5 Ways a Government Shutdown Could Affect Your Money
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It’s not deja vu. The U.S. is again barreling toward a self-imposed financial crisis as lawmakers are gridlocked over a spending package to keep the federal government fully operational.
Congress faces two key deadlines — Friday and March 8 — to reach a spending agreement and keep all government agencies running. Alternatively, lawmakers could pass yet another continuing resolution, which is a stopgap measure, by those same deadlines to give themselves more time to negotiate on a broader deal.
The latter route is one Congress has taken three times already for this fiscal year: One eleventh-hour deal in September kept the government open for 45 days. Then when time came in November, legislators passed another stopgap measure that split funding deadlines for several agencies and pushed the dispute into the New Year. Last month, they kept the trend going.
If they don’t pass a full-fledged spending package (or at least another continuing resolution), the government will shut down — and the consequences could be wide-reaching.
“Any shutdown is a bad shutdown,” Andrew Lautz, a senior policy analyst at the nonprofit Bipartisan Policy Center, tells Money. “Even if it’s a one-day shutdown.”
That's because many government operations and agencies rely on discretionary appropriations, which is money that Congress must approve ahead of each fiscal year. The 2024 fiscal year technically started Oct. 1, 2023. About 30% of all government spending is authorized by this appropriations process, according to the center, including federal workers’ salaries, some benefits, certain lending programs and much more.
Without a deal, many government functions that are not “deemed essential to the protection of lives and property” could grind to a halt during a full shutdown, Lautz says.
On the other hand, since funding deadlines are now split, it's possible that Congress could meet one deadline but not the other; in that case, some government agencies would have to close while others stay open.
The agencies that would be affected by a partial shutdown without action by Friday's deadline include:
- Agriculture and the Food and Drug Administration
- Energy and Water Development
- Military Construction and Veteran's Affairs
- Transportation and Housing and Urban Development
The March 8 deadline impacts:
- Commerce, Justice, Science departments
- Defense and Home Land Security departments
- Financial Services and general government
- Departments of Interior and Environment
- Labor, Health and Education departments
- Legislative branch
- State and foreign operations
Though the consequences of a government shutdown are not as severe as the national debt default that the U.S. narrowly avoided last year, experts warn there are several ways it could still affect people’s money.
1. Federal workers could be furloughed or paid late
Perhaps the most directly impacted group of people during a government shutdown are federal workers and contractors who have nothing to do with the political negotiations over spending. (Lawmakers still get paid during government shutdowns.)
“In the U.S., there are over 2 million federal employees,” Lautz says, plus "hundreds of thousands of federal contractors whose businesses in large part depend on the federal government.”
When the government shuts down, almost all of them are either furloughed — which means they are told to stay home without pay — or forced to work without pay because they are classified as “excepted” (read: essential) workers.
A 2019 law guarantees back pay for these workers when the shutdown ends, but they are forced to make do in the meantime with no clear timeline for their next payday.
“One missed paycheck can be a missed payment on your car, a missed payment on your mortgage.” Lautz says. “It can mean going into credit card debt.”
Given the size of the federal workforce, Lautz also notes that the missed paychecks could also have a ripple effect on the local economies with a high concentration of federal workers, given that they will likely have to curtail spending throughout the shutdown.
2. FAFSA delays could get even worse
In the event of a government shutdown, the Education Department says it would have to furlough some 3,700 staffers — or about 90% of its workforce.
Already, the department has been facing major delays as it rolls out its new Free Application for Federal Student Aid, or FAFSA, for the 2024-25 academic year. The agency was tasked with making the form much simpler for families to complete while also becoming more generous for applicants with financial need, but the release of the new FAFSA has been marred by setbacks and technical glitches.
A shutdown would gut the department's available staff, further adding to the chaos.
Financial aid for students through the FAFSA — such as Pell grants and Direct student loans — is funded by a separate apparatus and would not be directly affected by a government shutdown. But the administration of those programs would be greatly hindered by furloughs.
Additionally, the Education Department funds some staff and contractors on college campuses whose job it is to increase enrollment from disadvantaged populations. Those workers would also be impacted by a shutdown at the height of college admissions season.
3. Government benefits might be disrupted (but not Social Security payments)
Many federal benefits programs could be affected during a government shutdown, but Lautz wants to make one thing clear: “Social Security benefits will continue to flow.”
However, the actual administration of the program, including customer service and verification of eligibility, could be halted. The Social Security Administration says it expects to keep most of its staff on the job during the potential shutdown but will likely still furlough about 9,000 workers.
Social Security benefits are one example of “mandatory” government spending, meaning the government is obligated to pay out these benefits even during a shutdown. Medicare and Medicaid benefits are also mandatory.
On the other hand, food benefits through SNAP, Section 8 housing assistance and veterans benefits may be cut off during a government shutdown. New loans and grants from the Small Business Administration, which help small businesses nationwide, would also freeze.
4. Travelers could see flight delays and closed attractions
For travelers, the good news is that air traffic control and airport security continue during a shutdown, so wide-scale cancellations and delays should largely be avoided.
“But that’s not to say there aren’t potential interruptions,” Lautz says.
According to the nonprofit Committee for a Responsible Federal Budget (CRFB), some TSA agents and air traffic controllers did not report to work unpaid — even though they were supposed to — during the last government shutdown in 2019. That did cause some air travel delays, the CRFB says.
Folks traveling in March and beyond should also note that there could be unstaffed or fully closed national parks during a shutdown. Museums, galleries and zoos run by the federal government, such as the Smithsonian, may also be closed. Lautz recommends calling to confirm in advance.
5. The release of economic data may be held up
Among the long list of agencies that are hobbled by a government shutdown are ones that monitor and report on the economy, namely the Department of Labor’s Bureau of Labor Statistics and the Bureau of Economic Analysis.
These agencies regularly release data related to the nation’s gross domestic product, unemployment rates, inflation and more. Economists, businesspeople and policymakers — especially the Federal Reserve — rely heavily on this data to make decisions.
When the data is released, the stock market reacts quickly, so investors also carefully monitor this information. Under a prolonged shutdown scenario, Lautz says the release of these crucial data could be delayed — making some investing decisions more difficult.
“I can't predict how markets would respond to a government shutdown, but one thing I can say is that markets do not like uncertainty," Lautz says. "A government shutdown and the delay of this economic data that markets depend on could add fuel to that uncertainty fire.”
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