Story first appeared in Business Week.
Government Shutdown Begins as Deadlocked Congress Flails
The U.S. government began its first partial shutdown in 17 years, idling as many as 800,000 federal employees, closing national parks and halting some services after Congress failed to break a partisan deadlock by a midnight deadline.
Congressional leaders have scheduled no further negotiations on spending legislation, raising concerns among some lawmakers that the shutdown could bleed into the more consequential fight over how to raise the U.S. debt limit to avoid a first-ever default after Oct. 17.
Chances of a last-minute deal -- seen so often in past fiscal fights -- evaporated shortly before midnight as the House stood firm on its call to delay major parts of President Barack Obama’s health-care law for a year. Senate Democrats were equally firm in refusing to concede and planned a morning vote to reject the House’s call for formal talks.
“It is embarrassing that these people who were elected to represent the country are representing the Tea Party,” Senate Majority Leader Harry Reid, a Nevada Democrat, said after midnight. “This is an unnecessary blow to America.”
House Speaker John Boehner, speaking after 1 a.m. in Washington, called on Senate Democrats to come to the negotiating table.
“Let’s resolve our differences,” Boehner, an Ohio Republican told reporters. “The House has voted to keep the government open, but we also want basic fairness for all Americans under Obamacare.”
Lost Output
A partial federal government shutdown would cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc. (IHS) That’s a fraction of the country’s $15.7 trillion economy, and the effects probably will grow over time as skittish consumers and businesses stay on the sidelines.
“You don’t get to extract a ransom for doing your job, for doing what you’re supposed to be doing anyway or just because there’s a law there you don’t like,” Obama said at the White House yesterday. “Time’s running out.”
U.S. stocks have fallen on concern that the political showdown over government spending will hurt economic growth, with the Standard & Poor’s 500 Index (SPX) slipping 1.7 percent during the past six trading sessions.
Futures on the S&P 500 rose 0.2 percent as of 3:09 p.m. in Tokyo, signaling that U.S. equities may reverse a two-day slide. The MSCI Asia Pacific Index of stocks gained 0.3 percent as confidence among Japanese manufacturers reached an almost six-year high, adding to a 6.2 percent rally last quarter.
Essential Operations
Treasury 10-year yields rose 3 basis points to 2.64 percent, as the U.S. government shutdown became official. The S&P GSCI Index of commodities fell 0.3 percent for a third day of losses, with crude losing 0.3 percent to near a three-month low of $102.03 a barrel.
During the partial government shutdown, many essential government operations will cease. Internal Revenue Service call centers will close and more than 90 percent of Environmental Protection Agency workers will stay home. National parks and museums will be shuttered.
Other services will continue uninterrupted. Social Security and Medicare benefits will be paid. U.S. troops will remain at their posts around the world and will be paid under a bill Obama signed yesterday. Air-traffic controllers and airport security screeners will keep working.
Health-Law Enrollment
The shutdown comes on the first day of enrollment in the exchanges mandated under Obama’s Affordable Care Act, itself at the heart of the fight. Enrollment will continue today despite the shutdown, because it’s paid for out of mandatory funding not affected by the lapse, U.S. officials said.
In the end, the final hours before the shutdown were marked by a combination of legislative procedure and partisan vitriol. House Republicans said they would appoint members to a committee meant to negotiate a compromise between the Republican and Democratic positions -- something several rounds of votes didn’t accomplish.
“I’d be surprised if it went for weeks,” said Senator Bob Casey, a Pennsylvania Democrat. “But I don’t think it’s just going to resolve itself in a day or two.”
Before midnight, the U.S. Office of Management and Budget issued guidance to agencies, telling them how to go forward when money ran out at midnight in Washington.
Boehner, who said he didn’t want a shutdown, kept bringing bills backed by hard-liners in his party to the floor for votes. Twice yesterday, the House voted to send a bill delaying Obamacare to the Senate. Twice, the Senate rejected the House plans.
Confrontational Strategy
Republicans remained divided between a group that says the party’s confrontational strategy is doomed and a faction railing against Obama’s refusal to negotiate.
“I would like see some road in which Barack Obama is actually participating in the process,” said Representative Tim Huelskamp, a Kansas Republican.
Congress and Obama have been at loggerheads on fiscal policy since Republicans won control of the House. They took several disputes to the brink, including a potential government shutdown in April 2011, the debt ceiling in August 2011 and the expiration of tax cuts in December 2012.
In each case, lawmakers reached an agreement to prevent the worst possible outcome. Most recently, the House passed a tax bill Jan. 1, hours after income tax rate increases took effect.
Cruz Uprising
Boehner and House Majority Leader Eric Cantor, a Virginia Republican, tried to avoid this fight, offering a first proposal last month that would have let the Senate send a spending bill without conditions right to Obama.
They faced an uprising from Republicans, urged on by Senator Ted Cruz of Texas, who insisted on language that would defund Obamacare.
The House scaled back its demands twice, each time running into a party-line objections from Senate Democrats and Obama, who increasingly saw the spending bill as a prelude to the debt-ceiling negotiations.
“These Tea Party people are insatiable when it comes to confrontation and shutting down the government,” said Senator Richard Durbin of Illinois, the chamber’s second-ranking Democrat. “This has got to come to an end. We can’t continue to lurch from one crisis to another.”
The House’s final volley, passed last night, would have delayed for one year the mandate that individuals purchase health insurance and would end government contributions to the health insurance of lawmakers, congressional staff members and political appointees.
Fighting Corners
Democrats see a path out of this crisis. They want Boehner to allow the House to vote on the Senate’s version of the spending measure, which would extend government funding through Nov. 15 and exclude any Obamacare conditions.
Republicans said they want to force Obama to accept some concessions on his signature health-care law.
Some strategists expect the shutdown to drive both parties deeper into their respective fighting corners as they assess the economic and political fallout, hardening positions at least temporarily before a resolution can be reached.
“It’s clear that there are rising concerns within the House Republican caucus about how all of this is being handled, but I believe that for right now, the insurgents have the upper hand and they’re not going to go away without a fight,” said Democratic communications consultant Jim Manley of Washington-based Quinn Gillespie & Associates LLC, a former top aide to Reid.
Deal Prerequisite
Nor do Democrats have any interest in compromising with Republicans until their internal fighting about what strategy to pursue subsides.
At the same time, many Republicans have come to believe that shutting the government for a brief time is a prerequisite for any deal.
“It would be better for Republicans if there were no shutdown, but in many ways it can be a useful way to lance the boil,” before the fight over raising the debt ceiling, said Republican strategist John Feehery, also of Quinn Gillespie. He was a top aide to former House Speaker Dennis Hastert of Illinois.
“The debt limit is much more important, and hopefully the shutdown can release some of the pressure and helps them get to a broader agreement,” Feehery said. “That remains to be seen.”
