget dysfunction is more than just shutdowns, and the long-run effects are scary. Stay tuned.
Much of the information here comes from the 2018 CRS report Shutdown of the Federal Government: Causes, Processes, and Effects.
It is unlikely that this has been a huge issue thus far, since under the Prompt Payment Act and Cash Management Improvement Act, the government must pay its bills within 30 days before incurring the extra interest costs, and most shutdowns have not lasted that long. Still, it’s a risk going forward.
Note that these plans are not standardized - OMB simply requires that agencies prepare them. Some are more rigorous than others.