Why Was The Government Going To Shut Down 2023 - T-Tees - Your Answers Await, Life's Questions Unraveled

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For the fourth time since the fiscal year began Oct. 1, 2023, the federal government staved off a shutdown on the final day of the deadline by passing and signing a continuing resolution. The latest move extends deadlines established under a previous C.R. that separated the 12 appropriation bills that fund the agencies of the government into two tranches.

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Congress now has an extra week, until March 8, to get appropriations done for Military Construction-Veterans Affairs, Agriculture-Food and Drug Administration, Transportation-Housing and Urban Development, Energy-Water, Interior-Environment, and Commerce-Justice-Science.

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The funding for the remaining agencies continues until March 22, which includes Defense, Financial Services-General Government, Homeland Security, Labor-Health and Human Services-Education, the Legislative Branch, and State and Foreign Operations.

The latest C.R. bill passed the House by a 320-99 vote, while the Senate vote was 77-13. About 75,000 federal employees were facing furlough if the first deadline had not been extended, and overall, a full shutdown would impact millions of federal workers and military personnel, not to mention impact the businesses and their employees that rely on the presence and patronage of those individuals for their livelihoods.

Businesses and their employees should understand what a government shutdown is and how it might impact them.

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What is a Government Shutdown?

A government shutdown means the government can’t spend money that requires annual appropriations, which affects its ability to pay its employees and keep facilities and buildings open where those employees work. Some employees are considered essential such as air traffic controllers and would have to work without pay during the shutdown. Unlike previous shutdowns, however, the Government Employee Fair Treatment Act of 2019 entitles federal employees to backpay for as long as the appropriations are lapsed.

It should be noted that employees of federal contractors are not guaranteed backpay under this 2019 law, but a company can decide if they want to provide backpay to these employees.

What Agencies and Processes Would Be Affected by a Shutdown?

Here are some other closures or partial closures that could impact your business based on previous shutdowns:

Small Business Administration (SBA): This agency provides funding to small businesses to help as they start, maintain, and grow. These could be microloans, working capital loans, and more. Most of the SBA’s loan approval and processing would be unavailable during a shutdown.
Internal Revenue Service (IRS): All tax payments and filed returns will continue to be accepted as the IRS prepares for the upcoming tax filing season, but businesses should not anticipate that expected refunds will arrive until the shutdown ends. The exception to that is e-filed, error-free returns with direct deposit refunds.
- Expect delays in correspondence from the IRS.
- All IRS toll-free hotlines will be closed, impacting the ability to get a client EIN Verification via this method.
- The distribution of employee retention tax credit refunds, which was already experiencing delays, is expected to be further slowed.
E-Verify: The federal internet-based employment verification system will be unavailable for employers to complete the process, but businesses are still required to complete the Form I-9 for new hires. If your business is in a state that mandates the use of E-Verify, you should check with the state website for information, including on alternative methods for employee verification.
- Delays should be expected with onboarding new employees.

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Additional impacts should be anticipated in areas such as customer service, as non-essential functions will be eliminated and the number of employees on the job could be limited throughout a shutdown. On-site audits and food/environmental inspections might be put on hold by agencies such as OSHA, the Department of Labor, the National Labor Relations Board, and others.

Medicare and Medicaid are federal programs that are not subject to annual appropriations, but a shutdown could cause a disruption for participants. For example, there might be a delay in getting Medicare replacement cards and participants would be unable to make enrollment adjustments.

How Could Businesses Be Impacted by a Shutdown?

There are tangential impacts to consider such as the closing of national parks and national museums (e.g., Smithsonian) during a shutdown. If your business relies on the foot traffic of federal employees or tourists, especially around the corridor in Washington, D.C. and in other cities where federal money pumps in, cash flow could become an issue.

Air traffic controllers are considered essential employees but when some refused to work without being paid in a previous shutdown, issues arose for business travelers.

States might have to suspend their unemployment program and possibly find alternative sources of funding because federal unemployment funding to states will cease during a shutdown.

Although most shutdowns in U.S. history have not influenced the stock market because their durations were brief, a shutdown of significant length could shift the stock market. This would impact employee retirement plans (401k), as well as delay federal reports on job growth, housing starts, and other indicators that investors rely on to make decisions.

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Potentially, the most notable impact could be on the U.S. economy, which has steadily moved along following the pandemic. If people are not getting paid then, generally, consumer spending slows and that would trickle down to affect small businesses.

What Won’t Be Impacted by a Government Shutdown?

The list is small of federal agencies and processes that continue to function through a shutdown.

Social Security checks will go out to recipients.
- Social Security Administration will not issue Social Security cards.
- The Employee Services toll-free hotline will be unavailable.
Medicare open enrollment should not be impacted.
Medicaid enrollment is handled through individual states.
The U.S. Postal Service will continue to deliver the mail.
Members of Congress still get paid.

According to the contingency documentation from the Department of Health and Human Services, federal exchange activities will continue, which means individuals will have access to the healthcare marketplace.

What’s Next?

Accounting professionals should have conversations with their clients to gain a better understanding of each client’s financial situation and be prepared to offer any resources that might help.

Paychex continues to monitor the developments in Congress and will provide updates as they occur. We understand the challenges facing employers and offer educational resources and a variety of funding options to consider that might fit your business needs.

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