The Costs of a Shutdown

With a possible federal government shutdown looming in only a few short hours, it is worth noting some of the costs if such an action occurs. With a lot hanging in the balance, a shutdown could have some serious consequences.

Budgetary costs

A government shutdown will cost taxpayers money. This may seem counterintuitive at first, but the experience from previous shutdowns bears this out. A very basic estimate from the Office and Management and Budget (OMB) on the last government shutdown (which was actually two partial shutdowns in late 1995 and early 1996 that totaled 27 days) put the price tag at over $1.4 billion. As OMB deputy director Jeffery Zients said yesterday, "When you have to shut something down, that costs money, and ramping something back up costs money." For instance, government-funded construction projects around the country have to be stopped and secured, and when they are re-opened, started again. There will also be lost revenues -- various fees will not be collected and gift shops at places like Smithsonian museums and national monuments will be shuttered, though costs will still be incurred in securing these sites.

Salaries for furloughed government employees must also be considered. In previous shutdowns, federal employees received back pay for work days the government was closed, even though they did not work. The White House has already indicated it would request back pay for government employees if there is a shutdown. Plus, there will be costs associated with the loss of productivity as federal workers stay home.

Economic effects

There could also be some economic effects of a shutdown. Federal institutions like national parks can be significant sources of income for local communities, attracting tourists and business. Families of federal workers will likely restrict their spending due to the uncertainty of getting a paycheck. Government contractors and businesses that receive assistance from government agencies, such as the Small Business Administration, could see their business impacted as well.

It's also possible that, if long enough, a shutdown could also impair the fragile economic recovery. It is difficult to predict how a shutdown would affect market confidence, but with creditors increasingly becoming concerned about the ability of the U.S. to confront its mounting debt, an impasse resulting in a shutdown is only likely to compound those fears. As CRFB policy director Marc Goldwein explained in an article today, "the government shutdown will call into question whether politicians can raise the debt ceiling, and more fundamentally, whether they can deal with our long-term fiscal issues."

Political impact

A shutdown would also have costs that cannot be measured in dollars. The electorate already has a historically low opinion of Washington. A shutdown would worsen the sentiment. The lack of trust could make it even more difficult for policymakers to sell the public on tough measures down the road to get our fiscal house in order. The episode could also further sour the already poisonous political atmosphere among the parties, making bipartisan solutions more difficult to achieve.

A government shutdown could be expensive on many levels. Let's hope it can be avoided.