Government Shutdown Advisory: Summary of Contingency Plans for Lapse in Appropriations

Much of the federal government is funded by 12 annual appropriations bills. The federal fiscal year for 2024 (FY 2024) begins on Oct. 1, 2023, and if appropriations bills have not been enacted before that date or a temporary funding measure – known as a continuing resolution (CR) – has not been enacted, a gap (or lapse) in appropriations will occur. A federal law known as the Antideficiency Act generally bars the government from incurring obligations¹ in the absence of appropriations. Accordingly, federal agencies are required to curtail many activities in the absence of an appropriation, commonly referred to as a government shutdown. The relevant laws that govern shutdowns have remained relatively constant in recent decades. However, agencies and officials may exercise some discretion in how they interpret the laws. Every agency is required to develop and update shutdown contingency plans. 

In the past, there have been funding gaps that led to occasional government shutdowns. In many cases, these were "partial" government shutdowns as some of the 12 regular appropriations bills had already been enacted. The government was shut down previously for:

• 21 days, from Dec. 16, 1995, to Jan. 6, 1996
• 16 days, starting Oct. 1, 2013
• 35 days, beginning Dec. 21, 2018 (five of the 12 regular appropriations bills had been enacted in advance of this shutdown; agencies and activities funded by those measures were unaffected)
• two brief shutdowns in January 2019 and February 2019

Not everything that the federal government does is discontinued during a gap in appropriations. As discussed below, the Antideficiency Act provides for several activities that are excepted from being discontinued. U.S. military operations will also continue during a shutdown due to the vital national security interest. In addition, activities that are not dependent on a current year appropriation can be continued, such as activities that were previously provided multiyear funding or advanced funding, along with activities funded by user fees or trust funds that are independent of the appropriations process (for example, student loan processing or Medicare provider claims payments). 

Federal government shutdowns have a wide range of impacts, the severity of which can depend on the shutdown's length. In addition to the disruption of internal government functions, the unavailability to the public of many government services and lack of access to public facilities, shutdowns can profoundly impact government contractors, public and private recipients of federal grants, and the general public. For instance, those traveling could experience delays due to air traffic controllers and Transportation Security Administration (TSA) officers having to work without pay, increasing no-show employees. And while social safety net programs such as the Supplemental Nutrition Assistance Program (SNAP) will continue to function, a lengthy shutdown period could exhaust remaining funding. Although the U.S. Department of State still expects to continue passport operations, much of those are contingent on sufficient fees to support them. On the other hand, however, less essential activities utilized by the general public – such as national parks – will be suspended until government funding resumes.

It is a best practice for federal contractors and grant recipients to contact their program officer to discuss these issues in advance of a potential shutdown, as these individuals may be unavailable once the shutdown is triggered. (See related Holland & Knight Government Contracts blog, "A Contractor's Guide to the Impending Government Shutdown," Sept. 21, 2023, and register to attend our Government Contracts Group webinar on Sept. 29 on "How Contractors Can Manage the Imminent Government Shutdown.")

As of this writing, none of the FY 2024 appropriations bills has been enacted, and there is no agreement on a short-term funding measure (CR). 

On Dec. 2, 2021, the White House Office of Management and Budget (OMB) published a question-and-answer document – "Frequently Asked Questions During a Lapse in Appropriations" – to assist stakeholders in planning for a potential lapse in government funding. Broadly, this section reviews the exceptions in which an agency can incur obligations during a government shutdown. Guidelines for agencies' limited ability to incur obligations during a government shutdown are outlined in the Antideficiency Act (Public Law 97-258). OMB also posts shutdown contingency plans developed by federal departments and agencies. This information is summarized below and can be accessed online.

The Congressional Research Service also has online resources to assist interested parties in understanding the implications and history of government shutdowns:

• Past Government Shutdowns: Key Resources (updated Sept. 22, 2023)
• Federal Funding Gaps: A Brief Overview (published Sept. 7, 2023)

OMB FAQs

Below is a summary of Frequently Asked Questions and Answers pertaining to a lapse in federal appropriations, provided by OMB on Sept. 22, 2023.

Excepted Activities Under the Antideficiency Act

An agency may incur an obligation in the absence of an appropriation in certain "excepted" situations, which include: The rare case in which a statute expressly authorizes an agency to obligate funds in advance of appropriations (generally defense-related); if the suspension of function would "imminently threaten the safety of human life or the protection of property;" and if the function is necessary for presidential constitutional responsibilities.

The fourth case is when a project is "necessarily implied." Certain agencies must continue to handle a limited number of activities without appropriations because their continuation is "necessarily implied" from the authorized continuation of other activities. A "necessary implication" can arise from an agency's need to carry out 1) an "orderly shutdown," 2) one of the "excepted" activities discussed above or 3) an activity in which that activity's suspension would prevent or significantly damage the execution of a separate, funded activity. "Necessarily implied" functions additionally include processing and payment of tax refunds, publication of documents in the Federal Register and payroll processing to liquidate payroll obligations incurred prior to the lapse.

If a more general appropriation is legally available for the same purpose of an activity previously funded out of a specific discretionary appropriation, that appropriation may be used until the specific appropriation is restored.

Contracts and Grants

An agency may incur new obligations for contracts or grants that are in advance of, or that exceed, an appropriation if the contract or grant addresses one of the four concerns outlined above: 1) expressly authorized by a statute, 2) addresses emergency circumstances, such that suspension of function would imminently threaten safety of human life or protection of property, 3) function necessary to execution of presidential constitutional duties and powers and 4) function is "necessarily implied" by continuation of other authorized activities. However, while the agency can incur new obligations in these special circumstances, it cannot pay the contractor until appropriations are enacted.

Continued Performance of Administrative, Supervisory or Support Activities During a Funding Lapse in Connection with a Previously Awarded Contract or Grant: Agency employees who work with contract and grant administration will generally be furloughed during a lapse in appropriations. If performance under an already-issued contract or grant is not impacted by the lapse [such as in the case of 1) an agency has already obligated funds representing the entire price under a contract before the lapse or 2) the agency may use multiyear or no-year funds to incur new obligations for the contract or grant], the contractor or grantee may continue to proceed with its work. If the appropriation for a new contract or grant remains available, but the salary of the employee(s) of the agency has lapsed, the ability of the agency to incur the new obligation depends on whether the authority for the employee's salary during the lapse is a "necessary implication" of the program, meaning failure of the employee to carry out their responsibilities in the lapse period would significantly damage the funded function (or whether another exception from above applies).

If it has been determined that the federal employees who supervise or support the performance of the contract or grant cannot continue during the funding lapse, but their supervision is not critical to the contractor's or grantee's continued performance, then the contractor or grantee may proceed with the work. This could occur if the agency had fully obligated the funds before the lapse, meaning the agency would not have to issue an affirmative direction to the contractor or grantee to continue performance (such as notice to proceed). However, the OMB notes that if the continued supervision or support during the lapse period is critical to the contractor's or grantee's continued performance during that period, then the agency should instruct the contractor or grantee to suspend performance. The same applies to performance dependent on the participation of other federal agencies or the availability of other federal facilities impacted by a lapse of appropriations.

If federal employees support and supervision of the contract or grant performance is statutorily required, it will proceed. Otherwise, the agency will review whether the project's continuation is a "sensible use of taxpayer funds" or "wasteful" given the lapse of appropriations.

Making Payments to Contractors and Grantees During a Lapse in Appropriations: If payment activity for previously awarded contracts or grants, in which available funds were obligated, is "necessarily implied" because failing to make payments would "prevent or significantly damage" the execution of the project, federal employees can be excepted from furlough to make timely payments and liquidate obligations for the contractor or grantee.

Primarily, agencies are told to consider whether projects can be postponed until appropriations are enacted based on the expected duration of the funding lapse. In some cases, projects would not qualify for continuation during a brief funding lapse, but they would qualify if the duration of the funding lapse became longer. The opposite could occur in cases where a sufficiently long lapse led to the need for additional funding for continued performance. In this case, the agency would need to undertake the previously described analysis to determine if additional funding should be granted or if continued performance would be "wasteful" given the impact of the lapse on other agency activities.

Information Technology

Federal information technology (IT) operations will continue only to the extent that they are excepted activities to protect an agency's cybersecurity risk and prevent any permanent disruption to agency information systems or loss of agency information. Funds will be obligated only to maintain government websites and retain website personnel if doing so is necessary to avoid significant damage to the execution of authorized or excepted activities, not only for the benefit of continued public access to information about agency activities. For example, the IRS website would remain active, but not necessarily the entire U.S. Department of the Treasury website, if such websites were funded by a lapsed appropriations source. If websites are down, agencies may extend application deadlines that are otherwise due during the lapse.

Agencies should not begin "orderly shutdown" until directed to operate in accordance with their contingency plans, outlined below, by the director of OMB. "Orderly shutdown" should generally take three to four hours and should be completed on the agency's next business day.

Contingency Plans by Agency

This document provides details of the contingency plans for 13 key departments and agencies:

• U.S. Department of Agriculture
• U.S. Department of Commerce
• U.S. Department of Defense
• U.S. Department of Education
• U.S. Department of Energy
• U.S. Department of Health and Human Services
• U.S. Department of Homeland Security
• U.S. Department of Housing and Urban Development
• U.S. Department of Justice
• U.S. Department of Transportation
• U.S. Department of the Treasury
• U.S. Environmental Protection Agency
• U.S. Social Security Administration

For more information or questions regarding the potential government shutdown and its impact, please contact the authors or another member of Holland & Knight's Public Policy & Regulation Group.

Notes

¹ In this context, "obligations" are referred to as "A formal order legally committing the federal entity to ultimately pay a future liability."

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.