A Government Shutdown for 3 Hours?

Admittedly, the interest from the general public with respect to federal budget allocations, and the technicalities of the public budgeting systems is, and this is a rough estimate, probably close to 0%. Nonetheless, we just dealt with another government shutdown, and I thought it would be a good idea to take a moment to discuss the implications for nonprofits and collective impact.

Inevitably, when there is a government shutdown due to partisan disagreements over the federal budget, there is a ripple effect that impacts the economy; federal and state budgets; nonprofit programs and services; and ultimately the public. In this posting, we will go over:

• Government shutdowns, and their relationship with federal and state budgets;

• How disagreements about values and political impasses impact the budget;

• The departments are affected by government shutdowns;

• Impact on services; and

• What should nonprofits do to advocate for themselves? 

What Are Government Shutdowns?

A government shutdown is when the federal government stops spending on discretionary programs due to an impasse between Congress and the President on the federal budget. Traditionally, in order to prevent a government shutdown from happening, Congress enacts a continuing funding resolution to buy some more time beyond the deadline for adopting the budget for the new fiscal year to negotiate an agreement. If an agreement is not reached, then discretionary spending stops and mandatory spending continues.

When Does the Federal Budget Government Get Enacted?

The federal budget determines the overall revenue that is going to be taken in through taxes and other sources of revenue. Typically, the United States Congress appropriates funds by September 30 for the following fiscal year, which always begins on October 1 and ends on September 30. It is important to note that the federal budget cycle is often not in sync with the budget cycles of the state legislatures. Some states have annual budget cycles that last 12 months. Other states have biennial enactments of their budgets ranging from 12 months to 24 months. They also begin and end at different times of the year. For example, the New Jersey fiscal year begins July 1 and ends June 30. For a full listing of budgeting schedules at the state level, click here.  There are also variations in county and city/ municipal budget schedules.

What is the Connection Between Nonprofits, the Federal Budget, and States?

You may be wondering why I am referencing the budgets of state and local governments. This is because state and local budgets are directly impacted by the federal budget. The federal budget revenue and allocations affect whether the state government will have a deficit or surplus. This is because states and local governments rely on the revenue from the federal government to provide services and benefits to the general public. Thus, if there is a federal government shutdown, state and local governments must scramble to determine how they will make up the difference.

Furthermore, if after the budget negotiations are completed state and local governments receive less revenue from the federal government than their projections had anticipated, this increases their total debt and weakens their long-term financial position. This is particularly problematic for states with biennial enactments.

Consequently, states and local governments faced with reduced revenues must then prioritize what they will pay for first. They prioritize mandatory spending and paying down their debt (the same is the case for the federal government). Whatever is left over is discretionary spending, which is usually the pots of money that the funding designated for the services nonprofits provide. The fiscal challenges for nonprofits are worsened by the fact that government departments/ divisions that are faced with underfunding transfer some of the costs to nonprofits.

Why Does the Federal Budget Define Us as a Nation?

Bureaucrats with monotone voices discussing numbers and departmental budget priorities can cause even those that are interested to drift off. Nonetheless, what they are saying is very important. The federal budget is not just a discussion about how to pay the country’s bills, it is a furtive battleground for the values and priorities of the country. These funding allocations impact almost every aspect of our lives, even if we don’t realize it. They determine who has access to education. Which children will be able to eat lunch? Who will be homeless, and who will have access to resources? Who will live or die because of an illness? Who will be protected from poverty in their retirement years? It is important to note that the federal budget’s reach extends beyond social and human services.  The federal budget determines, will the arts become accessible to all.  Will bridges be allowed to collapse? Will we have enough resources to handle a natural disaster? Will veterans get health care upon returning from war? How many dollars will be dedicated to scientific discoveries that will improve the condition of humanity? How many protections will we have as citizens and consumers? These examples listed above are only the tip of the iceberg.

Thus, when there is a government shutdown because of disagreements on DACA, CHIP, the Wall, or healthcare, it is not just whether people agree on paying the bills, rather it is an intense debate to determine which values will be funded. The budget is essentially a decision about how the limited pool of money that we have collected through taxes, and other revenue will be distributed to cover all of the nation’s priorities.

Why Should Nonprofits Be Concerned About Budgets and Shutdowns?

Nonprofits should be concerned about their ability to achieve collective impact, and ultimately, to remain financially viable as demands for services continue to increase. Budget battles that result in government shutdowns rarely result in something positive for government programs that fund nonprofits. If discretionary spending is curtailed, then there is less income from tax revenue, and government debt at all levels continues to increase. This will devastate nonprofits that are reliant on discretionary spending dollars.

Nonprofits are key partners that implement the government’s policy objectives with respect to education, human services, the arts, humanities, STEM, etc. If there are fewer resources allotted to these initiatives, nonprofits have fewer resources to provide key programs and services that serve as protection mechanisms from poor social outcomes. In the worst-case scenario, programs will be cut back and even eliminated, thereby, breaking down the invisible buffer zone that nonprofits provide against lower standards of living for our society as a whole.

Departments and Services that Are Impacted by Government Shutdowns

The programs impacted by government shutdowns are as follows:

• Commerce, except National Oceanic and Atmospheric Administration

• Education

• Energy (Functions that oversee the safety of the nation’s nuclear arsenal, dams, and transmission lines remain open)

• Environmental Protection Agency

• Food and Drug Administration

• Health and Human Services

• Housing and Urban Development

• Interior, including National Parks

• Internal Revenue Service

• Labor, including the Bureau of Labor Statistics

• NASA

Click here for an article from the New York Times that outlines various government contingency plans in the event of a government shutdown that involves a combination of furloughs and/or the use of reserve funds for critical services.

There are, however, a series of programs whose funding is part of the mandatory spending budget and would require congressional action to be changed. For example, the disbursements for Social Security, Medicare, and Medicaid payments are automatic.

What Can You Do as a Nonprofit Leader?

This is the time to engage in advocacy with your state, congressional, and senate legislators. The combined impact of the government shutdowns (which shake the confidence of investors), lower tax revenue, and increasing debt is a threat to nonprofits. You and your colleagues should reach out to key policy brokers to emphasize that the philosophical shift to fiscal efficiency above all is destabilizing the social safety net that nonprofits provide. Now that there will likely be decreases in government revenue, there is a need for new a new approach to comprehensive planning for the needs of communities instead of isolated quick fixes. The following should be emphasized:

• Nonprofits need to be afforded funding that is predictable and supports a nonprofit’s administrative infrastructure;

• Adequate funding formulas should be adopted that consider the nonprofit corporate structure, and provide predictable, stable funding, and pricing by allowing funding for program start-up costs, growth capital, and overhead;

• Coordination across government departments is needed with input from nonprofit providers to strengthen the nonprofit infrastructure and partnerships with the government; and

• Public budget allocations should be approached differently by the legislature, and include mandatory funding for nonprofits that carry out the mandates of government.

Nonprofits have been natural partners for public agencies because, similarly to the government, nonprofits exist solely to provide a public benefit, instead of a private benefit to investors.  Nonprofits are the primary providers of services in the humanities, arts, and health and human services. These organizations have subsequently pioneered solutions to complex social issues while helping inform best practices in their field. This safety net infrastructure must be protected in order to protect our communities from an overall lower standard of living and negative community outcomes.

Next Time:

I have referenced advocacy in several postings. In my next posting, I will discuss nonprofit advocacy and the steps you need to take to be successful with your advocacy efforts. Also, if you have not done so already, please subscribe to my blog where you will get articles on the latest nonprofit trends. When you subscribe, you will also receive more resources and tips on how to manage the ups and downs of the nonprofit cycle. You will also be updated on what I have been up to.

As always, please share your thoughts below. If you have questions that you would like me to answer privately, do not hesitate to email me at [email protected]. Also, please share with your colleagues and friends!