The recent 35-day government shutdown, the longest in U.S. history, hit the country and many government workers hard. And even though we’re in the final days of January, the government has been reopened and furloughed workers are getting back into their old routines; President Donald Trump has warned that the government will only remain open if lawmakers can reach a deal on border security that he finds acceptable. Failure to do so could mean, as of Feb. 15, 2019, the government will be closed for business once more.
While the drama, speculation and ultimatums continue to take center stage at the federal level, the impact a government shutdown has on our local government entities demands consideration as well. Why? Because citizens depend on their local governments to do much more than approve resolutions for beautification of community parks and street repair. When the government shuts down, funding to critical programming is halted as well.
What Is A Government Shutdown And How To Avoid One
According to the U.S. Government Accountability Office, the Antideficiency Act prohibits federal employees from spending in excess of appropriations. This same treatment is outlined by the Ohio Revised Code in an effort to ensure fiscal responsibility among our local government entities.
A shutdown of federal agencies (and the programs that rely on them) occurs when no short-term or full-year appropriations are enacted. A shutdown can be avoided in two ways – either Congress can pass a full-year appropriations bill or a continuing resolution. Oftentimes, Congress uses continuing resolutions to “bridge” funding while appropriations bills are in debate. This is similar to the temporary appropriations local governments can pass to operate the first three months of the new fiscal year before the permanent appropriation ordinance is approved by a legislative body.
Without a permanent or temporary appropriation authority in place, certain federal government expenditures are disallowed under the Antideficiency Act.
Also read: Are Your Policies & Procedures Out Of Date?
How Does The Shutdown Impact Local Governments?
Two words: grant funding.
Since about one-third of most states’ funding is provided by the federal government, government shutdowns will impact governments at the state level before trickling down to local municipalities. That being said, it’s common for grant funds to pass through state governments before they are distributed at the local level.
How a local government’s grant funding is affected will ultimately depend on the type of grants that are awarded and how the funds are to be used. The following programs are impacted by government shutdowns in different ways:
- Discretionary programs – These programs are at the greatest risk of being defunded during a shutdown because funding is determined by annual appropriations. Unfortunately, most grants to state and local governments fall in this category and include formula grants; title; special and vocational education grants and grants under the Workforce Investment Opportunity Act.
- Mandatory programs that bypass appropriations – Programs such as these are generally safeguarded because funding is automatic.
- Mandatory programs funded in appropriations act – The funding for these programs is included in the annual appropriations so the shutdown would impact them to the extent that no new funding would be available. Examples include Medicaid, foster care and adoption assistance.
The good news is that agreements, programs and contracts that are under a prior appropriation measure but have not yet been received (or spent) by local governments, will still be honored. However, the most notable impact could be on the ability to draw down these funds during a shutdown.
Financial Statement Impact
If your year-end is Dec. 31, 2018, and you prepare GAAP financial statements, you could notice higher intergovernmental receivables than in prior years reported on your financial statements. It is important to work with your outside departments and the firm that assists with your GAAP conversion to verify that all grant funding incurred, but not yet received, is captured on the financial statements that are presented to audit.
Listen to episode 110, “How To Prepare For A Painless Audit,” on Rea’s award-winning podcast, unsuitable on Rea Radio.
On a Positive Note
Focusing on the basic needs of children – all child nutrition programs have funding to operate well into the month of March 2019. In addition, the government issued Budget Brief 18-19, which asserts that any “core programs of the nutrition safety net … shall continue during a lapse in appropriations.”
That same brief indicated that Community Development Block Grants, HOME Investment Partnerships Program and other block grant funds will continue to be disbursed. While the Department of Transportation has sufficient liquidating cash to continue operations, it will likely not disburse any grant funding in order to maintain those reserves to pay for core operating activities.
While it’s not guaranteed, historically, once the partial shutdown ends, the appropriation measure is enacted retroactively and state and local governments will be reimbursed for relevant federal program- related costs incurred during the lapse in appropriations.
If you’re uncertain about which grants your entity receives or if you want more information regarding the shutdown and specific contingency plans enacted by federal agencies that impact your entity, you can go to the Federal Funds Information for State website or email Rea & Associates to contact a member of our government team.
By: Anita Martin, CPA (Medina)