A partial government shutdown could begin at midnight on January 19 without action to avert it. So far budgetary progress has been limited and time is running short. However, in both September and November 2023 action to avoid a shutdown was taken very close to the deadline.
White House budget direct Shalanda Young said on Friday, January 5 that, “I wouldn’t say pessimistic but I’m not optimistic,” regarding a deal to avert a government shutdown. However, markets currently set the chance of a shutdown at around 1 in 3, suggesting that a shutdown will most likely be avoided according to event forecasting site Kalshi.
However, it’s unclear what action will be taken to avoid a shutdown. House speaker Mike Johnson (Rep-La.) in a November statement called the prospect of an omnibus bill to broadly fund the government “a monstrosity” and has also signalled reluctance to pass another short-term continuing resolution to fund the government. He is also dealing with the challenge of a thin Republican majority.
Of course, there is full budgetary process as a path to fund the government, but time may be running out to complete that before the upcoming deadlines. Pressure to tie the budgetary progress to border security or foreign aid may complicate budgetary negotiations further.
What Is A Partial Government Shutdown?
The risk of a partial, rather than full, government shutdown is a reflection of the continuing resolution passed in November 2023. That continuing resolution took an unusual approach funding different appropriations areas for different lengths of time.
The areas that could potentially see funding potentially expire at midnight on January 19 are as follows: Agriculture, Rural Development, and the Food and Drug Administration; Energy and Water Development; Military Construction and Veterans Affairs; and Transportation, Housing and Urban Development. Then the remaining eight appropriations areas would see funding potentially expire on February 2.
Therefore, certain government agencies might see a January government shutdown while other agencies would continue to operate normally, at least until February 2. If there were no budgetary progress by February, then a full budget shutdown would potentially result.
The Economic Impact
A partial government shutdown would mean that impacted federal employees would not receive a paycheck until any shutdown ends. However, at that point they would receive back pay.
Non-essential and unfunded activities of impacted government agencies would also be shut down causing additional disruption. Government contractors typically see additional disruption. Historically, government shutdowns have been brief, in part, because the economic impact can be severe. Even a delayed paycheck can be a major disruption to many households.
It still seems most likely that a government shutdown is averted, according to forecasting markets, but time is once again tight.
Ironically, the prospect of a partial government shutdown, which is smaller in scope and therefore smaller in its economic impact could make a shutdown perhaps more likely this time around than in September or November 2023. However, once again, any deal to avoid a shutdown could come at the last minute.