Bloomberg News

First U.S. Shutdown in 17 Years Imminent With No Talks

September 30, 2013

Shutdowns

In this Nov. 14, 1995, file photo, Mike Fetters posts a closed sign on a door at the Smithsonian's Air and Space Museum in Washington as parts of the federal government were shutdown due a federal budget impasse between President Clinton and the Republican Congress. Photographer: Doug Mills/AP Photo

The U.S. government stands poised for its first partial shutdown in 17 years at midnight tonight, after a weekend with no signs of negotiations or compromise from the Congress or the White House.

House Republicans, led by Speaker John Boehner, want to delay President Barack Obama’s Affordable Care Act for a year and make other changes to the law. Democrats, led by Obama, say that won’t happen. Republicans and Democrats say they don’t want to close the government, though neither side is budging from their positions.

Obama will meet with his cabinet this afternoon as agencies prepare for a shutdown, and plans to reiterate to reporters that he won’t give in to Republican demands over the health law, according to an administration official who asked for anonymity to discuss White House strategy. Hanging in the balance are 800,000 federal workers who would be sent home if Congress fails to pass a stopgap spending bill before funding expires tonight.

“I’m afraid, based on what Speaker Boehner has said so far, that we are going to look at a shutdown,” Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, said today on Bloomberg Television.

Stocks Fall

Concern that a shutdown will stunt economic growth sent stocks lower today, trimming the biggest quarterly gain since the start of 2012, while Treasuries rallied and the Japanese yen strengthened before a potential shutdown. The Standard & Poor’s 500 fell 0.5 percent to 1,682.63 at 10:37 a.m. in New York.

Crude oil traded near its lowest level in three months. West Texas Intermediate oil fell as much as 1.7 percent.

The fallout in U.S. government services would be far-reaching: national parks and Internal Revenue Service call centers probably would close. Those wanting to renew passports would have to wait and the backlog of veterans’ disability claims could increase.

The political implications are much less clear. Democrats are painting Republicans as obstructionists who are trying to undo a law passed by Congress and upheld by the Supreme Court. Republicans say they are trying to save Americans from the effects of law, known as Obamacare, and that Democrats won’t negotiate.

Public Sentiment

A Bloomberg National poll conducted Sept. 20-23 shows Americans narrowly blame Republicans for what’s gone wrong in Washington, just as they did when the government closed in 1995 and 1996 -- two of the 17 times U.S. funding stopped since 1977. A CNN/ORC International poll conducted Sept. 27-29 and released today said that 46 percent of respondents would blame congressional Republicans for a shutdown, while 36 percent would say the president was responsible.

The Senate convenes at 2 p.m. today and is set to reject the House’s latest plan to delay Obamacare and repeal a tax on medical devices, and send back a temporary spending measure.

“I still hold out a small hope that Republicans will come to their senses,” Senator Charles Schumer of New York, the chamber’s third-ranking Democrat, said today on MSNBC’s “Morning Joe” program.

“There aren’t any Republicans talking about shutdown,” Senator John Thune, a South Dakota Republican, told Bloomberg Television’s Peter Cook. “We want to fund the government.”

Shift Blame

House Republicans said they’ll respond by again asking for changes to Obamacare and spent yesterday trying to shift blame for a shutdown to the Democrats.

Representative Kevin McCarthy of California, the No. 3 House Republican, didn’t rule out the possibility of passing a spending measure that lasts a few days to give the parties time to negotiate -- if Democrats are prepared to go along with some Republican efforts to trim back Obamacare.

“We will not shut the government down,” McCarthy said on the “Fox News Sunday” program. “If we have to negotiate a little longer, we will continue to negotiate.”

Even that option seemed unlikely, as Democrats have said they aren’t interested in changes to Obamacare, first passed by Congress in 2010.

House Republican leaders don’t expect to have enough party support for a measure that only extends federal spending, according to a leadership aide who spoke on condition of anonymity to discuss strategy.

Member Benefits

If that’s what the Senate passes today, a likely option for House Republicans to attach to the spending measure is a provision ending the government’s contribution to health insurance for Congress members and their staffs, the aide said.

Trying to push Senate Democrats into action, about 20 House Republicans gathered yesterday in front of the Senate side of the U.S. Capitol and accused Democrats of wanting a standoff to score political points.

“This is the old football strategy,” Representative Tim Griffin, an Arkansas Republican, said holding a football. “When you get to where you want to be in a football game, you run out the clock.”

In a government shutdown, essential operations and programs with dedicated funding would continue. That includes mail delivery, air-traffic control and Social Security payments.

A shutdown could reduce fourth-quarter economic growth by as much as 1.4 percentage points, depending on its duration, according to economists. The biggest effect would come from the output lost from furloughed workers.

Debt Limit

A brief government closure won’t lead to any significant change of the Treasury Department’s forecast for when the U.S. will breach the debt limit, a Treasury spokeswoman said yesterday in an e-mail. The Treasury has said measures to avoid breaching the debt ceiling will be exhausted on Oct. 17.

Greg Valliere, chief political analyst for Potomac Research Group Holdings in Washington, told Bloomberg Television today that “a shutdown is not the issue” because default is more important.

“If we even talk about default, if we come within a day or two of default, that’s a terribly negative story for the overall economy,” he said.

Adding up a looming government shutdown and the potential for a default is “massive uncertainty for at least another month, and markets don’t like uncertainty,” he said.

‘Safe Haven’

Treasuries “are a safe haven, for now,” but even bonds “could start to become suspect if we get into mid-October with a possible debt-ceiling crisis,” Valliere said.

“I’m very worried about default, much more than 2011,” the last time the parties battled over taxes and spending, David Plouffe, a former senior adviser to Obama, told Bloomberg Television today.

The White House yesterday released a photo of Obama meeting with his top staff, including Treasury Secretary Jacob J. Lew and budget director Sylvia Mathews Burwell.

Because Republicans hold a majority of seats in the House, they decide what goes into the bills that are brought up for a vote. A faction that opposes compromise with the Democrats has been pushing its leaders to keep fighting rather than bring a bill to the floor that both parties could agree with.

Without enough Republican support, the only way to pass a bill is with Democrats voting “yes.” That scenario poses a risk for Republican leaders: If their decision angers a large bloc of their membership, the next time the top jobs come up for a vote they could could be pushed out.

Latest Plan

The latest House plan, which passed after midnight yesterday, would authorize 10 weeks of spending starting Oct. 1 only if much of the Obama health law is delayed for a year.

The proposal opened the second round of volleys with the Senate. While House Republicans have moved slightly off their position, from defunding Obamacare to delaying most of its provisions, Democrats haven’t budged in their support for the health law.

Texas Republican Senators John Cornyn and Ted Cruz criticized Senate Majority Leader Harry Reid, a Democrat, for not calling the Senate into session yesterday to consider the latest House proposal.

“There’s no reason the Senate should be home on vacation,” Cruz, who last week spoke on the Senate floor for more than 21 hours to protest the health-care law, said yesterday on NBC’s “Meet the Press.”

The Senate can act quickly to pass legislation, if all 100 members agree. If a single member objects, it would block legislation from being passed for four days or more.

Boehner Options

When the Senate amends the proposal, the House speaker, Boehner, will have four main choices -- two of which avert a shutdown. He could pass the Senate bill with mostly Democratic votes or attempt a short-term funding extension to keep the government open past Oct. 1, when fiscal year 2014 begins.

The other two options lead to a shutdown. Boehner could add health-care law provisions to the spending bill and ask the Senate to go along, which Senate Democratic leaders have said they’d reject, or do nothing and wait for the political fallout.

Mike Steel, a spokesman for Boehner, said the Republican leader is unlikely to address how the House will proceed next until after Senate votes later today.

The U.S. has had 17 funding gaps from 1977 to 1996, based on a Congressional Research Service analysis. In 1995 and 1996, interruptions lasted from Nov. 14 to Nov. 19 and from Dec. 16 to Jan. 6, as Republicans led by House Speaker Newt Gingrich clashed over the budget with President Bill Clinton.

Health Law

The latest House plan leaves intact some parts of the health-care law already in effect, such as requirements that insurers cover pre-existing conditions and that family plans cover children to age 26. The bill would let insurers deny abortion coverage based on religious or moral objections.

The House measure would delay a requirement for people to purchase coverage or face a penalty, and postpone the creation of marketplaces -- which are supposed to start functioning Oct. 1 -- where people could shop for coverage from private insurers. Further, it would repeal the 2.3 percent medical device tax, which would increase the U.S. deficit by about $29 billion during the next decade.

Republicans and Democrats began bracing for a shutdown by attempting to affix blame on the other side. It’s at least the fourth time in the past three years that lawmakers have taken a budget battle to the brink of a fiscal crisis, each time averting the worst-case scenario just before or after the deadline.

“This has been the Congress of chronic chaos since day one, and this is just another episode,” said Representative Steve Israel, a New York Democrat.

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Michael C. Bender in Washington at mbender10@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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