Clos­ing the gov­ern­ment costs more than keep­ing it open

Lost fees, ex­tra in­ter­est, pay re­im­burse­ments add up

Richmond Times-Dispatch Weekend - - FRONT PAGE - BY JIM TANKERSLEY

A fed­eral gov­ern­ment shut­down might seem like a great way to save money: When agen­cies aren’t open, they aren’t spend­ing tax dol­lars. But his­tory shows us that clos­ing the gov­ern­ment ac­tu­ally costs more than keep­ing it open.

Shut­tered parks can’t col­lect en­trance fees. Fur­loughed work­ers will ul­ti­mately get paid for not show­ing up to work. And the gov­ern­ment will wind up hav­ing to pay in­ter­est on missed pay­ments to some con­trac­tors.

“There’s noth­ing good about this shut­down, from a fis­cal or a bud­getary stand­point,” said Michael A. Peter­son, chairman of the Peter G. Peter­son Foun­da­tion, which ad­vo­cates fis­cal pru­dence and fed­eral debt re­duc­tion. “We’re ab­so­lutely not cel­e­brat­ing not spend­ing money.”

Here are some ways that the shut­down raises costs for the fed­eral gov­ern­ment.

Fed­eral em­ploy­ees will even­tu­ally get their salaries — for work they weren’t al­lowed to per­form.

As a gen­eral rule, when the gov­ern­ment spends money on some­thing, it’s bet­ter to get some­thing in re­turn. Pay­ing some­one to empty trash bins in parks is bet­ter than pay­ing that same per­son to sit at home, while the trash piles up, and then pay­ing more, later, to ac­tu­ally empty the trash.

That’s what the gov­ern­ment is cur­rently do­ing with hun­dreds of thou­sands of work­ers. They’re fur­loughed, which

means they’re not al­lowed to go into work. They’re not get­ting paid for that time, but Congress voted last week to give them back pay. The White House has not in­di­cated if Pres­i­dent Don­ald Trump would sign it.

“They’re all go­ing to get the money and I think they’re go­ing to be happy,” Trump said when asked if he had a mes­sage for fur­loughed work­ers.

(No such luck for the thou­sands of gov­ern­ment con­tract work­ers who are cur­rently out of work, how­ever, as they are un­likely to get back pay.)

Pay­ing em­ploy­ees for work they were not al­lowed to per­form was the high­est cost iden­ti­fied in a re­port the Obama ad­min­is­tra­tion com­mis­sioned that es­ti­mated the price of a 2013 gov­ern­ment shut­down. Then-Pres­i­dent Barack Obama’s Of­fice of Man­age­ment and Bud­get es­ti­mated to­tal com­pen­sa­tion costs — pay and ben­e­fits — for work­ers af­fected by that shut­down at $2.5 bil­lion. It lasted 16 days, which is shorter than the cur­rent shut­down.

♦ Some taxes and fees won’t be col­lected.

Amer­i­cans still need to file their in­come taxes by April 15, whether or not the gov­ern­ment is open. But the IRS has fur­loughed em­ploy­ees in charge of col­lect­ing back taxes. That will de­prive the gov­ern­ment of rev­enue.

The Na­tional Park Ser­vice said it lost about $7 mil­lion in rev­enue in the 2013 shut­down. The Smith­so­nian In­sti­tu­tion, whose mu­se­ums and other en­ti­ties are closed, lost about $4 mil­lion.

♦ The gov­ern­ment will owe other pay­ments, with in­ter­est.

Laws called the Prompt Pay­ment Act and the Cash Man­age­ment Im­prove­ment Act re­quire the fed­eral gov­ern­ment to pay in­ter­est on con­tracts, grants and other obli­ga­tions that it is un­able to fund dur­ing the shut­down. If, for ex­am­ple, NASA is un­able to pay a con­tract­ing com­pany on time dur­ing a shut­down, it will still have to pay that money once oper­a­tions re­sume — plus some ex­tra. The Prompt Pay­ment in­ter­est rate for the first half of this year is 3.625 per­cent, ac­cord­ing to the Trea­sury Depart­ment.

In past shut­downs, many con­tract­ing com­pa­nies de­clined to pass along back pay to their em­ploy­ees.

♦ The econ­omy will take a hit (and so will tax rev­enues).

It’s gen­er­ally ac­cepted among eco­nomic fore­cast­ers — in­clud­ing Kevin Has­sett, chairman of Trump’s Coun­cil of Eco­nomic Ad­vis­ers — that the longer shut­downs last, the more they drag on the econ­omy, and with it, fed­eral rev­enues.

When 800,000 fed­eral work­ers don’t get paid, the econ­omy loses some con­sumer spend­ing power. Those work­ers eat at fewer restau­rants. They buy fewer cars. They some­times miss rent or mort­gage pay­ments. The same goes for fed­eral con­trac­tors, from cafe­te­ria work­ers to tech­nol­ogy spe­cial­ists, whose liveli­hood de­pends on get­ting paid by the fed­eral gov­ern­ment. Busi­nesses and land­lords grow un­cer­tain about how much money they will earn in the near fu­ture, which could lead them to hold­ing off on in­vest­ment.

The longer the shut­down lasts, the faster the econ­omy could fall. If the gov­ern­ment stops is­su­ing nu­tri­tion as­sis­tance for low-in­come fam­i­lies, if agen­cies can’t process fed­er­ally backed home loans, if un­paid air­port se­cu­rity work­ers call out sick en masse and air travel is stran­gled — that could add up to a ma­jor eco­nomic dis­rup­tion.

Slower growth would likely lead to lower tax rev­enues, adding to a fed­eral bud­get deficit that is on pace to top $1 tril­lion for this fis­cal year. The pay­ments on that debt are get­ting more ex­pen­sive thanks to higher in­ter­est rates. If and when a shut­down ends, law­mak­ers will find them­selves with a bud­get that is even fur­ther in the red than they an­tic­i­pated.

SARAH SIL­BIGER/THE NEW YORK TIMES

TOP: Pres­i­dent Don­ald Trump holds a dis­cus­sion of bor­der se­cu­rity pol­icy at the White House.

TOM BREN­NER/THE NEW YORK TIMES

MID­DLE: House Speaker Nancy Pelosi, D-Calif., has vowed not to fund Trump’s wall.

THE AS­SO­CI­ATED PRESS

BOT­TOM: A TSA worker does his job at Con­course G at Mi­ami In­ter­na­tional Air­port. The ter­mi­nal closed this week­end be­cause so many screen­ers called in sick.

THE AS­SO­CI­ATED PRESS

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