DEFINITION of 'Government Shutdown'

A government shutdown occurs when the nonessential offices of the government close due to lack of approval on the federal budget for the upcoming fiscal year. Approval is reached if Congress passes all of the spending bills regarding the federal budget. If an agreement is not achieved, a government shutdown will close many federally run operations, and halt work for federal employees unless they are considered essential. Some organizations still stay open by running on cash reserves, but once these run out, if a solution is not found, they will also close. The shutdown stays in effect until a compromise is reached and a budget bill is passed.

BREAKING DOWN 'Government Shutdown'

Government shutdowns have happened in the past and could affect any government processing functions such as passport applications, law enforcement recruitment and testing, or Social Security card applications. National parks and monuments close if there is a shutdown. Administrative departments and agency affected would also include the Small Business Administration, which would not be permitted to process any new loan applications while the shutdown is in effect.

What a Government Shutdown Affects

The private sector might be affected by a government shutdown and the economy can lose money as a result of the disruption in operations. Banks, while not government-controlled, would not be able to access information they need such as income tax records that are typically reviewed during the loan application process. The disbursement of payments from government sources to citizens for veterans’ benefits or unemployment insurance may be halted.

The collateral effects may be felt across the business sector, including among companies that do indirect business with the government. When substantial numbers of federal workers are furloughed and not spending money as expected, the businesses that typically serve them may see a drop off revenue. Hotels, restaurants, and other hospitality services that cater to visitors to national parks and monuments will lose notable business during a shutdown. The overall cost and last impact on the economy may vary, yet there have been shutdowns where an estimated $20 billion was lost.

Any office that does not receive funding from Congress would continue functioning. For example, the Federal Reserve would continue operating, and the Post Office, being owned but not operated by the federal government, would also continue to run. Essential employees that typically continue working might include security, such as police and firefighters, and intelligence agencies. Active military, prison guards, border patrol agents, and air traffic controllers also remain on the job in the event of a shutdown.

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