Two upcoming deadlines for early 2024 that trigger a partial or full government shutdown, especially given limited progress so far. The first deadline January 19 and the second is February 2. These two midnight deadlines impact a different sets of government agencies, so missing both would create shutdowns starting the following day. This could lead to payment delays to federal employees and severe disruption to many government services deemed non-essential.
Currently, the forecasting site Kalshi puts the chance of a January shutdown at around 30%. This is roughly in line with the forecast in the lead up to the September and November government shutdown deadlines. In both cases a bipartisan continuing resolution ultimately avoided any shutdown.
The current expectation is that a government shutdown is averted, similar to past deadlines in September and November. In each case a bipartisan continuing resolution temporarily funded the government.
However, once again, time is running short for politicians to broker a deal. Also, debates over immigration policy and on foreign aid regarding Ukraine and Israel may consume time that would otherwise be spent on the budgetary process.
Options To Avoid A Shutdown
A government shutdown could occur within weeks, but a continuing resolution or an omnibus bill would avoid it. Full budgets appear unlikely given the tight timeline and limited progress so far. The House and Senate have both passed some appropriations bills, but they are a long way from being reconciled. Specifically, the House has passed seven appropriation bills and the Senate three. There is also no top line agreement on the budget process which is normally a first step in getting to a budget. This is in part as House speaker Mike Johnson (R-La.) is not supportive of the broad budget agreement that was reached as part of the debt ceiling negotiations in summer 2023.
It’s also notable that Johnson in November called the prospect of an ominibus bill a “monstrosity”. He has also said that he is done with continuing resolutions, this raises the chance of a proposal for a stopgap measure that would impose 1% across the board cuts to the government’s budget.
The Impact
The first deadline at midnight on January 19 includes the following four appropriations area: Agriculture, Rural Development and the Food and Drug Administration; Energy and Water Development; Military Construction and Veterans Affairs; and Transportation, Housing and Urban Development.
Next on February 2 funding for the remaining eight appropriations areas would expire these are: Defense; Commerce, Justice and Science; Financial Services and General Government; Homeland Security; Interior, Environment and Related Agencies; Labor, Health and Human Services and Education; The Legislative Branch; and State and Foreign Operations
Government shutdowns lead to delays in pay for government employees, can cause severe disruption for government contractors. A shutdown would also pause many government functions. The exact impact of any shutdown is dependent on which government services are deemed essential and which are not. Hence, the impact of any shutdown lasing more than a few days would likely have an impact on economic growth and financial markets.
What To Expect
Currently, despite the tight timeline and lack of progress, it appears more likely than not that a government shutdown is once again averted. Still, politicians are still some way away from completing the budgetary process.