A government shutdown spells chaos for thousands of small business owners. Government contracts account for millions of workers’ paychecks, which are all on hold.
And, as the current shutdown is setting records for the most prolonged in history, you might be wondering how your business will be affected.
This article provides everything you need to know about how a government shutdown affects U.S. small business.
Learn how government shutdowns come about and how this one is affecting U.S. small business. See which entities are deprived of funding and who is still getting paid through the drought.
What is a Government Shutdown in the United States?
When the New Year rolls around the Congress and the president pass an annual budget for the next year. Unless they don’t. Then governmental departments, organizations, programs, contracts, and personnel have no funding.
When the annual budget comes around, everyone in Washington wants a piece of the pie for something. The United States constitution separates lawmaking powers between the Congress and the president.
So, when the Congress and the president don’t agree on how the pie should be split, then nobody gets pie.
Federal budgets must pass through the House of Representatives and the Senate before it comes to the desk of the president. The constitution dictates that the Congress has complete control over how funds are relegated.
The president only has the power to veto or ratify the budget bill.
But, what if the president won’t ratify the new budget bill? In the event that the budget deadline has already lapsed, a government shutdown occurs.
If it is vetoed, the budget bill goes back down to the House of Representatives in Congress. The constitution allows Congress to override a veto by a two-thirds majority vote.
What Receives Funding During a Shutdown?
Government shutdowns stop payment to all nonessential agencies in the federal government. As long as the shutdown continues, no nonessential federal entities receive or accrue pie. So, even when it ends they do not receive payment for the work which was supposed to be done.
Essential government employees are required to work without pay through the shutdown. When it ends, they receive back pay for work done during the shutdown.
The entities that receive funding during a government shutdown include essential personnel. Did you know that includes the members of Congress?
While constituents around the country are denied paychecks, Congress receives their salary on-time.
The majority of Congressional representatives get $174,000 a year, while workers for federal contractors tend to make under $20 an hour.
The current shutdown is causing some representatives to rethink that logic. Over 70 members of Congress are denying their paychecks until the shutdown ends.
How a Government Shutdown Affects U.S. Small Business Owners
Short-term effects of a government shutdown tend to be manageable for small business owners. This shutdown continues to break records. Meanwhile, thousands of businesses wonder about the long-term financial repercussions this will have on their business.
When government agencies, like NASA and the Department of Interior, stop operating they stop paying private contractors. Billions of dollars are spent on government contractors, which ends up paying many thousands of subcontract workers.
National Parks are more than a federal garden–-they draw tourists that are responsible for the revenue of thousands of small business owners. The restaurants, hotels, rental agencies, camping stores, etc. rely on tourist money.
When the parks close down during a shutdown, small business owners lose potential income.
No Loans for Small Businesses
During the government shutdown, the U.S. Small Business Administration (SBA) is not considering any loan applications. The SBA does not process any loan requests or pending applications since it is considered non-essential.
Small businesses will experience a dry-spell which can lead to a downturn in consumer spending. The drop in consumer confidence that a government shutdown raises the risk of another economic recession.
Can’t Make New Hires
E-verify makes it easy for small business owners and employers to verify that an employee can work in the United States. E-verify, however, is a federal program that relies on a working government. When the government is shut down, E-verify is off-line for every employer in the United States.
As the nation experiences one of the best job markets in decades, the government shutdown puts a stop to recruiters looking for new talent and job seekers moving across their industry. In states where employment verification is mandatory, new hiring is stopped altogether.
IRS is Out of Commission
During the government shutdown, the IRS reduces its workforce capacity by nearly 60 percent. That means, with tax season right around the corner, small business owners are not able to file for an early return. Tax returns are likely to be delayed by a few weeks or more.
This shutdown is different than shutdowns in the past because of how long it is extending. In fact, on the 17th of January, the White House extended the federal positions it deems mandatory.
The new definition mandates that more TSA workers and IRS employees must work without pay through the shutdown.
This increase in federal employees working through the shutdown will help small business owners normalize their tax filing. By rights, the newly mandatory federal workers will receive back-pay for mandatory work once the shutdown ends.
However, even with more workers returning to the IRS, audits will progress slowly, if at all.
Limited FDA Inspections
During a government shutdown, the FDA stops inspections on most food and drugs. Since December 22nd, 2018 the Food and Drug Administration has not been checking or inspecting anything. Any inspectors currently on-the-job are working pro-bono.
Food and drug manufacturer businesses find themselves without the ability to have their products approved for sale in the United States by the FDA. Very quickly this leads to lowering of standards across the food and drug industries.
Postal Service Keeps Mailing
The United States Postal Service is one of the oldest organizations the federal government set up. It receives no day-to-day operations money from taxes, so deliveries keep going. Even during a government shutdown, some entities are above the fray-–like U.S. Mail.
Supreme Courts are Fine for Now
The federal court system is self-sufficient without federal funding for a few weeks during a shutdown. Think of it as a reserve tank. The question, however, is what happens if the shutdown is still in effect when the reserve tank runs dry?
After about three weeks, the United States Supreme Court needs additional funds to continue operations as normal. If the shutdown continues much longer small business owners involved in Supreme Court cases will see delays.
Patent Office is Fine for Now
The United States Patent and Trademark Office (USPTO) collects fees that are for just this kind of thing. So, the patent office has the emergency funds, like the courts, to stay in operation for a few weeks without federal funding. Patent and trademark fees are the lifeline for the Patent Office but expect delays in processing.
Is Washington DC a Ghost Town?
Unlike every other government shutdown in recent decades, this shutdown does not stop the local government in Washington DC. Last years appropriations legislation included a provision to enable the local DC government to stay operational through a federal shutdown.
International Travel is Delayed
During the shutdown, the U.S. Department of State is issuing passports at a much slower pace. If you are taking an international business trip in the near future you may see difficulty getting a new passport.
Earlier this month, Miami International Airport had to close one of its terminals due to low numbers of TSA employees coming to work through the shutdown. In spite of the federal order for TSA to work through the shutdown, many TSA employees are low-wage hourly workers that cannot afford to work for a month without pay.
On the other hand, Air Traffic Control workers are on-the-job working through the shutdown. All things considered, the effect of the shutdown on air travel is nominal for small businesses.
For the time that the government is non-functional, small businesses across the country have to prepare for the repercussions. Even when the budget is finally passed, there are some lasting effects that your business will experience. Businesses that rely on federal contracts to make money will feel the hit more than most.
The small business owners that survive shutdown the best, are the ones with a rainy-day fund. If your business has not made a contingency plan for government shutdowns yet, there is no better time.
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