Federal shutdown could affect 40,000 Arizonans

WASHINGTON — With Congress at an apparent budget impasse, a looming government shutdown could send thousands of federal workers in Arizona home next week and pull millions of dollars from the state’s economy in the process.

It’s not clear how many of the more than 40,000 federal workers in the state would be affected – or even if there will be a shutdown at all before the Tuesday deadline for a budget deal.

But economists said any shutdown would be felt not just by federal workers but by other businesses and individuals in the state as well.

“If you follow the money, it ends up in the pockets of private individuals,” said Dennis Hoffman, an economics professor at Arizona State University’s W.P. Carey School of Business.

Hoffman said that government worker salaries account for $5 billion to $6 billion of the $65 billion the federal government spends in Arizona in a year. Most of the money goes to contractors in the state, he said.

Not all that money is at risk. Most federal employees in Arizona work for the military, Veteran Affairs or Customs and Border Protection, agencies that could be protected from furlough the event of a shutdown.

But Hoffman said that, depending on the length of a shutdown, other federal payments could start being delayed.

The last time Congress and the White House shut the government down because they failed to reach a budget deal was for three weeks, from December 1995 to January 1996.

A Congressional Research Service report after that shutdown outlined several effects, including more than 200,000 passport applications that went unprocessed and the loss of $14.2 million a day in tourism revenues to communities near shuttered national parks.

Not all government workers were put on furlough then, but those who did continue to work did not get paychecks until after the government was back up and running.

If there is a shutdown next week, as before, each government agency would determine which employees would continue working.

A shutdown could occur if Congress fails to pass a budget – or a “continuing resolution” that would keep spending going at previous levels – by Tuesday, the first day of fiscal year 2014.

But Congress and the White House are locked in a partisan battle over the budget. The House last week, largely on party lines, approved a continuing resolution that funds government through Dec. 15, but strips out funding for health care reform that was scheduled to kick in Oct. 1.

President Barack Obama has said he will not sign a bill that guts health care reform – better known as “Obamacare” – and Senate Democrats have sided with him. A Senate vote on a budget bill that restores Obamacare funding is expected this week.

In a Senate Budget Committee hearing Tuesday, Sen. Patty Murray, D-Wash., accused Tea Party Republicans of holding the nation’s economy hostage in their zeal to defund Obamacare.

But Sen. Jeff Sessions, R-Ala., who said that there are too many taxes and regulations in the country now, noted that the country has survived government shutdowns in the past.

A panel of economists told the committee, however, that even the possibility of a shutdown can have a negative effect on the economy.

“Political uncertainty has been a significant weight on the economic recovery,” Mark Zandi, chief economist at Moody’s Analytics, testified Tuesday.

Zandi said that debate over the federal budget, the debt ceiling and continuing policy gridlock is a strain on the national economy, keeping monthly hiring rates 20 percent lower than they should be in a healthy economy.

Zandi also said the political situation keeps entrepreneurs from starting companies. “The political uncertainty is key to the lack of hiring and the unwillingness for businesses to take a risk,” he said.

Allan Meltzer, an economics professor at Carnegie Mellon University, told the committee that investments are critical to a strong economy, but budget uncertainty keeps people from investing. A long-term budget plan would help stabilize the economy, he testified.

Hoffman said that those people who are not worried about a shutdown, believing that the vital services will keep running, are ignoring the loss of money from the state economy. And they are misinterpreting “vital” services, he said.

“Why are we funding non-vital services anyway?” he asked. “All government work benefits someone, somewhere, somehow.”