Partial Shutdown, Major Impact
The president addressed Americans from the Oval Office on Tuesday night in a televised address, during which he called for bipartisan unity around border security as path to end the prolonged partial government shutdown. At a subsequent meeting yesterday between Republican and Democratic leaders at the White House meant to break the impasse, the president – according to press reports (and his own Twitter posting) – was so frustrated with Democrats’ opposition to fund a wall on the southern border that he abruptly left the room, effectively ending the meeting with no real progress to end the shutdown having been made.
Today is the 20th day of the most recent shutdown of the Trump era. If the impasse carries past Friday – as it appears it almost certainly will – it will be longest in American history. The previous record holder – the Clinton-GOP Congress standoff that took place from December 1995 to January 1996 and shut down the entire government – lasted 21 days.
While there has been no shortage of headlines regarding the impact of the current shutdown, most press reports have focused on airport security (in a near-full employment economy, TSA employees reportedly are finding jobs elsewhere and FAA inspectors are largely furloughed), taxpayer IRS refunds, and, to some extent, the disarray in our national parks.
Even though 75 percent of the federal government has funding in place for fiscal year 2019 – hence the “partial” qualification to this shutdown – the effects of the prolonged stalemate go far deeper than what the headlines indicate. Permitted to continue, the shutdown could threaten everything from Americans’ access to new medications to states’ efforts to prepare for the late summer and fall hurricane season to food safety.
For example, on Monday, Texas Land Commissioner George P. Bush (the grandson of late President George H.W. Bush and the son of former Florida Governor Jeb Bush, Donald Trump’s rival in the 2016 Republican presidential primary) said the shutdown had delayed allocation of funding cities and states need to help protect against natural disasters. Though Congress has appropriated the money, the Department of Housing and Urban Development (HUD), where thousands of employees have been furloughed, must provide guidance on how to apply for the grants before it can be disbursed.
State departments of transportation also have delayed work on basic infrastructure projects. Oklahoma, for example, has put 36 road projects representing $133 million in investment on hold.
Members of the Coast Guard, who do everything from conduct search and rescue missions to interdict drugs on our coasts, are either working without pay or have been furloughed. The Federal Communications Commission (FCC) cannot certify new devices that emit radio frequency, which could delay the release of new electronic devices.
The Federal Drug Administration is another agency that does not yet have funding for 2019. The biopharmaceutical firm Regulus Therapeutics Inc. has said the FDA’s shutdown could delay approval of a kidney disease drug it is about to bring to market. These approvals are funded by user fees, which means the work will continue until the money runs out. “After that,” as Bloomberg pointed out, “After that, new drugs won’t get assessed by the agency unless the government reopens.”
Food safety inspections are funded by appropriations and the FDA has slowed this work and will limit its inspections to seafood, soft cheeses and unpasteurized juice. The U.S. Department of Agriculture is still conducting inspections, but some experts have speculated outbreaks of food-borne illnesses could increase with fewer inspectors on the job.
In the financial services realm, according to the IPO research firm Renaissance Capital, at least six companies likely to go public this month could have their initial public offerings delayed because of the Securities and Exchange Commission shutdown. Lawyer Joseph Hall told Politico Pro the shutdown “is injecting a lot of uncertainty” into IPO timing. The Wall Street Journal has said it’s likely that no major company will tap the U.S. IPO market this month. That’s only happened three times in the last 23 Januarys, and, given the strength of the equities markets thus far this month, would be wholly due to large portions of SEC staff being on an unpaid, involuntarily vacation.
While IPOs have been impacted, the Harvard Law School Forum on Corporate Governance and Financial Regulation said the shutdown has not yet impacted M&A activity, but could if it “continues for an extended period of time.” Indeed, last Friday Ready Capital Corp. and Owens Realty Mortgage, which had announced merger plans in November, said if the government doesn’t reopen soon it could delay a shareholder meeting set for February to approve the companies’ deal.
The National Association of Realtors has reported that the shutdown is also rattling the housing market. Nearly one-quarter of NAR members said the shutdown has had an impact on current clients (11 percent) or has affected potential clients (another 11 percent). Some potential buyers said they were going to hold off buying a house now because they felt the economy is more uncertain. Others had had trouble getting loans from the Veterans Affairs Administration or the Federal Housing Administration and still others couldn’t get loans because the Internal Revenue Service couldn’t verify income. The FHA also has told landlords that have low-income residents that they should use reserve accounts to prevent the eviction of those tenants.
And while the shutdown this week will keep hundreds of thousands of federal workers from getting their paychecks, there is worry that it could affect their mental health. Just ask the Trump administration. According to Politico Pro, the HUD homepage “now includes a note for employees advising them of counseling services during the shutdown.” To help, the department’s “shutdown contingency plan includes several provisions on restoring morale when the event is over, including an explicit requirement that ‘Secretary [Ben Carson] will tweet something favorable about civil service employees’ the day after the shutdown ends.’”
That’s a nice gesture, but probably not enough to compel Americans to forget the profound effects of the shutdown, particularly since the stalemate will, in addition to all of its direct impacts, also have an overall effect on macroeconomic growth. The Congressional Research Service (CRS) released a report just before the current shutdown began that explained the 2013 federal government shutdown, which lasted 18 days, resulted in $2 billion to $6 billion in lost domestic economic output – a range into which the President’s insistence for $5.7 billion in wall funding would fit squarely.