Another Looming Government Shutdown Renews Uncertainty for Small Business

Congress has less than two weeks to avert yet another spending crisis. Can House Speaker McCarthy ink an agreement in time?

This article was originally written by Melissa Angell, Policy Correspondent for Inc. Magazine and can be found on their website here.

While the U.S. economy averted a sprawling default crisis over the summer, yet another would-be government shutdown looms.

Federal agencies are expected to close their doors after September 30 unless Congress can reach an agreement to fund the government. While the Senate is making progress, much of the resistance boils down to far-right lawmakers in the House, led by Speaker Kevin McCarthy (R-Calif), who are threatening to use a shutdown as a negotiating tool.

The consequences could be significant. "A couple of days is a hassle, but it's not the end of the world," says David Wessel, a senior fellow of economic studies at Brookings Institution, a Washington D.C.-based think tank. "But if you start talking about a month, then some business that's short of cash or some government employee that's living hand-to-mouth, those people will really suffer."

Naturally, those interfacing with government agencies or government officials will be impacted the most. So if you're a small-business owner applying for a new certification with the government and your government contact gets furloughed, you'll have trouble proceeding until that federal employee returns to work.

Federal contractors working for, or with, the government are probably sweating. In the event of a shutdown, the government can issue the dreaded stop-work order to contractors, which suspends in part or in full those highly coveted government contracts that small businesses fight for. There's also the issue of getting paid on time for work that's already been completed pre-shutdown.

There may also be a lapse in funding from certain lending programs within the U.S. Small Business Administration's pipeline. For one, banks can't secure new loan approvals in the SBA's 7(a), microloan, and 504 loan programs during a shutdown.

Don't forget: The U.S. government also administers aid to individual states. Curtailing those funds -- which undergird programs like Social Security -- could bring downstream effects to consumers.

"These types of programs are mission critical for those who have the least," says Ken Goroshko, an economics professor at the University of Hartford. "You see a cascading effect between federal, state, and local communities in terms of receiving money."

There is precedent for a protracted showdown in Congress. The longest U.S. shutdown in modern history lasted for 35 days and took place between December 2018 and January 2019. An analysis from the Congressional Budget Office determined that the 35-day partial shutdown delayed $18 billion worth of federal spending.

The key word there is delayed, Wessel points out. While gross domestic product (GDP) projections dipped by $8 billion, or 0.2 percent, in the first quarter of 2019 as a result of the shutdown, he adds that GDP likely recovered in subsequent quarters.

Current estimates from Goldman Sachs suggest that a government shutdown would result in the economy shrinking upwards of 0.2 percent for each week that it continues.

That's fairly insignificant to the U.S. economy during the short-term. But the uncertainty of the situation could still take aim at consumer spending, according to Javier Palomarez, president and CEO of the United States Hispanic Business Council.

"It's expected that consumer spending could drop between 5 to 10 percent for every week of the shutdown," Palomarez says. "When uncertainty happens, the economy is impacted and economic confidence drops. It has a snowball effect."

The White House in early September urged Congress to pass a short-term funding agreement that would skirt a government shutdown for the time being. Both Senate Majority Leader Chuck Schumer and House Speaker Kevin McCarthy are at least open to the idea, but the true test will be if McCarthy can push a package through the House.

Even if Congress strikes a deal, the social consequences of using the government's debt as political leverage further erodes Washington civility. And that's something that business owners are paying attention to.

"The business community is looking for stability from our elected officials; we're tired of the drama that's emanating from both parties," says Palomarez. "We're the beating heart of the American economy, but we don't seem to have either the reasonable regulation or the stability that we need from Washington, D.C."