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Why Looming Budget Battles Might Still Shut Down the Gov't

The Securities and Exchange Commission, the Environmental Protection Agency and the Department of Health and Human Services could face partial shutdowns this fall, as a politically polarized Congress faces a Sept. 30 deadline to approve a new federal budget.

The Securities and Exchange Commission, Environmental Protection Agency and Department of Health and Human Services could face partial shutdowns this fall, as a politically polarized Congress faces a Sept. 30 deadline to approve a new federal budget.

During the contentious budget process, Congress typically passes "continuing resolutions" to fund federal agencies while legislators work out their differences.

But in an environment of political hostage-taking, the funding for some agencies could be put in limbo until a deal is reached, resulting in the suspension of more services such as the Federal Aviation Administration's temporary shutdown last week. During the shutdown, the agency's airport safety inspectors had to continue their work without pay while also paying their travel expenses.

Two prominent congressional scholars, Norman Ornstein of the American Enterprise Institute and Sarah Binder of the Brookings Institution, said the upcoming battle over the federal budget could result in agency shutdowns.

Here's a breakdown of what to expect during this year's budget process:

How does the federal budget process normally work?

Congress is supposed to approve each year's budget before the new fiscal year starts on Oct. 1. But this rarely happens: Congress has missed the deadline for the past 16 years. To buy itself more time to work out disagreements, Congress typically passes "continuing resolutions," which provide temporary funding for government agencies, often at the same funding level as the previous year.

Last year, Congress needed six continuing resolutions before it finally came to an agreement in Aprilalready six months into the fiscal year. Congress made that agreement only hours before the federal government would have been forced to shut down.

It's important to remember that the government gets two types of funding: mandatory spending, which funds entitlement programs like Social Security, Medicaid and Medicare; and discretionary spending, which funds the rest of the government's agencies and departments.

Discretionary spending is broken up into 12 appropriations bills, which can be passed separately or bundled together as an "omnibus" bill.

The appropriations bill that includes funding for veterans and military families is usually approved quickly; "people tend not to play political football with that one," Binder noted.

But getting the other appropriations bills passed isn't easy even in the best of times. The Washington Post has a useful flowchart of how the federal budget gets written into law.

(The New York Times has an interactive chart of President Obama's 2012 budget proposal from earlier this year.)

What's different about this year?

Last year's budget negotiations were contentious. When an 11th-hour bipartisan agreement was finally reached to avoid a general government shutdown, many Republican lawmakers felt betrayed. Fifty-nine House Republicans broke with Speaker John Boehner and voted against the budget compromise.

Because of the political fallout from last year's budget, Norman Ornstein argues, House Republicans will be even less willing to compromise with the 2012 budget.

Added to this backdrop is the success of the Republicans' "hostage taking" tactics in the debt-ceiling negotiations. Senate Minority Leader Mitch McConnell told the Washington Post that he could see the Republicans using the same strategy again.

The debt-ceiling compromise already set a long-term cap on discretionary spending, but there's still plenty of political battling to be done over where those cuts will come from.

"The usual practice, back when we had sane government, was you [fund the government] at the previous years' levels until you reach an agreement," Ornstein said.

But last year, two of the stopgap resolutions that temporarily funded the government also included $4 billion and then $6 billion in cuts.

"You can put anything you want in a continuing resolution," Ornstein said. At least in theory, he suggested, a continuing resolution could deny funding to a particular agency or set of agenciesthe Department of Health and Human Services, for instance. "That means, if you can't reach an agreement, you shut down the FDA [Food and Drug Administration], you shut down the CDC [Centers for Disease Control and Prevention]."

"My sense is that Republicans feel that they've moved the debate and moved the norms here," Binder said. "In order to buy time, you have to pay a little bit. I wouldn't be surprised for the Republicans to say, 'You're going to shut these agencies down unless you agree to a 10-percent cut.' "

What agencies might face temporary shutdowns this fall?

Ornstein and Binder agreed that the agencies most likely to face shutdowns are those related to health-care reform, the environment and Dodd-Frank financial regulationthe issues on which the Republican position and that of the White House diverge most sharply.

On their short list: the Department of Health and Human Services, the Securities and Exchange Commission and the Environmental Protection Agency.

To target health-care reform, "you'd go for HHS," Binder said. "If your other main concern was Dodd-Frank and making changes to the Consumer Financial Protection Bureau, you might target the SEC."

Ornstein wrote in an email on Monday that he thought "at least a partial shutdown" of the government was "very likely" during this year's budget process.

Binder was more skeptical that the hostage-taking tactics she expects would result in actual shutdowns.

"Ultimately, as we saw in the budget [April] and deficit [August] deals, the White House tends to compromise at the last minute to avoid unwanted outcomes," she wrote in an email. "I don't think Democrats want the government to shut down, and I don't think they'd be confident that the public would blame the GOP if government did shut down."

What would happen during a partial shutdown?

Even without funding, some of the government's "essential services" are maintained. "Agencies are allowed to perform any operations necessary for the safety of human life and protection of property," CNN reported when Washington was on the brink of a shutdown last year.

While the SEC would not comment on how it would function in the case of a shutdown, the Department of Health and Human Services has a memo from last year that describes what the department would do in the case of a shutdown, including furloughing nearly 50,000 employees.

The Washington Post reported last year that during a shutdown the EPA would cease environmental-impact statements, which would slow approval for construction projects.

It's worth noting that a temporary government shutdown might not have a significant impact on Wall Street. During the two Clinton administration shutdowns, the Dow Jones industrial average and the S&P 500 actually moved upwards.

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