What the Federal Government Shutdown Means to Low-Income People

October 10, 2013 | Tom Salyers

UPDATED AS OF October 10, 2013

By Tom Salyers

As the partial government shutdown continues, we are closely monitoring the effects and implications on low-income people.  To ensure we keep you as current as possible, we have revised this Q&A -- originally posted on October 1 -- to reflect changes, update our information, and provide additional insights.  I have gathered thoughts from CLASP colleagues, including Marcie Foster, Olivia Golden, Elizabeth Lower-Basch, Hannah Matthews and Neil Ridley about the impact of the shutdown on low-income families and individuals.  In addition, we obtained information from other organizations.  This revision encompasses the insights of all.

Q:        What is a government shutdown? Does this mean that everything the federal government does and funds will come to a screeching halt?

A:        No, the government hasn’t locked its doors and ceased all operations.  First off, there is a general exemption for the direct protection of life or property.   That covers services like air traffic control and meat inspections; however, the federal employees that do this work will not be paid until after the shutdown ends.   Congress also voted to fund most Defense activities that support the troops.  Social Security and Medicare are not affected because they do not depend on year-to-year appropriations.  And Medicaid and Supplemental Security Income (SSI) received advance funding in last year’s appropriations through December 31, 2014.  Almost everything else is being affected, including some major programs for low-income people.  It is worth noting that this is all happening against the backdrop of the sequester, which has already stretched many budgets to the near-bursting point.

Q:        What about the Temporary Assistance for Needy Families (TANF) block grant – is that program vulnerable in a shutdown?

A:        Yes.  Even though TANF is a mandatory program, it was only authorized through September 30, 2013.  Under the shutdown, the federal government is not awarding any new funds for TANF.   But states provide benefits with a mix of state and federal funds, and most have some money left over from previous years.  So, we have been strongly encouraging states to keep providing benefits and services to families.  At the start of the month, Arizona temporarily suspended benefits to some families.  However, the Arizona governor later directed the state agency to use state funds to fill the gap on a temporary basis.  We are not aware of any other state that has cut families off of benefits; some states may have cut back a portion of the services supported with TANF funds.

Q:        How are federal child care subsidies impacted?

A:        There are currently no new federal dollars for child care assistance for low-income working families. Much like TANF, states run child care programs with a mix of state and federal funds.  The program rules allow states to spend dollars over several years, so many states have some money from previous years to spend. Therefore, between state dollars and prior year federal dollars, states are continuing to provide assistance to families in all the states that we know of. How long states can continue to provide assistance may depend on the amount of prior-year dollars they have.  

Q:        How about unemployment insurance?

A:        Federal funds for extended unemployment benefits will continue.  However, administrative funds are likely to be affected as the shutdown continues.    According to press reports, Nevada is relying on emergency funding to administer unemployment benefits after exhausting federal administrative funding and has warned that it will not be able to make benefit payments after the end of October. As discussed below, unemployed workers may also find reduced hours or closings of the American Job Centers that usually provide job search assistance and other employment services. States are also reporting spikes in applications for unemployment benefits as government contractors and others who rely on business from the federal government file claims.

 Q:       How about SNAP (food stamps)?

A:        The food stamp program is operating under a slightly different schedule. According to the Food and Nutrition Service of the US Department of Agriculture, SNAP benefits are funded until October 31, 2013 thanks to a provision of the American Resource and Recovery Act.   The USDA has not yet clarified how it will handle things starting November 1. Some states may be cutting back on outreach services, nutrition education, and workforce programs for SNAP recipients in order to conserve the limited amounts of administrative funds that are available.

Q:        Will WIC (the Supplemental Nutrition Program for Women, Infants and Children) be temporarily discontinued?

A:        New federal funds have not been provided for WIC and very limited amounts of contingency funds from previous years are available.  Ongoing benefits as the shutdown continues depend on states being willing and able to front the money.  Utah briefly closed its centers last week before receiving some additional contingency funds that allowed them to reopen.  North Carolina discontinued issuing WIC benefits on Tuesday, October 8, before announcing on Thursday night that it would resume. 

Q:        What about Head Start and Early Head Start?

A:        Head Start and Early Head Start  providers receive funds from the federal government on a rolling basis. Only the programs that were due to receive their annual funding on October 1 – which is 23 programs serving 19,000 children in 11 states – have been affected so far.  The next group of programs to be affected will be those that are scheduled to receive their funding on November 1, should the shutdown go that long. At that time, up to 86,000 children in 41 states could be affected.  Philanthropists Laura and John Arnold have provided emergency funding allowing the October 1 group of Head Start programs to continue serving children and their families.   While the Arnolds’ generosity has been very important to tide programs over, this model of using private dollars is not sustainable beyond a very temporary fix.

The remaining Head Start providers have funding that is not in jeopardy until their grants are up for renewal. It is worth noting, however, that all Head Start providers have already been hit hard by funding reductions due to the sequester.

Q:        What about financial aid for higher education?

A:        Fortunately, recipients of Pell Grants and student loans will still have access to this financial aid during a short-term government shutdown.  However, students who receive aid from campus-based programs (such as Supplemental Educational Opportunity Grants or federal work-study) will not receive these funds since the government workers who administer these programs will be furloughed.  In addition, federal workers will not be available to answer students’ questions about financial aid and the Free Application for Federal Student Aid (FAFSA).

 Q:       Will students in adult education programs still have access to classes?

A:        Federal funding for adult education is “forward funded,” which means programs obtain their funding in the prior fiscal year and begin using those funds on October 1 (the start of the new federal fiscal period).  Most states also provide additional state funding for these programs to supplement what the federal government provides. Therefore, adult education programs should not face immediate funding issues.

Q:        Will American Job Centers (AJCs or One-Stops) or other services for unemployed workers and disadvantaged job seekers be affected?

A:        States are currently operating AJCs with existing funding and will have to rely on this carry-over funding or other sources to continue operations. At the end of September, the US Department of Labor warned states that a government shutdown will delay the Adult and Dislocated Worker formula allotments under the Workforce Investment Act (WIA). A number of local areas across the country have furloughed or reduced the hours of staff providing employment services, while others have stopped enrolling participants in training programs or other services. More areas will be affected if the shutdown continues.

Q:           What happens if the shutdown continues to drag on for more days – or weeks?

A:            There is no doubt that the impacts of the shutdown will get worse the longer it lasts.  For example, as time goes on, more Head Start centers will have contracts up for renewal.  The states have some ability to provide the funding to keep the programs they administer running for a few days or even weeks.  Some states have more extensive reserves than others.  But at some point, they’ll all run out of funds for programs or administration and need to cut services. Moreover, the longer the shutdown lasts, the more uncertainty there will be about whether all programs will be made whole.  This in turn will affect states’ willingness to make obligations, expecting to be repaid.   Several Governors have already made public statements that if the shutdown continues past late October or early November, they will not have the fiscal capacity to continue providing services. 

Q:        What can states, advocates, and nonprofit programs do to cope with the uncertainty of the shutdown?

A:        We offer several suggestions.  First, make sure to gather facts as you deal with the situation.  CLASP is working to provide up-to-date guidance on some programs – eg., TANF and child care  as are other organizations.  For many programs, the ultimate decision about what will and will not operate will be made at the state or local level.  Information from a program in another state may or may not be relevant.  Rumors can spread quickly and might not be based on fact. For example, some merchants refused to accept WIC vouchers early last week, believing incorrectly that they would not be reimbursed.  Pay attention to the difference between cuts that are actually happening now and projections of what might happen.  Second, stay focused on vulnerable families and the vision your organization, state, or program has about the right way to provide high-quality public services.  That is likely to mean working doubly hard to mitigate the worst effects of the shutdown on vulnerable families and to protect staff who are key to high-quality service delivery.  Third, even as you work to mitigate effects, don’t forget to document the effects of the shutdown on both programs and participants.   The fact that states, local governments and nonprofits are drawing on their reserves should not obscure the irresponsibility of the shutdown.

Q:        What does this have to do with the Affordable Care Act?

A:        The initial controversy between the House and the Senate was not about the actual budget levels for FY 2014 -- although there are important differences between their proposals -- but rather about House proposals to eliminate or delay the Affordable Care Act (ACA).  All uninsured Americans will benefit from the ACA, but low-income people particularly stand to benefit greatly from affordable health insurance.  Therefore, moving ahead on schedule with ACA implementation is extremely important. 

Q:        What happens next?

A:        No one knows for sure.  The leadership in the House has been trying to address the shutdown using a piecemeal approach to funding politically sensitive programs.  CLASP joins many others in rejecting this approach, which does not solve the issue of the entire federal budget. 

Q:        What about the debt ceiling?

A:        Sometime in late October the Treasury has estimated October 17 the U.S. government will not have enough money on hand to pay all of its bills without borrowing more. At that point, Congress must act to allow the government to borrow more or it will start to miss payments that it owes to retirees, veterans, states, employees and bondholders. This would be more far-reaching and serious than the partial federal shutdown, as no programs would be protected.  It would also result in the U.S. defaulting on its loans, raising the cost of borrowing and shaking world financial markets.

Q:        Is there anything else I can do?

A:        Please join the many others across the country who are keeping us informed of what’s happening on the ground.  CLASP is available to assist where our information about federal policy or the experience of other states can be useful. If you would like to share what’s going on in your state, please use this form to contact us.  We would greatly value hearing from you, will use your information to inform other states and programs, and -- as we are able – will offer guidance and support for your particular situation.

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