For Cities, A Costly Government Shutdown Ends with Uncertainty

January 29, 2019 - (4 min read)

The longest partial government shutdown in history has ended, but its lasting consequences cannot be ignored. Last week, public services were pushed to the brink, resulting most visibly in airline groundings at understaffed airports. Less visibly, city leaders put out a wide array of completely avoidable and unnecessary fires resulting from the shutdown. Despite those troubling circumstances, and in contrast to federal lawmakers, city leaders managed to continue performing the services residents have come to expect and depend on.

Cities, towns and villages rerouted budgets to protect both furloughed federal workers and their most vulnerable residents. Denver, Washington, D.C., and other cities created emergency funds to offer no-interest loans to those missing paychecks. Detroit and New Orleans offered extensions on taxes. Cities like San Jose, California saw the shutdown accelerate what is already a crisis in affordable housing and passed ordinances prohibiting evictions for anyone who could not make rent as a result of the shutdown. Almost every city across the country experienced longer lines at food pantries that required extra attention. These and other stores are available on NLC’s shutdown resource center.

In addition to the immediate humanitarian impact is the economic impact of the shutdown. As with every federal government shutdown, cities have no alternative to shouldering the economic loss resulting from federal inaction. Unlike Congress, which relies on deficit spending to meet federal obligations, cities are required to have balanced budgets. Any significant loss in tax revenue at the local level usually means tough cuts in services are on the horizon. This falls especially hard on small and midsize cities, which do not have the budget reserves or borrowing power of larger cities.

According to an initial report from the Congressional Budget Office cited in Politico, “the partial government shutdown cost the U.S. economy about $3 billion in forgone economic activity that won’t be recovered.” The report goes on to note that much of the lost revenue will not be recouped. Moreover, due to the enormous uncertainty resulting from the temporary deal to reopen government, the impact may ultimately be a lot worse.

The deal between Congress and the president to reopen shuttered agencies provided funding to resume all normal government operations for three weeks. The understanding is that Congress and the president will work toward a consensus on border security within those three weeks. At the end of the three weeks, if no consensus is reached, another shutdown remains possible. The President could also move forward with a test of his emergency declaration powers. Either way, considerable uncertainty lingers about how this will ultimately play out, and uncertainty means higher costs for local governments.

National League of Cities (NLC) President Karen Freeman-Wilson, mayor of Gary, Indiana, made it clear that cities expect more than this from the federal government:

“Today, President Trump and congressional leaders announced a short-term agreement to reopen the federal government, ending the longest government shutdown in American history. Local leaders are encouraged that our federal partners are ready to put forward a bipartisan bill to end the government shutdown, but damage has been done — to the economy, to the federal workforce, and to the lives of millions of people who rely on federal programs and services. Congress and the administration must work together to pass a long-term funding bill so that we won’t be on the cusp of the next government shutdown in three weeks when this short-term agreement expires.

“It is long past time for the federal government to get back to work for American people and focus on our nation’s biggest challenges, like our growing infrastructure crisis. For our economy and for our future, America’s cities, towns and villages call on federal leaders to come together in a bipartisan way to pass comprehensive legislation that rebuilds and reimagines America’s infrastructure.”

About the Author: Michael-Wallace-small.jpgMichael Wallace is the Program Director for Community and Economic Development at the National League of Cities. Follow him on Twitter @MikeWallaceII.