Federal government shutdown - if it occurs - will have local ramifications and impacts

Economists often assert that the macroeconomic impact of a government shutdown is relatively mild. This conclusion is largely based on viewing the economic impact solely through the lens of federal spending in the economy. During a shutdown mandatory spending continues and, while discretionary spending halts, when the government reopens federal employees and agencies are made whole meaning total federal spending is unchanged.

This approach fundamentally misses the microeconomic impacts for the private sector and Americans and communities across the country. Individuals and businesses rely on the discretionary functions of government daily. From passports and permits to clinical trials and contractors, a well-functioning economy requires a functioning government.

In a 2018 report, the non-partisan Congressional Research Service detailed some of the impacts of past government shutdowns:

• Health. New patients were not accepted into clinical research at the National Institutes of Health (NIH) clinical center; the Centers for Disease Control and Prevention ceased disease surveillance; and hotline calls to NIH concerning diseases were not answered.
• Law Enforcement and Public Safety. Delays occurred in the processing of alcohol, tobacco, firearms, and explosives applications by the Bureau of Alcohol, Tobacco, and Firearms; work on more than 3,500 bankruptcy cases was suspended; recruitment and testing of federal law enforcement officials were canceled, including the hiring of 400 border patrol agents; and delinquent child-support cases were delayed.
• Parks, Museums, and Monuments. Closure of 368 National Park Service sites (loss of 7 million visitors) occurred, with loss of tourism revenues to local communities; and closure of national museums and monuments (reportedly with an estimated loss of 2 million visitors) occurred.
• Visas and Passports. Approximately 20,000-30,000 applications by foreigners for visas went unprocessed each day; 200,000 U.S. applications for passports went unprocessed; and U.S. tourist industries and airlines reportedly sustained millions of dollars in losses.
• American Veterans. Multiple services were curtailed, ranging from health and welfare to finance and travel.
• Federal Contractors. Of $18 billion in Washington, DC, area contracts, $3.7 billion (over 20%) were affected adversely by the funding lapse; the National Institute of Standards and Technology (NIST) was unable to issue a new standard for lights and lamps that was scheduled to be effective January 1, 1996, resulting in delayed product delivery and lost sales; and employees of federal contractors were furloughed without pay.

Even the relatively brief 16-day shutdown in 2013 had significant negative impacts on business operations and the economy as detailed in a report by the Office of Management and Budget. These federal issues have local impacts on our community. Consider:

• Banks and other lenders could not access government income and Social Security Number verification services. Two weeks into the shutdown, the Internal Revenue Service (IRS) had an inventory of 1.2 million verification requests that could not be processed, potentially delaying approval of mortgages and other loans.
• The Small Business Administration (SBA) was unable to process about 700 applications for $140 million in small business loans, and the Federal Housing Administration (FHA) was unable to process over 500 applications for loans to develop, rehabilitate, or refinance around 80,000 multifamily rental units.

Each of these stories mirrors the struggles faced by businesses across the country – struggles that are likely to resurface now that the government is facing a shut down again. Our tourism economy had an increase in overnight visitation this summer and is pacing ahead for the upcoming winter, but this momentum is precarious. Macroeconomic factors such as the government shutdown can have far-reaching implications and we encourage both sides to come together to keep us moving forward.

Chris Romer is president & CEO of Vail Valley Partnership, the regional chamber of commerce. Learn more at VailValleyPartnership.com