In Brief:
- With the shutdown that began Wednesday, the federal government will stop providing funding for welfare for needy families and food assistance programs, among many other programs.
- Residents will look to state and local governments to maintain support, but these entities may not be able to make up the difference.
- In contrast to past shutdowns, it’s less certain state and local governments will eventually be reimbursed for maintaining mandatory programs.
State and local governments have endured federal shutdowns before, but this one is different in key ways.
We may be in an era when shutdowns, when they happen, will last exceptionally long. The last one took place during President Donald Trump’s first term in late 2018-early 2019 and lasted a record-breaking 35 days.
Secondly, essential federal agencies are expected to create contingency plans detailing how they’ll keep running absent federal funding. This time, however, some agencies have not updated or publicized such plans.
And finally, a shutdown typically sees federal workers put on unpaid leave or compelled to work without pay, with the understanding they will be given back pay once the shutdown ends. But the Trump administration has indicated it will permanently lay off some workers involved in programs “not consistent with the president’s priorities.”
State and local governments are going to see the shutdown pinch their budgets at a time when federal funding and staffing reductions are already causing strain, says Lisa Parshall, a fellow at the Rockefeller Institute of Government and a political science professor at Daemen University.
“You're going to see citizen demand on state and local government start to rise,” Parshall says. “There will be some immediate service and funding lapses for state and local government assistance, particularly in health, human services, agriculture [and] housing,” Parshall says. “That is going to add to the already existing pressure on state and localities.”
Budget Uncertainty
States and localities may need to shift around their budgets to cover some services the federal government won’t be supporting. States and localities without big enough reserves to cover the gap may need to take on more debt. Many major cities are already under financial strain and counties, which often receive federal funding for social support programs, are especially likely to feel the strain.
“Local governments may face interruptions in federal agency coordination, delays in crucial grant funding and overall uncertainty for a wide range of community programs,” said Athens, Ohio, Mayor Steve Patterson, the president of the National League of Cities, in a statement.
The economic impact will be greater on areas with many federal workers. Areas with national parks and museums or other federal properties that bring in tourism will also feel a bite, although the National Park Service intends to keep some parks partially open during this shutdown.
Other Affected Parties
Farmers will face disruption of federal supports, including farm loans and assistance payment programs — potentially including $2 billion slated to go out this week.
The Federal Emergency Management Agency also is left with limited funding available to support state and local governments should a crisis hit. During previous shutdowns, the Department of Housing and Urban Development switched to minimal staffing, and a prolonged shutdown could affect low-income housing support. That includes by pausing new loans for affordable housing developers and halting renewals of the contracts for property owners to make units available for Section 8 low-income rental subsidies.
Will States Get Paid Back?
On Oct. 1, federal funding authorization expired for some mandatory programs that are not funded through the appropriations process. These include initiatives such as Medicare enrollment assistance and Temporary Assistance for Needy Families (TANF), which provides aid to low-income families with children. In the past, states that had unspent money from a program’s prior year allocations were able to draw on those funds during shutdowns. They also continued providing any state-level match or maintenance-of-effort requirements for programs they co-funded with the federal government, according to a budget brief shared by Federal Funds Information for States (FFIS). The National Association of Counties says that during this shutdown states will be able to support TANF using unspent funds and maintenance-of-effort money, “however the ability of states to sustain TANF funding may vary based on their financial situations.”
States will see no new funding for most mandatory programs funded through the appropriations process, although they are entitled to reimbursement later, according to FFIS. Still, Parshall says there’s “less certainty this time around about whether those reimbursements will come through and [in] what kind of a timely fashion,” especially for liberal jurisdictions. If states opt to continue discretionary programs, Congress typically decides on a case-by-case basis whether to pay them back, per FFIS.
Reimbursable programs that are suddenly seeing their funding cut off include several that provide food assistance; a federal block grant that states use to provide social services; grants states use to operate vocational rehabilitation programs; and an initiative intended to prevent child maltreatment. The Supplemental Nutrition Assistance Program is expected to have enough funding to continue paying benefits in October, but the Women, Infants and Children food program could run out of money sooner.
