A Federal Government Shutdown Will Hit Nonprofits Where It Hurts

April 7, 2011; Source: CNN | If Senator Reid and House Speaker Boehner don’t cut a deal today that passes White House muster, the federal government shuts down tonight at midnight. It happened twice in the stand-offs between President Bill Clinton and then Speaker Newt Gingrich, from November 14 to 19 in 1995 and between December 16, 1995 and January 6, 1996.

The Congressional Research Service has published a brief report (PDF) on what happened during those 5-day and 21-day shutdowns in a search for lessons relevant to a 2011 shutdown. The report enumerated lots of the programs that shut down in 1995 and 1996 of relevance to nonprofits, but what specifically happens when the government shuts down is a matter of interpretation – what government functions are essential versus those that are non-essential, what functions are subject to potential closing due to their being dependent on annual appropriations versus those that are funded by entitlements, and other subjective decisions will be made.

As information slowly seeps out of the Obama Administration about what the agencies will do in a shutdown, some issues of importance to the nonprofit sector will be affected as 800,000 “non-essential” federal personnel  are furloughed:

  • National parks will close and national monuments and museums won’t reopen.
  • IRS processing of paper tax filings and refunds will cease.
  • Toxic waste clean-up activities will grind to a halt.
  • Although U.S. military personnel in Afghanistan and Iraq will continue on the job and earn income, they won’t receive paychecks, but most health and welfare services for veterans will cease.
  • Small Business Administration loan processing will stop.

With a brief shutdown, some of these functions might elicit ho-hum responses, but other shutdown dynamics might hit nonprofits where they are vulnerable:

  • In the 1995 and 1996 shutdowns, payments to federal contractors affecting approximately 20 percent of the dollar volume of contracts were “affected adversely by the funding lapse” according to the CRS. Nonprofits know what that means. Grant awards and contract reimbursements will be delayed – on top of those already delayed, as NPQ has reported.
  • And the pain will spread to the states. Many state and local program staff are partially paid for by federal dollars. As those payments slow and stop, state governments will either have to temporarily replace federal dollars with their own resources, in short supply, or simply lay people off and shutter programs. As a result, federal grant and contract payment delays will add to delays for nonprofits at the state and local levels.

The really important question is, “How long a shutdown.” The longest ever was 20 days. A short one will hurt, but a protracted shutdown will leave nonprofits and the communities they serve badly damaged.—Rick Cohen