How the Prolonged Shutdown Will Affect Your Local Economy

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Following last night’s address from President Trump and the Democratic leadership response, National League of Cities (NLC) CEO and Executive Director Clarence Anthony released the following statement:

“Each day the shutdown continues, our residents suffer as it becomes harder to rebuild our infrastructure, assist low-income households and invest in community development. Countless local businesses that rely on federal services and facilities are also feeling the shutdown’s impact, jeopardizing the health of local economies.

The federal government shutdown is now in its third week with no sign that shuttered federal agencies could re-open soon. With the potential that this partial federal government shutdown could be the longest in history, there is a growing concern that the cost of the shutdown to the local and national economy could far exceed the billions the White House is requesting for the southern border wall. In fact, the U.S. Chamber of Commerce sent a letter to Congress on Tuesday that read, “we are hearing every day from businesses across the country, the adverse consequences of the shutdown are wide and growing.”

It is not clear yet what will be the final cost of a prolonged government shutdown but based on previous shutdowns in 1995-1996 (21 days) and 2013 (16 days), there could be long-term and devastating impacts on local economies.

A prolonged government shutdown could impact local economies by[1]:

  • Stopping work on thousands of federal contracts worth billions of dollars, which would also require federal contractors to furlough employees without pay.
  • Suspending the E-Verify program for local employers to check prospective employees’ immigration status. As of September 30, more than 560,000 employers have enrolled the E-Verify. These employers will not be able to hire employees until the E-Verify program is back up and running.
  • Stopping or limiting tourism and travel at national parks.
  • Suspending services for veterans, seniors and other “vulnerable” groups.
  • Suspending or delaying bankruptcy cases.
  • Delaying the issuance of Social Security cards, which would impact the ability of residents to get jobs.
  • Suspending or delaying safety inspections of foods, products, workplaces and mass transit systems.
  • Disrupting federal grant programs that provide funding for state and local governments to fund projects and provide services that benefit communities and individuals. Disruptions could include executing grant agreements, providing technical assistance, processing payments to grantees and investigating waste, fraud and abuse.
  • Suspending recruitment, training and testing of federal, state and local law enforcement officials.
  • Postponement of some federal court functions, such as civil cases. Federal courts may also operate on condensed criminal calendars and reduce building maintenance.

With no clear time table as to when the partial shutdown of the federal government will end, local officials need to prepare for the potential that, unlike previous shutdowns, this shutdown may have a more direct impact on their local economies. The impact could include losses in sales and income tax revenues, local businesses laying off workers or even some local businesses shutting down.

It is important for local elected officials to urge their Congress and the White House to re-open the shuttered agencies by passing the outstanding Fiscal Year (FY) 2019 appropriations bills. Resolving the stalemate over the border wall should not come at the expense of our local economies. A strong federal-local partnership to grow our nation’s economy depends on a well-functioning federal government that is open for business.

How is your community being impacted by the shutdown? Share how your residents and businesses could be harmed by sharing your story on social media using #shutdownstories and tagging @leagueofcities or emailing your story to advocacy@nlc.org.

Local Industries Impacted by Federal Government Shutdown

The real cost of a prolonged government shutdown could be most deeply felt by individuals and businesses in cities, towns and villages that are engaged in federally regulated occupations and industries. These individuals and businesses are required to apply for and maintain federal licenses to work and provide services and products. In addition, many businesses rely on the federal government to ensure the welfare of interstate and international commerce systems. The resulting impact of a long-term government shutdown to local economies could cost billions in economic development because of the difficulties local business and individuals may have in obtaining, updating or amending their federal permits and licenses and loans.

Industries that will be directly impacted by a long-term government shutdown are:

  • Housing – The Department of Housing and Urban Development (HUD) provides rental assistance to more than 5.6 million low-income households through 21 programs, including programs for elderly residents and individuals with disabilities. A prolonged shutdown could result in the inability of HUD to provide rental assistance to individuals and landlords, which in turn could lead to low income tenants being evicted.[2] In addition, HUD is required to perform regular building inspections for properties that receive HUD funding. These inspections could be suspended or delayed, which would result in dangerous living conditions for the most vulnerable and local income residents in a community.[3]
  • Home loans – HUD may suspend issuing new licenses to become a Federal Housing Administration (FHA) approved lender, which could result in delaying or canceling new home sales in cities, towns and villages.[4] In addition, lenders may cancel or delay closing on FHA loans during the government shutdown because of the limited number of FHA staff that will be available to endorse new loans. According to HUD “a protracted shutdown could see a decline in home sales, reversing the trend toward a strengthening market that we’ve been experiencing.”[5] In 2017, FHA endorsed more than 1.2 mortgages totaling $251 billion in principal loan balances.[6] In addition to HUD and FHA loans, the Department of Agriculture has stopped issuing new loans for rural development or grants for housing, community facilities and utility companies.
  • Small Business Loans – The federal government provides billions of dollars in small business loan guarantees and programs. The Small Business Administration (SBA) has suspended applications for small business loans. In 2017, SBA approved over 68,000 loans that provided over $30 billion to small businesses. If small businesses and individuals are not able to get loans or make changes to existing loans, the impact to local economies could be overwhelming.
  • Transportation and freight – Any business that operates an oversized or overweight vehicle that is regulated and/or licensed by the Department of Transportation (DOT), including more than 8 million single-unit trucks, 2.7 million tractor-trailers and nearly 900,000 buses, could be impacted by a long-term government shutdown.[7] Local economies and business depend on having a safe and efficient transportation and freight delivery system regulated by federal and state governments. Any disruptions to the system could have a severe impact, not only on the private and public transportation and freight industry, but to all businesses and individuals that depend on them.
  • Environment – An extended government shutdown could result in the suspension or delay of applications for federal licenses, permits or inspections of local businesses and individuals that operate or are employed by industries that are regulated by the Environmental Protection Agency (EPA). Some of the local businesses that are regulated by the EPA include water, wastewater and waste management, pesticides, refrigerant production and recycling, motor vehicle engines and equipment performance, and others.
  • Agriculture – Any business that imports or transports animals, animal products, biologics, biotechnology or plants may be impacted by suspension or delays in permitting for the import, transit and release of regulated animals, animal products, veterinary biologics, plants, plant products, pests, organisms, soil and genetically engineered organisms.
  • Alcoholic beverages – Any business that manufactures, wholesales, imports or sells alcoholic beverages could be severely impacted by a long-term government shutdown, as the shutdown will suspend or delay the Alcohol and Tobacco Tax and Trade Bureau from processing, renewing or modifying applications to operate an alcohol-related business. In 2016, the alcohol retailers accounted for $295 billion in economic activity, paid $25.3 billion in federal taxes, and employed 1.94 million people.[8]
  • Aviation – Any business that operates aircraft, transporting goods or people via air, or provides aircraft maintenance could be impacted by a long-term government shutdown. Aviation accounts for more than 5% of our Gross Domestic Product, contributes $1.6 trillion in total economic activity and supports nearly 11 million jobs. Aviation manufacturing continues to be the nation’s top net export.[9]
  • Commercial fisheries and wildlife – Any activity related to fishing, hunting and import or export of wildlife could be impacted by the ability of the federal government to process or modify applications for licenses for commercial fishing, hunting and export and import on wildlife and related products. In 2015, the U.S. commercial fisheries generated $208 billion and supported 1.6 million full and part time jobs[10] while hunters accounted for $26 billion in economic activity.[11]
  • Maritime transportation – Any business that provides ocean transportation or facilitates the shipment of cargo by sea may be impacted by the ability of the federal government to properly regulate, inspect and provide the appropriate permits and licenses to operate and maintain their fleets. According to the American Maritime Partnership, the annual economic contribution for the U.S. maritime was responsible for almost 500,000 jobs and nearly $100 billion in annual economic output.[12]
  • Mining and drilling – Any business that is involved in drilling for natural gas, oil or other mineral resources on federal lands could be impacted by an extended government shutdown. In 2017 the mining industry accounted for more than 1.5 million jobs and contributed more than $217 billion to the U.S. economy, while the gas and oil drilling industry accounted for 10.3 million jobs and $1.3 trillion in economic activity.[13]
  • Tourism – The State Department issued a notice that passport and visa services will remain open as long as there are sufficient fees to support them, but a prolonged government shutdown could impact future issuing of passports and visas. In addition, domestic passport agencies that are in federal government buildings may be closed to the public, which will make it harder for people to renew or apply for new passports. More than 76.4 million international visitors came to the United States in 2016[14], which resulted in $503 billion in direct economic activity and contributed to nearly 5.5 million jobs.[15]
  • Nutrition and Retail – More than 39 million people and 20.1 million households[1] that rely on the Department of Agriculture’s Supplemental Nutrition Assistance Program (SNAP) could lose their food stamps benefits if the government shutdown continues beyond February. In addition to millions of people going hungry, local grocers and retailers could lose millions in sales that are subsidized by the SNAP program.

For more resources on the shutdown, visit www.nlc.org/shutdown.

[1] https://fas.org/sgp/crs/misc/RL34680.pdf

[2] https://www.hud.gov/topics/rental_assistance

[3] https://www.hud.gov/program_offices/public_indian_housing/reac/products/prodpass

[4] https://www.hud.gov/program_offices/housing/sfh/lender/lendappr

[5] https://www.hud.gov/sites/dfiles/Main/documents/GENERALFAQS.pdf

[6] https://www.hud.gov/sites/dfiles/Housing/documents/2017fhaannualreport.pdf

[7] https://www.fmcsa.dot.gov/sites/fmcsa.dot.gov/files/docs/safety/data-and-statistics/81121/2017-pocket-guide-large-truck-and-bus-statistics-final-508c-0001.pdf

[8] https://www.ablusa.org/americas-beer-wine-spirits-retailers-create-1-94-million-jobs-and-295-billion-in-economic-impact/

[9] https://www.faa.gov/air_traffic/publications/media/2016-economic-impact-report_FINAL.pdf

[10] https://www.fisheries.noaa.gov/resource/document/fisheries-economics-united-states-2015-fact-sheet

[11]https://www.census.gov/content/dam/Census/library/visualizations/2016/demo/fhw16-qkfact.pdf

[12] https://www.americanmaritimepartnership.com/u-s-maritime-industry/economic-security/

[13] https://www.api.org/~/media/Files/Policy/Jobs/National-Factsheet.pdf

[14] https://www.ustravel.org/system/files/media_root/document/Research_Fact-Sheet_International-Inbound.pdf

[15] https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2017/unitedstates2017.pdf

About the Author: Yucel (“u-jel”) Ors is the program director of public safety and crime prevention at the National League of Cities. Follow Yucel on Twitter at @nlcpscp.