The federal fiscal year begins on Oct. 1. For agencies and programs that rely on discretionary funding through annual appropriations acts, Congress and the President must enact interim or full-year appropriations by this date to ensure continuation of certain federal operations. A government shutdown has direct and indirect impacts on the economy and its severity generally depends on its duration and scope.

What to Expect

In general, the goods and services provided by the federal government cannot be provided during a shutdown. The most immediate effect of a government shutdown is on federal officials and employees. The shutdown forces agencies to place non-excepted employees on furlough which prohibits them from performing their federal duties. Mandatory spending related to Medicare, Medicaid, Social Security, and the U.S. Postal Service will continue as usual.

Agency operations and programs funded with discretionary funds will cease operations. Programs that are funded by laws other than annual appropriations acts, such as some entitlement programs, may or may not be affected. Other government services (such as E-Verify and passport issuance) could also be unavailable.

Government Contracts

The effects of a government shutdown on government contracts will largely depend upon the length of the shutdown, as well as the contract type, terms, and funding source. Agencies affected by a government shutdown cannot award new contracts, and a shutdown could impact existing federal contracts.

Given the uncertainty surrounding the duration of time a shutdown might last, a contracting officer may need to modify or take other action to address contractual issues after the funding is approved. Government contracts and federal acquisition law provide mechanisms by which agencies can adapt to unexpected circumstances, such as a shutdown, in ways that minimize costs to the government and further other federal procurement guiding principles. Additional answers to frequently asked questions can be found from the White House, and the Congressional Research Service.