The Federal Government Shutdown: How It May Impact The States

As the prospect of a federal government shutdown looms in Washington D.C., states are nervously preparing for the impact it could have on their already strapped budgets and their fragile economic recoveries.

While it would take a more protracted shutdown to threaten federal funding for the administration of major programs like Medicaid and the Children’s Health Program, a shorter shutdown period could still wreak havoc for states already scrambling to stay afloat. Nonessential federal workers and contractors could be furloughed immediately, impacting tax revenues for local and state governments, especially in areas with a large federal workforce. In New York, Manhattan Borough President Scott Stringer released a letter to Speaker Boehner highlighting that the 1995 federal government shutdown resulted in approximately 30,000 employees in New York City being furloughed, and expressed his concerns that “a very large percentage” of the now 53,730 federal workers in the New York City metropolitan area would stop receiving paychecks in the case of a shutdown this year.

Nationwide, an estimated 800,000 federal workers could be furloughed immediately on Saturday morning if an agreement is not reached before then. Massive furloughs could lead to an increased drain on already stretched unemployment programs in some states. National parks could also be forced to close, resulting in lost tourism revenue – a report on the impact of the last government shutdown, which lasted 20 days between 1995 and 1996, shows that national parks lost 7 million visitors and more than $14 million a day in lost tourism revenue. In addition, the processing of non-electronic federal tax refunds would be stalled and some new loan approvals for homeowners and small businesses would come to a halt, injecting more instability into state economies and housing markets.

Most states are positioned to weather a shutdown lasting up to a few weeks, but anything longer could prove disastrous. Connecticut Governor Dannel Malloy noted that “residents won’t notice a disruption in services or operations for a temporary shutdown, but anything longer than three weeks, and there is a real concern about our ability to continue to deliver vital state services.”

Even if states are able to withstand a temporary shutdown, some experts worry that one of any length could further erode public confidence in government, harming economic recovery and even potentially dipping us back into recession.

Political gamesmanship continues to steer the budget debate in the nation’s capital, as conservatives look to move a sweeping corporate-backed agenda at the expense of the middle class – a trend we’ve seen take hold in statehouses across the country. Wisconsin Rep. Paul Ryan’s recently unveiled proposal that, among other things, targets low-income safety net programs, and severely undermines Medicaid and Medicare, is the latest example of such an agenda. But even in the likely event that these proposals do not end up in the final federal budget, the same right-wing ideological crusade behind them has already succeeded in damaging the economic security of families across the nation, as workers are left to worry about next week’s paycheck and states are left to worry about even more budget uncertainty thanks to the threat of a shutdown.

Full Resources from this Article

The Federal Government Shutdown: How It May Impact The States

The National Association of State Budget Officers – Impact of a Federal Government Shutdown on States
National Journal - Government Shutdown: What Ceases, What Continues
Huffington Post – Prolonged Shutdown Could Wither Confidence and Even Trigger Recession
Center on Budget and Policy Priorities – Chairman Ryan Gets Almost Two-Thirds of His Huge Budget Cuts from Programs for Lower Income Americans
The Wonk Room – The Seven Ways in Which Paul Ryan’s Budget Would Undermine Medicaid and Medicare

This article is part of PSN's email newsletter, The Stateside Dispatch.
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