The Meaning for Nonprofits of a Federal Government Shutdown

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February 27, 2011; Source: PressTV | The White House and Congress are going to do all they can to avoid a shutdown of the federal government on March 4, or so we’re told. But it isn’t clear a compromise is imminent. So then, what happens when the government shuts down?

A shutdown could result with the simple failure to raise the federal debt ceiling. Republican leaders in the House have made raising the debt ceiling contingent on the White House agreeing to budget cuts. And hardline conservatives have suggested linking the debt ceiling to minor concessions such as killing health care reform (or at least the funding for it).

A perhaps more palatable compromise is in the works which could result in a plan to keep government operating, although some Senate Democrats are balking at the quid pro quo cuts that House Republicans are proposing.

But let's assume that the deal that the two sides might reach this week is only a temporary one. What happens as a result of a budget shutdown? "Non-essential functions" of the federal government would be halted because of the lack of authorized funding in an approved federal budget, or as we currently have, a soon-to-expire continuing resolution. Federal employees of those programs and others would be furloughed, resulting in the closing of national parks and museums, even the temporary layoffs of a number of ICE border patrol agents.

For nonprofits, projects and programs connected to federal agencies would stagnate –rural development projects through the Department of Agriculture, processing of housing subsidies through the Department of Housing and Urban Development, and mortgage insurance through the Federal Housing Administration. Just name the program that wouldn't be considered essential, and it would be at risk.

But there is one much bigger, immediate problem for nonprofits. A Congressional Research Service study (PDF) of the 1996 shutdown (which furloughed about 800,000 employees) suggested that in the Washington D.C. area alone, 20 percent of federal government contracts were "adversely affected." By that, we think the CRS meant that checks weren't processed and payments and reimbursements weren't made.

The governors have also warned that a federal government shutdown would reverberate through state budgets and contracts, resulting in more delayed contract payments and state program cutbacks. For nonprofits with government contracts – typically paid late and insufficiently – a federal government shutdown would be one more body blow to their fragile budgets.—Rick Cohen