WASHINGTON — A federal government shutdown would hinder the economy, waste billions of dollars in federal funds and put a scare into the markets, according to experts. It’s already causing a slowdown in normal operations for agencies and businesses.
The Office of Management and Budget estimated in 1996 that the two closures in that fiscal year, which lasted 26 days total, cost the government $1.4 billion, or roughly $2.1 billion in today’s dollars.
“I think of it like moving — it costs you to pack, and it costs you to unpack,” said Douglas Holtz-Eakin, president of the American Action Forum think tank and former director of the nonpartisan Congressional Budget Office.
“Uninterrupted operations,” he said, “are cheaper than starting and stopping.”
Most of the cost was a result of Congress granting back pay to federal employees who did not work during the closure, but some of it came from the financial toll of winding down operations and ramping them up again, according to a 1997 report by University of Maryland Baltimore County political scientist Roy Meyers. His report has been cited by the Congressional Research Service.
Losses for the government could be less steep this time if lawmakers decide not to compensate furloughed employees for the shutdown period, but it would still incur costs from paying workers to develop contingency plans rather than focusing on their usual missions, Holtz-Eakin said.
The same goes for the private sector.
In 1996, the funding lapses may have affected up to 20 percent of government contracts in the Washington, D.C., area, according to a report last month from the Congressional Research Service. No one knows precisely how much that cost businesses in terms of dollars, but the impact would be worse with a shutdown this year.
Government contractors are directing their staffs to prepare.
Ted Davies, president of Unisys’ Reston, Va.-based federal systems business, said his division is already losing “opportunity costs” as planners review contracts for the potential impact.
“We could be working on developing business and developing our people,” Davies said. “This isn’t where you want to be.”
Company planners are finding it nearly impossible to determine the cost of a shutdown and which employees they will need to furlough. There are too many factors to consider, they say.
Some contracts are already covered in full by past appropriations bills, but others would have to be put on hold until further funding is available; some private-sector workers would be exempt from furloughs because they help with essential government functions, but others would not.
“It gets very complicated,” said David Langstaff, chief executive of Chantilly, Va.-based TASC, who added that decisions will have to be made “literally case by case or contract by contract.”
Alan Chvotkin, executive vice president of the Professional Services Council, said the government spends at least three times more on contracts these days than it did in the mid-1990s.
“The magnitude of the impacts would be greater,” he said.
As for the broader economy, Moody’s Analytics chief economist Mark Zandi told the Senate Budget Committee this week that closing down for less than a week would be “no big deal” but that a month-long stoppage would end up halting fourth-quarter growth.
Zandi said in an interview Thursday that a shutdown would effectively cause the unemployment rate to rise from its current 7.3 percent to about 7.8 percent.
“You have a large number of federal workers who won’t go to work and get a paycheck,” he said. “In the first few days, that won’t affect their spending much, but after a few weeks, they start acting like they’re unemployed.”
All that says nothing of the effects of the looming debt-ceiling debate, which would severely compound the impact of a potential shutdown.
The government is expected to run out of money sometime around mid-October if Congress and the White House fail to reach an agreement on that front, according to Treasury Secretary Jack Lew.
Zandi said Thursday that breaching the debt limit would lead to a “deep, dark recession,” adding that just the threat of such an event could spook the markets.
“It weighs on people’s psyche,” he said. “If politicians can’t agree on a shutdown, they probably can’t agree on the debt limit.”