What happens during a government shutdown?

The U.S. government faces a shutdown on Oct. 1 unless Congress passes a spending bill to keep the government funded.

Ed Jenkins, professor of practice in accounting at Penn State, explains in the Q&A below what a government shutdown is and what it means for American citizens and residents who rely on services like Medicare and Social Security.

What is a government shutdown? How often do shutdowns happen in the U.S.?

The government actually shuts down frequently. Members of Congress are supposed to pass a budget by Oct. 1, but Congress hasn’t passed a budget on time since 1997. When I say pass a budget, it’s really 12 separate appropriations bills that Congress needs to pass each year to authorize the president, who is charged with administering that budget, to spend the money. A shutdown happens when Congress fails to pass, and the president fails to approve those 12 appropriations bills.

Congress often uses something called a continuing resolution, or a CR, which says that the government will keep funding levels where they are for another seven or eight weeks. A CR passed now would get us through October and about three quarters of the way through November, just before Congress’ holiday break. The U.S. House has passed a continuing resolution, but the Senate has said, no, we’re not doing that. Hopefully, the Republicans and Democrats reach an agreement on some kind of continuing resolution.

What government services would a shutdown affect?

The Office of Management and Budget has issued a massive guidance document that explains the government budget process, including what happens to staffing levels and how the government spends money when there is either a shutdown or a continuing resolution. Each agency needs their own contingency plan—which are pretty extensive—for a whole host of things, like shutdowns, natural disasters, etc. For example, the Internal Revenue Service has a contingency plan for lapsed appropriations that is hundreds of pages long to guide how we keep our revenue coming in and how we serve taxpayers if everybody gets furloughed.

In general, hundreds of thousands of federal employees deemed non-essential—like lawyers and accountants—will be sent home without pay. Essential workers—such as active-duty military or airport security officers—are required to work, unfortunately unpaid, until the funding resumes. Contractors are typically not compensated for missed time. So, this shutdown, if it happens and if we don’t get a continuing resolution, will be pretty invasive in every American’s life.

Now, when a family doesn’t get paid, the mortgage, utility bills or the rent doesn’t get paid. That means unless you have a contingency fund—we in the personal financial planning world suggest that you should always have 6 to 12 months of all of your expenses in a relatively liquid savings account—you’re not making those payments, and you’re not putting food on the table.

How does a shutdown impact programs like Medicare and Medicaid? What about Social Security?

Medicare and Medicaid continue to operate because they’re funded through mandatory spending. Public health programs, the Centers for Disease Control and Prevention, and the National Institutes of Health may pause their research, but their emergency response functions will continue because they’re deemed to be essential. The Food and Drug Administration, which falls under Department of Health and Human Services, may delay or suspend inspections because they may be furloughing employees deemed non-essential.

Social Security will continue. That’s federally funded by law, and so that business is going to continue as normal with respect to benefits. But you can expect delays for customer service.

With the Oct. 15 deadline approaching, how might a shutdown affect tax filings and returns for individuals who filed extensions?

At the IRS, all the things like taxpayer services and audits are going to be paused. Essential operations like revenue collection will continue. The IRS has been working hard to get that automated so that collections continue without people, but they have over 90 computer systems some of which are written in an obsolete programming language—Common Business-Oriented Language, or COBOL, which was developed in 1959. Funding from the Inflation Reduction Act was intended to fix these systems, but that funding was clawed back, so those upgrades were never finished. So, your tax return is not going to be processed unless the return is e-filed.

What can the average person do to make a government shutdown less stressful?

So many households in the U.S. don’t have the stability and don’t have enough money saved to withstand a shock to their system: the loss of a job, a sick spouse, a parent in trouble who needs help. We don’t have the wherewithal and the stability to handle those disruptions in our life. And artificial intelligence and automation are changing the nature of work very rapidly. We need to be prepared for disruption. Your basic tool for being prepared for any disruption—a shutdown or losing your job—is to have 6 to 12 months of cash saved in an account that you can access quickly. Starting to save money now, even if just a little bit each month, to get to that 6 to 12 months of contingency savings can help individuals weather disruptions.

Second, you need to understand what your inflows and outflows are. A budget lets you make informed decisions and understand what you have to pay and what you don’t have to pay immediately. Also, start talking right away to the people to whom you owe money—your mortgage lender, your landlord, your utility companies. The shutdown affects all of us and opening communication will help get you the best chance at a favorable outcome.