What a U.S. gov’t shutdown would mean for states

An extended spending pause could have ramifications for budgets.
The Arizona Capitol in Phoenix. (AP Photo/Ross D. Franklin, File)

States are preparing for the trickle-down effect of a potentially long federal government shutdown.

With Congress so far unable to come to an agreement on spending levels, the U.S. is careening toward a government shutdown this weekend that would furlough many federal employees and suspend some key programs, such as disaster relief and child care for low-income children. Should the government shut down, it’s unlikely to end quickly given the infighting within the U.S. House Republican majority. 

While fiscal policy experts say a brief shutdown should not affect state budgets, a weeks- or months-long spending pause could. Should it drag on, state leaders may have to decide if they want to use state funds to replace missing federal dollars and keep certain government services running. 

“There’s no guarantee of reimbursement,” said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers, a Washington, D.C.-based membership group. “So the longer it goes, the more difficult some of those decisions become.” 

Govs. Katie Hobbs (D) of Arizona and Spencer Cox (R) of Utah have already said they plan to use state funds to keep national parks in their states open during a shutdown. 

Cox said during his monthly news conference last week that he has been working with legislative leaders on a contingency plan to keep parks open. He said Utah should be able to do so without appropriating more money, at least in the short term. 

“Obviously, if this was a situation where a shutdown extended for several months, we would have to reevaluate and potentially call a special session for that,” Cox said.

Federal funding disagreements have led to budget gaps 14 times since 1980, most often for a day or two, according to the Congressional Research Service, a nonpartisan agency that advises Congress. Not all those gaps were full shutdowns.

But some shutdowns lasted weeks. A 2013 shutdown lasted 16 days, and a partial shutdown that began in 2018 and ended in 2019 lasted 34 days. 

Past shutdowns have not had a major fiscal or economic impact on states, Eric Kim, senior director and head of U.S. state government ratings at Fitch Ratings, said last week during a webinar hosted by the Volcker Alliance, a nonprofit that supports public sector workers. 

“Most of these shutdowns have been relatively limited in length,” Kim said. “Back pay for federal workers has been provided … and states and local governments are able to withstand the shortfall — temporary delay, I should say — in federal aid.”

About two-thirds of the money states receive from the federal government in a typical year helps fund Medicaid, the public health insurance program for low-income people, according to the Pew Charitable Trusts, a Washington, D.C.-based nonpartisan nonprofit. 

Congress has previously approved Medicaid funding through Dec. 31, so that funding stream isn’t immediately in jeopardy. 

Other key federal programs, such as food stamps, child care subsidies and housing vouchers, will continue to be funded until agencies run out of money. For some programs, such as food assistance for pregnant and nursing women, infants and children, funds are already running low.

Indiana Budget Director Zac Jackson, another participant in the Volcker Alliance event, agreed with Kim that federal shutdowns do not usually have a significant impact on state budgets.

“This would have to probably go on several months before it would really create a serious issue for Indiana state government operations,” he said. 

Still, a shutdown could push state leaders to shoulder costs for which they never budgeted.

During his press conference last week, Cox recalled that Utah spent $1 million to keep its national parks open during the 2013 shutdown.

“We never did get reimbursed for it,” Cox said. “Congress was supposed to do that, and never did.”