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How a Federal Shutdown Could Affect Americans

It's easy to see why both sides in the Washington budget battle agree—publicly, at least—that they don't want to see the government close down. When federal agencies were shuttered twice, for a combined 27 days, during 1995 and 1996, unemployment and welfare checks stopped, overseas travel was disrupted, economic reports went dark, and home loans were put on hold. House Republicans received the blame and later paid the price in the election booth.

The Obama Administration isn't saying what exactly it will do if the federal government runs out of funding on March 4. Officially, lawmakers insist they will reach at least a temporary agreement on funding levels before then. House Republicans plan to vote next week on a two-week funding extension that would cut $4 billion, while Senate Majority Leader Harry Reid (D-Nev.) has proposed a 30-day extension that maintains current funding. "As the congressional leadership has said on a number of occasions and as the President has made clear, no one anticipates or wants a government shutdown," said Kenneth Baer, a spokesman for the Office of Management and Budget in a statement. Baer further said that the OMB, which would decide which employees to send home if funding stops, "is prepared for any contingency."

The political impact of the 1995-1996 shutdowns was so significant that Roy Meyers, a political science professor at the University of Maryland Baltimore County, says he is surprised that it has become even a possibility again, given the blame Republicans took in opinion polls at the time. Later in 1996, House Republicans lost nine seats to Democrats and Democratic President Bill Clinton was reelected with an 8.5 percentage point popular vote margin.

"The federal government's activities are so wide-ranging it would be a tremendous effort to estimate its impact," says Meyers, who has written about the 1995-1996 shutdowns.

Pentagon, Prisons, and Postal Service

The federal government would never entirely close up shop. Even without funding, the Defense Dept. would remain open. Air-traffic control would continue, as would border patrol, the operation of federal prisons, disaster assistance, and medical care, according to a Feb. 18 Congressional Research Service report. Agencies with funding other than that provided by annual congressional appropriations could also continue, such as the U.S. Postal Service. Beyond a few exceptions—job functions that "protect life and property," according to a July 2010 OMB memo—federal employees can't otherwise work if they're not funded.

The best guide for what consumers of government services can expect came in the last shutdown—the longest in U.S. history. After President Bill Clinton and a Republican Congress couldn't agree on spending, the government twice ran out of funding: from Nov. 14-19, 1995, and from Dec. 16, 1995 to Jan. 6, 1996.

About 285,000 federal employees were sent home without pay and a further 476,000 were forced to work without pay. Clinton said on Jan. 20, 1996, that the shutdowns had cost the federal government a total of $1.5 billion, or $2.1 billion in today's dollars—a number that does not include indirect costs. (The total nonmilitary federal workforce has fallen from 2.92 million at the end of 1995 to 2.84 million at the end of 2009, according to the U.S. Office of Personnel Management.) When the shutdowns ended, all employees had back salaries paid.

Benefit Slowdowns or Outright Cuts

Here is just a sample of the services and benefits that were affected, according to Congressional Research Service reports:

• A shortage of federal funds eventually led 11 states and the District of Columbia to stop providing unemployment benefits when they couldn't or wouldn't fill the gap with their own funds. Other benefits were slowed or stopped entirely: Veterans stopped receiving some payments, including insurance death claims and checks for education provided by the GI Bill. Delays hit recipients of federal welfare programs and adoption-assistance services, along with children in foster care and in the Head Start early childhood program. The Bureau of Indian Affairs closed, cutting off assistance payments to 53,000 people, while about 25,000 American Indians also stopped receiving checks for oil and gas royalties.

• About 200,000 Americans were left waiting for new passports after the State Dept. stopped processing applications. Visa applications by foreigners were left unprocessed, stacking up at a rate of 20,000 to 30,000 per day.

• Government economic reports that investors watch closely were stopped. Reports that might be blacked out this time include the January trade balance on Mar. 10 and data on February housing starts and building permits, due out on Mar. 16.

• Work on 3,500 bankruptcy cases was suspended. About half the employees of the Small Business Administration were placed on furlough, leading to 260 small businesses not receiving loans each day, according to a White House summary written in January 1996.

• National parks, national forests, and other federal monuments and museums were shut. In January 1996, Bloomberg News reported that kayakers and rafters were cut off from the Colorado River because they couldn't get permits.

• While federally funded health care such as Medicare continued, the National Institutes of Health stopped accepting new patients in clinical research programs. The Centers for Disease Control halted surveillance of diseases such as HIV/AIDS and influenza.

• The government temporarily closed the Federal Parent Locator Service, which helps find parents who are delinquent in making child support payments.

A Dearth of Export Licenses?

A government shutdown could hinder exports. In late 1995 the government stopped granting export licenses, valued at $30.5 million per day, along with $92 million per day in licenses to export technology. Financing by the federal Export-Import Bank also stopped.

The housing market could be hampered even further by a shutdown. In 1995 and 1996, the government closed the Federal Housing Administration, which insures mortgages, delaying 10,000 home loans that totaled $800 million.

The FHA's importance has grown significantly since private mortgage insurers were slammed in the subprime mortgage crisis. The FHA insured about 13 percent of the value of single-family home purchases in the past year, double its market share during the 1995 fiscal year. An FHA spokesman declined to comment on how a shutdown would affect the agency.

A shutdown could also hamper the work of energy companies. In 1995 and 1996, the Minerals Management Service closed and was unable to grant approval for oil and gas drilling repairs.

A wild card this year is a shutdown's potential effect on tax refunds, given the proximity to the filing deadline of Apr. 18 (delayed because of a District of Columbia holiday). On one hand, federal guidelines written in 1981 protect from closure the "borrowing and tax collection activities of the Treasury." On the other hand, in 1995 and 1996 the Internal Revenue Service suspended its investigative activities and delayed the processing of some tax returns.

Would Social Security Payments Halt?

Many Americans may be concerned that Social Security benefits won't be made available because of comments by President Barack Obama at a Feb. 15 press conference. In a government shutdown, "People don't get their Social Security checks," Obama said before he listed further effects of a funding halt.

During the 1995-1996 shutdowns, Social Security checks continued to be mailed out. Because the social insurance program receives permanent funding from Congress, the actual cash in benefit payments was not at issue. Open to interpretation, however, is whether the government can continue to employ the workers who mail out those checks. In 1995-1996, the Social Security Administration initially furloughed 61,415 employees, leaving just 4,780 on the job. Soon, however, the agency realized it needed more workers to process new benefits, field phone calls, and update addresses. Almost 50,000 workers were called back to work.

A decision to shut down most of the Social Security Administration again would have huge political implications, says Ron Haskins, a senior fellow at the Brookings Institution who served as a Republican staff member at the House Ways and Means Committee during the mid-1990s.

"If Social Security checks didn't go out, that would be a huge problem," Haskins says. With millions depending on those checks to live, "all hell would break loose."

Steverman is a reporter for Bloomberg News in New York.

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