Shutting Down Government: What State & Local Leaders Cannot Do

January 4, 2019

Good Morning! In this morning’s eBlog, we report on some of the fiscal and governing challenges for state and local leaders under the federal government shutdown.

UnGoverning. At the expiration of a Continuing Resolution last December 21st, a partial shutdown of the federal government was triggered—a shutdown which, at least so far, as it enters its 15th day—has shown little sign of resolution. A shutdown is, of course, not an option for a city, county, or state—even in cases of municipal bankruptcy, where the city or county must continue to provide essential, lifesaving services, keep street lights and traffic lights operating, streets plowed, 9-1-1 services operating 24/7. Fortunately, approximately 75% of FY2019 discretionary funding has been approved, and entitlement programs, such as Social Security, Medicaid, and Medicare are expected to continue. However, programs ministered by the Departments of Agriculture, Commerce, Justice, EPA, Commerce, HUD, Transportation, and the Department of the Interior deemed nonessential are shuttered. Thus, the ability of state and local governments to provide a significant number of services are compromised; the Congressional Research Service, based on its study of previous federal shutdowns, has found that these federal actions reduce overall growth in the economy, thereby adversely impacting state and local revenues for the levels of government in the U.S. which do balance their budgets, unlike the current Congress and Administration, where interest on the national debt is the fastest growing part of federal spending—and not subject to the shutdown, lest the federal government default.

The newly Democratic House has voted to reopen shut-down government agencies through the rest of the fiscal year, except for Homeland Security which would stay open for the next month while Congress continues to debate funding for a border wall/border security; however Senate Majority Leader Mitch McConnell (R-Ky.) called the measures a “total non-starter” and said the Senate would not consider any funding bills unless President Trump agrees to sign them. Newly elected House Speaker Nancy Pelosi (D-Ca.) heads to the White House today to meet with the President, who continues to insist he will not sign any appropriations bill to reopen the federal government unless it includes billions of additional dollars for a border wall, with his insistence coming after, late Wednesday night, the House passed two bills to fully fund the government, but did not include any additional funds for the wall. Moreover, even were the House to act to reopen the federal government, Senate Majority Leader McConnell has been adamant about keeping the government shuttered, notwithstanding the warning from Senate Appropriations Committee Chair Richard Shelby (R-Ala.), who warned his colleagues the federal government shutdown could drag on for “months and months,” even as some government workers, including at the Department of Homeland Security and at branches of the Armed Forces, such as the Coast Guard, will begin missing paychecks in the middle of January.

Irresponsible. The President is seeking $5 billion to finance the construction of the wall now that his claim that Mexico would pay for said wall has been demonstrated to be false. The President, however, has never explained how he would propose to pay for the wall. Would he propose a federal tax increase? Would he ask Congress to agree to some sort of special fee—say a temporary add-on tax on airline tickets? After all, for any state or local leader who wished to construct a wall around her or his city or county—or along the border of a state, the very first issue would be how to finance the construction and maintenance of such a wall. The White House has been curiously silent, however, as has Senate Majority Leader McConnell.

Clearly, the President, himself experienced in bankruptcy, simply is not concerned about how to finance the proposed wall; so he has proposed no offsets, much less any fees or new taxes to pay. With interest on the national debt already the largest and fastest growing part of the discretionary part of the federal budget; his proposal to the House and Senate appears to be an effort to build a wall of federal deficits and debt.

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