For the first time in seventeen years, we’re staring down the barrel of an imminent government shutdown. Why? Congress must pass laws in order to spend money, but so far the Republican-led House and Democrat-led Senate have not been able to agree on a bill to fund the government. And so, by law, when Congress proves unable to agree on how to fund large sections of the federal government, those sections must be shut down when spending powers expire at midnight tonight.
Here’s what you need to know:
- Adversaries in Congress, who have been unable to reach agreement on a budget for years, are even at odds over what a stopgap measure might look like to avert the crisis, so a shutdown seems virtually certain.
- When this happens, many federal agencies will be forced to shut their doors and send their employees home. Thousands of “non-excepted” workers will be out on furlough until the end of the shutdown, and “essential” workers will have to work without pay. More than 800,000 out of over 2 million federal workers will be sent home.
- The economy will certainly suffer. Uncertainty is a curse for all business owners -- the ability to plan effectively for growth relies on stability in the policy areas that impact their business. The impact of sequestration and the credit-rating downgrade have already taken their toll, and the markets have again taken a hit over the last two weeks. For context, the last four-week shutdown in 1995 cut GDP growth by 0.5%
But how does this affect the tech economy? As we highlighted with our most recent research, new and young tech-sector businesses play an outsized role in job creation and economic growth. As a result, the impact of a shutdown on this high-growth sector could reverberate back around the economy as a whole. Here’s how a shutdown could impact the technology sector, in particular:
1. Every company in America that does business with the federal government would be affected by late payments, and all government contractors will be out of a job. This would be felt at Microsoft and Google with their big government contracts, right down to workers who provide government IT services to small businesses.
2. We will experience delays to passport and visa services. H-1B visas, for example, will not be processed during the shutdown.
3. The FCC will be offline. That means no spectrum management, no consumer protection, and no enforcement of competition rules.
4. The Small Business Administration approval of small business loans will be disrupted. Depending on how long the shutdown lasts, applications could get backlogged with small businesses feeling the pain long after the government reopens.
5. Requests for information under the Freedom of Information Act will be put on-hold, creating another backlog.
6. Public information -- from the webpage of a specific government agency, for example -- might be taken offline.
7. Between the shutdown and the debt-ceiling limit that hits on October 17, the IPO market could be knocked-around, with delays expected, and a ban on new filings. This will be bad news for Twitter and other tech companies currently trying to enter the market.
8. The District of Columbia, whose budget is controlled by Congress in a manner similar to the Federal Government, will be affected in a much deeper way than other communities as basic civil services from transportation to trash collection may be impacted. Mayor Vincent Gray has said he will use reserve funds to keep District services up-and-running, but that fund may only last for two weeks. This shutdown would also have serious ramifications for District businesses, from our friends at 1776 and other startups, to larger businesses that service the infrastructure of the government.
9. In two small victories, the U.S. Patent and Trademark office will remain open to process applications, and the U.S. Postal Service will also maintain operations.
The final impact of any shutdown will be determined by how long it lasts, and how expansively President Obama interprets the necessary function loophole that could allow some parts of the government to stay open, even without a budget. But a government shutdown is also an economic shutdown, and as bad as this looks right now, it will only get worse as we gear-up for the debt-ceiling limit to hit on October 17th. In the meantime, find out as much as you can, and brace yourself for a rocky few weeks.