Federal Aid to State and Local Governments: Select Issues Raised by a Federal Government Shutdown

Source: Natalie Keegan, Congressional Research Service, CRS Report, R43467, April 7, 2014

At the end of the day on September 30, 2013, appropriations provided under the Consolidated and Further Continuing Appropriations Act, 2013 (P.L. 113-6) expired. Beginning on October 1, 2013, the first day of FY2014, this resulted in a partial federal government shutdown due to a lapse in appropriations. On October 17, 2013, the Continuing Appropriations Act (P.L. 113-46) was signed into law and provided funding through January 15, 2014. Funding for the remainder of the fiscal year was provided when the Consolidated Appropriations Act (P.L. 113-76) was signed into law on January 17, 2014. During the October 2013 lapse in appropriations, federal agencies were directed to implement contingency plans that were designed to guide federal agency operations during the partial government shutdown.

Notably, federal agency operations include administration of over 1,714 congressionally authorized federal grant programs administered by 26 federal agencies. Federal outlays for grants to state and local governments were $514.6 billion in FY2011 and an estimated $504.4 billion in FY2012. The largest outlays for grants to state and local governments are for health programs with an estimated outlay of $275 billion in FY2012, and education, training, employment, and social services with an estimated outlay of $115 billion for the same year.

State and local governments rely upon federal aid to fund projects and provide services that benefit communities and individuals. Interruptions in these activities can have a negative effect on the beneficiaries of federal aid. These activities rely upon the following grant administration activities:
• Executing grant award agreements;
• Processing payments to grantees; and
• Investigating waste, fraud, and abuse allegations.

A federal government shutdown may cause a minor disruption or may result in the cessation of these activities depending on the following factors:
• The timing and length of the federal government shutdown;
• Choices made by federal, state, and local officials; and
• Congressional action since the last federal government shutdown.

Federal, state, and local officials make choices involving:
• Covering gaps in federal funding with uncertainty of reimbursement;
• Furloughing grants administration personnel; and
• Including grants administration personnel in contingency planning.

The administrative, political, and economic environment will vary in every potential and actual federal government shutdown. Predicting the effect of a federal government shutdown on federal grant recipients and beneficiaries relies upon evaluation of these factors at the time of the lapse in federal funding and consideration of Congressional action since the last shutdown. This report will evaluate these factors and present a selection of legislative options to mitigate the effect of a future federal government shutdown.