NC Budget and Tax Center

Government Shutdown is Bad for the Economy

Shutting down the government is bad for the economy and for the public that benefits from a broad array of public services.  That said, some of the conditions that are under consideration by House Republicans as a price for ending a shutdown would be worse for families and for states than the shutdown itself.

As Sarah Ovaska reports, the state level details are only just beginning to take shape.  For families struggling to make ends meet, federally funded programs provide support to feed their children, secure child care, and have resources to pay for other basic necessities like housing. Mandatory programs, such as Medicaid and Social Security, are not affected during a government shutdown. Among the programs that could be affected beginning in October are:

  • Early childhood programs delivered through Head Start programs and child care subsidies
  • Financial support for families facing economic hardship delivered through Work First
  • Nutritional food for infants and children delivered through WIC

After October, additional impacts to SNAP, food stamps, are possible.

While the federal government will not award any new funding for these programs, states likely have some leftover funds from the previous year to help as a temporary fix. The length of the shutdown matters. Once those dollars dry up, states have to front the money—perhaps by turning to rainy day funds if they exist—or turn people away from services.  In the current economic environment and with high levels of hardship, further reductions to services will only serve to make worse families’ challenges and harm local economies.

In North Carolina, legislators elected to put $232.5 million dollars in the rainy day fund for the 2014 fiscal year, bringing the total balance to more than $600 million. Governor McCrory said, “We’ve got to make sure that functions that are critical remain open and yet, at the same time, we have to make sure we aren’t spending money the state doesn’t have.” Rather than turning vulnerable families away from the services that they need (if it comes to that), North Carolina has the option to offset the pain by dipping into the rainy day fund in anticipation that the state will be reimbursed by the federal government.

Again, the consequences of a shutdown grow over time.  And just as low-income families face significant losses, hundreds of thousands of federal employees will not have a paycheck.  These furloughs will disproportionately impact workers from communities of color who represent a larger share of the federal government workforce and still face double digit rates of unemployment. Public services that we all enjoy will also be shuttered.  The impacts on the economy have been well-documented based on past shutdowns and in this case through lost wages and fewer services it has never been clearer that the public sector provides is an integral part of the economy.

Instead of shutting down the government or further cutting these important investments, Congress needs to pass a budget for 2014 that includes new revenues.

 

One Comment

  1. Jack

    October 3, 2013 at 10:50 am

    As a vet to soon receive chemo therapy for colon cancer at the Durham VA Medical Center I can’t help but be worried that this government shutdown will in some way interfere with my up coming treatment. For me to have a chance for a good outcome treatment must start on a specific date and continue uninterrupted for six months.