2013 Government Shutdown: Three Departments Reported Varying Degrees of Impacts on Operations, Grants, and Contracts
Published: 2014-10-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The federal government partially shut down for 16 days in October 2013 because of a lapse in appropriations. According to OMB, about 850,000 federal employees were furloughed for part of this time. GAO was asked to describe the effects of the shutdown. This report describes (1) how the shutdown affected selected agencies' operations and services, including immediate and potential longer-term effects; (2) what is known about how the shutdown affected federal contracting and grants, as reported by the selected agencies and associations with expertise in grants and contracts; and (3) what economic studies or reports state about the effect of the shutdown on national economic activity.
GAO selected three departments for review—DOE, HHS, and DOT—based on the value of grants and contracts, the percentage of employees expected to be furloughed, and the potential for longer-term effects. GAO reviewed department contingency plans and other documents; economic forecasters' analyses; and interviewed officials from the selected departments and components, BEA, OMB, OPM, associations, and economic forecasters.
section_title: What GAO Found
paragraphs: The 2013 shutdown impacted some operations and services at the three departments that GAO reviewed: Energy (DOE), Health and Human Services (HHS), and Transportation (DOT). For example, at HHS's National Institutes of Health (NIH), initial closure of the clinical trials registry prevented new trial registrations for patients, before NIH recalled a small number of employees to reopen the registry. Similarly, DOT's Merchant Marine Academy closed and required a change to the academic calendar to allow eligible students to graduate on time. However, officials at these departments said that longer-term effects are difficult to assess in isolation from other budgetary events, such as sequestration.
Because of employee furloughs and payment or work disruptions, the three departments, their components, grant recipients, and contractors faced delays and disruptions in grant and contract activities during the shutdown, including the following examples:
Within HHS, grants management activities at NIH effectively ceased with employee furloughs, although most current grant recipients were able to draw down funds. NIH had to reschedule the review process for over 13,700 grant applications because of the shutdown. After the shutdown, NIH completed the process to meet the next milestone in January 2014.
Grants activities at DOT's Federal Transit Administration (FTA) effectively ceased with grants management officials furloughed and no payments made on existing grants. FTA officials said that no new grant awards were processed because of the shutdown, but the effect was minimal because the grant processing system is typically unavailable in early October for fiscal year closeout activities.
At DOE's Office of Environmental Management (EM), contract activities generally continued because of the availability of multi-year funding, but more than 1,700 contractor employees who operate and maintain EM facilities were laid off or required to use leave because EM issued stop work orders. EM officials reported some programs required 4 months to return to pre-shutdown levels of contract activity.
Researchers' analyses of the economic effects of the shutdown have been limited to predicting its effect on real gross domestic product (GDP) in the fourth quarter of 2013. In January 2014, the Bureau of Economic Analysis (BEA) estimated the direct effect of the shutdown on real GDP growth to be a reduction of 0.3 percentage points. Economic forecasters GAO interviewed believed the other economic effects to be minimal at the economy-wide level.
The selected departments were aided in managing the uncertainties of the shutdown by their experience with preparing for prior potential shutdowns, funding flexibilities (such as multi-year funding), and ongoing communications internally and with Office of Management and Budget (OMB) staff and Office of Personnel Management (OPM) officials. OMB staff addressed questions from agencies on how to communicate about the shutdown with their employees, but did not direct agencies to document lessons learned from how they planned, managed, and implemented the shutdown for future reference.
section_title: What GAO Recommends
paragraphs: GAO recommends that OMB instruct agencies to document lessons learned in planning for and implementing a shutdown, as well as resuming activities following a shutdown should a funding gap longer than five days occur in the future. OMB staff did not state whether they agreed or disagreed with the recommendation.

section_title: Letter
paragraphs: In October 2013, the federal government partially shut down for 16 days,  because of a lapse in appropriations. At the start of the fiscal year,  agencies without available funds were required to cease all operations  (with few exceptions, such as the protection of human life and property)  and commence an orderly shutdown. While under way, the government  shutdown affected federal agencies differently in terms of agency  operations and services provided, as well as in the numbers of  employees that were furloughed. The Office of Management and Budget  (OMB) reported that approximately 850,000 federal employees, or 40  percent of the civilian federal workforce, were furloughed for at least part  of the shutdown. The Department of Defense recalled the majority of its  400,000 furloughed civilian federal employees at the end of the first week  in response to the Pay Our Military Act.
In July 2014, the Bureau of Economic Analysis (BEA) issued the latest  estimate of gross domestic product (GDP) growth for the fourth quarter of  calendar year 2013—the time period during which the shutdown  occurred. According to the estimates, in the fourth quarter of 2013 real  GDP grew by 3.5 percent over the preceding quarter. According to BEA,  increases in personal consumption expenditures, net exports, and gross  private domestic investment were three of the largest contributors to this  growth.
You asked us to describe the effects of the federal government  shutdown. In this report, we describe (1) how the federal government  shutdown affected selected agencies’ operations and services, including  the immediate and potential longer-term effects, (2) what is known about  how the shutdown affected federal contracting and grants, including the  immediate and potential longer-term effects as reported by the selected  agencies and associations with expertise in grants and contracts, and (3)  what economic studies or reports state about the effect of the government  shutdown on national economic activity.
For this review, we selected three departments and three departmental  components to serve as nongeneralizable case studies: the Department  of Energy (DOE) and its Office of Environmental Management (EM); the  Department of Health and Human Services (HHS) and its National  Institutes of Health (NIH); and the Department of Transportation (DOT)  and its Federal Transit Administration (FTA). These departments and  components were selected based on the following criteria: (1) having  grants or contracts valued over $1 billion in fiscal year 2013, as reported  on USASpending.gov; (2) the percentage of federal employees expected  to be furloughed as reflected in the department contingency plans; and  (3) the potential for longer-term effects from the shutdown on operations,  grants, or contracts based on our determination using department  contingency plans, the dollar value of grant and contract programs in  fiscal year 2013, and background research (including OMB’s report on the  shutdown). We selected a component within each department in order to  obtain detailed examples of how components were affected by the  shutdown in terms of operations and services as well as grants and  contract activity.
To describe the effects of the shutdown on the three departments’ and  components’ operations and services, we reviewed documentation from  the departments (including the contingency plan and guidance to  employees) and components (including details on programs affected by  the shutdown) and interviewed relevant departmental and component  level officials regarding steps they took for planning for and implementing  the shutdown and the effects of the shutdown on operations and services.  We reviewed OMB documentation (including its November 2013 report on  the shutdown and guidance to agencies on preparing contingency plans  and operating during a shutdown); reviewed Office of Personnel  Management (OPM) guidance to agencies; and interviewed OMB staff  and OPM officials. We did not assess whether departments correctly  implemented the shutdown or whether decisions to except certain  programs or employees were in accordance with the law.
To describe what is known about how the shutdown affected contracts  and grants at the selected departments and components as reported by  associations with expertise in grants and contracts, we reviewed  documentation from the selected departments and components (including  guidance to the recipients of grants from the components and contractors  employed by the components) and interviewed officials managing grants  and contracts within the selected departments and components. We  targeted our review of grants to HHS and NIH and to DOT and FTA. We  targeted our review of contracts to DOE and EM and HHS and NIH. We  also reviewed documentation—identified through background research— on how federal grant recipients in general were affected by the shutdown.  We interviewed relevant officials from national associations which either  represent contractors and grant recipients or otherwise have relevant  expertise, including associations representing recipients of grants from  our selected departments and components. For grants, these  organizations and associations included the American Association of  State Highway and Transportation Officials; Association of American  Medical Colleges; Association of American Universities; Community  Transportation Association of America; Federal Funds Information for  States; Federation of American Societies for Experimental Biology;  National Association of State Auditors, Comptrollers, and Treasurers; and  National Association of State Budget Officers. For contracts, these  organizations and associations included the Professional Services  Council and the American Small Business Chamber of Commerce.
To describe what economic studies or reports state about the effect of the  government shutdown on national economic activity, we conducted a  literature review to identify relevant studies or reports and economists  who have researched the issue. We reviewed the identified research  predicting the effects of the shutdown on the national economy. Using the  results of the literature review, we interviewed several economic  forecasters from financial services firms who had conducted relevant  analyses. Forecasters we interviewed included economists from Goldman  Sachs, IHS Global Insight, Macroeconomic Advisers, and Moody’s  Analytics. Using the results of the literature review, we also reviewed  reports and analyses from federal agencies on the economic effects of  the shutdown. We interviewed relevant officials from BEA, Congressional  Budget Office, Congressional Research Service, and the Council of  Economic Advisers.
We assessed the reliability of OMB’s furlough data in its report, Impacts  and Costs of the October 2013 Federal Government Shutdown, to be  used for the limited purpose of background information. We checked  OMB’s data by comparing the data to the planned furlough data agencies  reported in their shutdown contingency plans, and we checked the data  for reasonableness and the presence of any obvious or potential errors in  accuracy and completeness. We also interviewed selected OMB staff  knowledgeable about the data and clarified the process whereby the data  were collected and verified. We also assessed the reliability of the federal  grants and contracts data as reported on USASpending.gov for the  limited purpose of case study selection and background information. We  assessed the USASpending.gov data for accuracy and completeness  based on our recent report on the reliability of USASpending.gov data.  We believe these data to be sufficiently reliable for the purpose of this  report. (See appendix I for a more detailed discussion of our objectives,  scope, and methodology.)
We conducted this performance audit from April 2014 to October 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Overview of Shutdowns
paragraphs: Over the past 20 years, there have occasionally been federal lapses in  appropriations that led to government shutdowns. The longest of these  shutdowns lasted 21 calendar days, from December 16, 1995, to January  6, 1996. The most recent government shutdown—the subject of this  report—occurred at the beginning of fiscal year 2014 and lasted for 16  calendar days, from October 1 to 16, 2013. According to OMB, this  shutdown resulted in agencies furloughing federal employees for a  combined 6.6 million work days. Furloughed federal employees were  retroactively paid and OMB estimated the cost to be about $2 billion.
Types of Employee Furloughs   A furlough is the placing of an employee in a temporary nonduty, nonpay status because  of a lack of work or funds, or for other nondisciplinary reasons. There are two types of  furloughs:  A shutdown furlough occurs when there is a lapse in appropriations, and can occur at the  beginning of a fiscal year, if no funds have been appropriated for that year, or upon  expiration of a continuing resolution, if a new continuing resolution or appropriations law is  not passed.  In a shutdown furlough, an affected agency would have to shut down  activities funded by annual appropriations that are not excepted by law.  An administrative furlough is a planned event by an agency designed to absorb reductions  necessitated by downsizing, reduced funding, lack of work, or any budget situation other  than a lapse in appropriations.
Office of Personnel Management, Pay & Leave Furlough Guidance, accessed Sept. 10, 2014. See  also Office of Personnel Management, Guidance for Shutdown Furloughs (Oct. 11, 2013) and Office  of Personnel Management, Guidance for Administrative Furlough (June 10, 2013).
section_title: Funding Gaps
paragraphs: Congress may provide budget authority to agencies through the passage  of appropriations acts, which permits agencies to incur obligations to  spend federal funds. When one or more of the appropriations are not  enacted, a funding gap may result and agencies may lack sufficient  funding to continue operations. Funding gaps occur most commonly at  the beginning of a fiscal year when new appropriations, or a continuing  resolution, have not yet been enacted. In this context, a gap may affect  only a few agencies (if, for example, only one appropriation act remains  unenacted as of October 1) or agencies across the federal government.  We have previously reported that funding gaps, actual or threatened, are  both disruptive and costly.
section_title: Operations during a Shutdown
paragraphs: One of the key issues related to a government shutdown is determining  what activities and programs an agency is permitted or required to  continue when faced with a funding gap and resulting shutdown. Except  in certain circumstances when continued activities are authorized by law,  the Antideficiency Act generally restricts agencies from continuing  operations funded by annual appropriations during a government  shutdown.
Activities Which May Continue During a Government Shutdown  The categories of activities which may continue fall into two broad categories. The first  category is obligations authorized by law. Within this category, there are four types of  exceptions:  Activities funded with appropriations that do not expire at the end of the fiscal year,  that is, multiple-year and no-year appropriations.   Activities authorized by statutes that expressly permit obligations in advance of  appropriations, such as contract authority.  Activities “authorized by necessary implication from the specific terms of duties that  have been imposed on, or of authorities that have been invested in, the agency.” For  example, there will be cases where benefit payments under an entitlement program  are funded from other than 1-year appropriations (e.g., a trust fund), but the salaries  of personnel who administer the program are funded by 1-year money. As long as  money for the benefit payments remains available, administration of the program is,  by necessary implication, authorized by law, unless the entitlement legislation or its  legislative history provides otherwise or Congress takes affirmative measures to  suspend or terminate the program.
Obligations “necessarily incident to presidential initiatives undertaken within his  constitutional powers,” for example, the power to grant pardons and reprieves. This  same rationale would apply to legislative branch agencies that incur obligations  “necessary to assist the Congress in the performance of its constitutional duties.”
The second broad category reflects the exceptions authorized under the Antideficiency  Act (31 U.S.C. § 1342)—emergencies involving the safety of human life or the protection  of property.
section_title: OMB’s Role
paragraphs: In the event of a government shutdown, OMB is responsible for ensuring  that agencies have addressed the essential actions needed to effectively  manage the shutdown; OMB does so by providing policy guidance and  shutdown-related instructions. In particular, OMB Circular No. A-11  directs federal agencies to develop contingency plans for use in the event  of a government shutdown and to update those plans on a recurring  basis. On September 17, 2013, OMB published guidance for executive  branch agencies on how to prepare for and operate in the event of a  government shutdown (including guidance on grant and contract  administration) stating that agencies should be prepared for the possibility  of a lapse in appropriations and resulting government shutdown. The  guidance also instructed them to update their shutdown plans consistent  with section 124.2 of OMB Circular No. A-11, which directs agencies to  include the following in their shutdown plans: a summary of activities that  will continue and those that will cease, the amount of time needed to  complete shutdown activities, the number of employees on-board prior to  shutdown, and the number of employees to be retained during the  shutdown, among other information.
Agency Shutdown Contingency Planning  Given the inherent uncertainty of a lapse in appropriations, an agency’s contingency plan  should include actions to be taken during a short lapse in appropriations (1 to 5 days) as  well as identify changes necessary should the lapse continue for an extended period. A  plan should designate personnel responsible for implementing and adjusting the plan in  response to duration or changes in circumstances that may arise.   The contingency plan should include a summary of significant agency activities that will  continue and those that will cease as a result of the lapse in appropriations, the total  number of agency employees expected to be on-board before implementation of the plan,  and an estimate of the time (to the nearest half day) needed to complete shutdown  activities. If shutdown activities cannot be completed in a half day, the time to completion,  the number of employees necessary to accomplish shutdown, and the specific nature of  the activities being performed should be identified.   Additionally, the contingency plan should address the total number of employees retained  for each of the following categories:   Those whose compensation is financed by a resource other than annual  appropriations.  Those necessary to perform activities expressly authorized by law.   Those necessary to perform activities necessarily implied by law.   Those necessary to the discharge of the President’s constitutional duties and powers.   Those necessary to protect life and property.
The plan should also describe in detail for each component within the agency the total  number of employees in the component to be on-board before implementation of the plan.  Additionally, it should identify the total number of employees to be retained in the  component under the plan:   Exempt employees whose compensation is financed by a resource other than annual  appropriations. Employees who perform excepted activities expressly authorized by  law.  Employees who perform activities necessarily implied by law.  Employees who are necessary to the discharge of the President’s constitutional  duties and powers.  Those employees necessary to protect life and property.
Lastly, the agency should explain the legal basis for each of its determinations to retain  the categories of employees including a description of the nature of the agency activities  in which these employees will be engaged.  In its July 2014 guidance update, the Office of Management and Budget (OMB) directs  agencies to consider preparations for resumption of activities. The guidance suggests the  agency plan describe actions necessary for the resumption of orderly operations.  This  description should include methods for notifying employees that the furlough has ended;  supervisory flexibilities to address employees who have difficulty returning when  operations resume; plans for restarting information technology systems; and procedures  for resuming program activities, particularly grants and contracts.
section_title: Selected Departments’ and Components’ Missions
paragraphs: The 2013 government shutdown came at a time of continuing budgetary  uncertainty, which we previously reported limits the operations of federal  agencies. To describe the effects of the shutdown, particularly on  agency operations and services, grants, and contracts, we selected three  federal departments and components (see table 1).
section_title: Budget Authority Duration
paragraphs: Across the federal government, departments and components have  varying periods of duration for which budget authority is available for  obligation, such as no-year, multi-year, and annual funds. The duration of  budget authority is important to agencies in a government shutdown, as  differing durations afford differing degrees of flexibility. Departments and  components also have varying degrees of transfer authority and  reprogramming limitations, which also afford agencies differing degrees of  flexibility in the event of a shutdown.
For example, DOE generally receives no-year funds (i.e., appropriations  available for obligation without fiscal year limitation) and as a result, DOE  may use funds not yet obligated from prior fiscal years. On the other  hand, most of DOT’s appropriations are available for one year. Generally  speaking, appropriations providing for periods of time longer than one  year, such as multi-year and no-year, afford agencies more flexibility,  which may be helpful in terms of being able to continue some activities  during a government shutdown.
section_title: Grants and Contracts
paragraphs: Federal grants and contracts are important tools through which the  federal government provides program funding to implement initiatives and  provide goods and services. At $546 billion in fiscal year 2013, federal  grants to state and local governments accounted for about 16 percent of  total federal outlays. The National Association of State Budget Officers  reported that federal funds comprised an estimated 31 percent of state  spending in fiscal year 2012. HHS is the largest federal grant-making  department, and according to USASpending.gov, HHS and DOT awarded  about $337 billion and $56 billion in grants in fiscal year 2013,  respectively. In addition, federal procurement spending was over $459  billion in fiscal year 2013. According to USASpending.gov, HHS and DOE  awarded $20 billion and $24 billion in contracts in fiscal year 2013,  respectively. DOE is the largest civilian contracting department and  spends an estimated 90 percent of its annual budget on contracts.
section_title: The 2013 Shutdown Impacted Some of the Selected Departments’ Operations and Services, but Longer- Term Effects Are Difficult to Assess
subsections: section_title: Preparations to Furlough Federal Employees Affected the Operations of the Selected Departments
paragraphs: The shutdown impacted some of the selected departments’ and  components ’ operations and services due to activities undertaken to help  prepare for furloughing federal employees and determining which  programs could continue. According to some officials at the selected  departments and components, planning for the shutdown took resources  away from administering their daily operations and services. Officials said  that quantifying the total time spent or overall cost of shutdown  preparations and implementation was difficult. However, some officials  said time spent preparing for the shutdown led to a loss of productivity.
For example, for the last 2 weeks of September and through the first 2  weeks in October, EM management was consumed by work concerning  the shutdown. A department level official stated that DOE spent an  extraordinary amount of time reprioritizing its budget to help ensure as  many programs and functions as possible remained open and to help  minimize the impact of the shutdown on the agency’s operations.  Similarly at the component level, during the month of September EM  headquarters began collecting information from each field office in order  to estimate how long each field office could sustain operations with  current funds. EM headquarters asked the field offices for information  such as unobligated balances available to support continued operation  into fiscal year 2014, the number of days supported by available  balances, and the number of federal and contractor employees impacted.  EM officials estimated that budget, procurement, and management  officials spent at least 50 percent of their time in September preparing for  the shutdown.
In their contingency plans, the selected departments documented the  planned number of employees that were to be furloughed and those who  should continue to work during the shutdown (referred to as excepted  employees in some cases). Specifically, DOE, HHS, and DOT planned to  furlough 96 percent, 52 percent, and 33 percent of their employees,  respectively, as shown in table 2. According to officials at these  departments, the contingency plans were reasonably accurate  representations of how the shutdown was implemented in terms of total  employees actually furloughed and those that continued to work.  However, as discussed later and shown in the table below, DOE officials  told us that they were able to avoid furloughing any EM federal  employees because prior year balances were available to fund program  direction accounts. Similarly, DOE officials said the Energy Information  Administration was the only office within DOE that furloughed employees  during the shutdown.
During the shutdown, management officials that were not furloughed at  the selected departments and components reevaluated their contingency  plans to determine which employees were needed for excepted functions  that arose during the shutdown. As a result, the number of furloughed  employees changed during the shutdown. For example, according to NIH  officials, mailroom employees were initially furloughed, but NIH realized  that some mailroom employees were needed to pick up mail that was  delivered to NIH including bills that needed to be paid to keep the facilities  minimally operational. NIH brought some mailroom employees back to  work as a result.
section_title: The Shutdown Disrupted Some Operations and Services at Selected Departments and Components
paragraphs: The selected departments and components reported that the shutdown  was disruptive to their operations and services resulting in immediate  disruptions to selected programs that were affected by the shutdown. For  example, at NIH protecting human life and property continued to be a  focus when deciding which activities to continue or close. During the  shutdown, NIH’s Clinical Center, also called the House of Hope, reduced  patient morale services such as library services and pet therapy because  of employee furloughs. According to NIH officials, while it is difficult to  measure the influence of these services on patients’ health and well- being, these services help improve the morale of patients at the center.  As issues arose in patient care at the NIH Clinical Center during the  shutdown, specialists or professionals were brought in to take care of the  need and then furloughed when they completed the task.
In addition, according to NIH officials, the clinical trials registry was  initially closed because of the shutdown but was reopened during the  shutdown. At the beginning of the shutdown the employees who manage  ClinicalTrials.gov were furloughed. While the public side of  ClinicalTrials.gov was still accessible, the submission side of the  database was closed, preventing new trials from being registered to the  database and all updates to existing entries. According to NIH officials,  clinical trials may be the only hope for some patients with life-threatening  diseases. Also, agency officials said that NIH received concerned calls  from members of Congress and institutions performing clinical trials, as  well as queries from the media. To handle the posting of new clinical trial  registrations and critical trial updates to ClinicalTrials.gov, NIH recalled a  small number of ClinicalTrials.gov employees on October 4, 2013, and  reopened the data submission system. The ClinicalTrials.gov employees  continued to facilitate registration and other critical trial updates through  the remainder of the shutdown. A message was posted on the website  and sent to NIH’s extramural community as well as to registered users of  ClinicalTrials.gov to inform them of this decision. In making the decision  to reopen ClinicalTrials.gov, NIH officials said they considered a number  of factors, such as the uncertainty of the length of the shutdown and the  fact that the registration of trials in ClinicalTrials.gov provides critically  important information to patients seeking opportunities to participate in  clinical trials, including important information about details of enrolling.
In terms of immediate disruptions within DOT, the Merchant Marine  Academy, funded by DOT and administered by the Maritime  Administration, was closed. According to DOT’s contingency plan, an  extended lapse in appropriations could significantly disrupt the Merchant  Marine Academy’s academic schedule, making adjustments difficult to  accommodate. To lessen the impact of the closure, the academy revised  its academic calendar to allow eligible students to graduate as previously  scheduled. In terms of immediate disruptions to FTA’s operations and  services, FTA officials stated that in the short term the shutdown may  have affected the delivery at the local level of public transportation  services in certain parts of the country.
To identify programs that would be affected by the shutdown, the selected  departments used shutdown guidance from OMB and determined the  funding sources for their programs in collaboration with their general  counsel, budget officers, and human resources officials. See figure 1 for  examples of programs or activities within the selected departments that  did not continue and those that did continue during the shutdown.
section_title: Mitigating Factors Lessened the Uncertainties of the Shutdown
paragraphs: The shutdown created uncertainty for the three selected departments  regarding how employees and programs would be affected. Officials at  the selected departments said they were concerned about how long the  shutdown would last and the uncertainty of the length affected  employees. However, several mitigating factors in the preparation and  implementation of the shutdown lessened the uncertainty of the effects on  the operations and services of the three departments and the workforce.  These factors include (1) experience with prior budget uncertainties  including past preparations for potential shutdowns; (2) funding  flexibilities, such as multi-year appropriations; and (3) ongoing  communication internally and with OMB staff and OPM officials.
subsections: section_title: Experience with Prior Budget Uncertainties
paragraphs: According to officials at the three departments, employees were familiar  with shutdown guidance and procedures from previous potential  shutdown preparations and planning for operating under a continuing  resolution or in other environments of budgetary uncertainty. For  example, according to DOT officials, DOT has experience with managing  budget uncertainty from addressing the sequestration of funds, shortfalls  within its Highway Trust Fund, and past preparations for possible  government shutdowns. DOT officials explained that they have planned  extensively for continuity of operations in times of budgetary uncertainty  working with their management team—officials from human resources,  budget, general counsel, communications, and the modal  administrations—to assess and plan for the potential situations that would  affect the department’s budget.
Similarly, according to DOE officials, during August and September DOE  prepares to address potential budgetary uncertainty that would impact its  operations and services in anticipation of a potential continuing resolution  or other situation affecting funds. The officials indicated that these yearly  preparations helped ensure that their planning and processes for the  shutdown were implemented and the department was well prepared to  keep its operations running as funds allowed. Specifically, DOE has an  order that it follows if Congress fails to pass appropriations for the new  fiscal year by October 1. The order describes the procedures DOE will  follow 1) for continuing operations using available balances such as  unobligated balances from unexpired prior-year appropriations and 2)  upon exhaustion of all available balances, continuing only those functions  excepted from a shutdown. At the component level, although EM  reprioritized its budget, officials said they were concerned about the  length of the shutdown.
section_title: Funding Flexibilities
paragraphs: Having flexibility in funding beyond the annual appropriations for some of  its programs helped the selected departments manage the effects of the  shutdown on their operations and services given that some programs  were able to continue throughout the shutdown, which also reduced the  number of employees furloughed. For example, most of DOE’s  appropriations are multi-year or no-year. DOE’s programs with multi-year  and no-year funding were allowed to continue their activities during the  shutdown by expending unobligated balances of prior year money still  available for obligation. Each organization or program within DOE  planned to operate during the shutdown until available funds to pay  federal employees were exhausted. According to DOE officials, prior to  the shutdown, the budget office reevaluated budget priorities in order to  have funds available to meet payroll and to help ensure that the highest  priority activities, such as the oversight of nuclear materials at EM, could  continue during the shutdown.
Several HHS components have mandatory spending programs or operate  programs using user fees that were not affected by a lapse in annual  appropriations. Therefore, the employees managing the programs in  these components were generally considered excepted. For example, the  Administration for Children and Families and the Centers for Disease  Control and Prevention have mandatory spending programs such as the  Health Profession Opportunity Grants and the World Trade Center health  program, respectively, which continued during the shutdown. Also, the  Food and Drug Administration continued activities related to its user fee  funded programs including activities in the Center for Tobacco Products.
DOT also has several activities that are funded by other sources including  multi-year appropriations or contract authority. For example, the Federal  Aviation Administration’s Airport Improvement Program is funded through  contract authority, while the Maritime Administration used reimbursable  Department of Defense funding to continue its Ready Reserve Force.  The Highway Trust Fund, which funds several DOT programs, was  established by law to hold federal highway-user taxes that are dedicated  for highway and transit projects and is also a multi-year fund. Although  FTA furloughed most of its federal employees, it used prior year  emergency supplemental appropriations that were available to continue  its Hurricane Sandy activities.
section_title: Ongoing Communication Internally and with OMB Staff and OPM Officials
paragraphs: Officials at the selected departments commented that communication  within their departments and with OMB and OPM was very important to  the preparation for and implementation of the shutdown. According to  these officials, prior to the shutdown, some of the departments posted  furlough guidance and frequently asked questions from OMB and OPM  on their websites to ensure employees were provided with the latest  information regarding the potential for a shutdown. During the shutdown,  management officials at the three departments who were not furloughed  reevaluated their contingency plans to determine which employees were  needed for excepted functions that arose during the shutdown. According  to officials at the three selected departments, all decisions were made in  collaboration with their general counsel, budget officers, and human  resources officials, and in line with guidance from OMB.
At DOT, prior to and during the shutdown, the management team met to  determine what actions were needed to maintain operations and services  in the event of a government shutdown. The management team was  convened in August 2013 to start planning and met frequently in the days  before and during the shutdown. According to DOT officials, some days  there were multiple meetings held to make the necessary determinations  and after the team reached consensus on a particular issue the requisite  action was taken. Specifically, DOT officials said they continually  monitored how employees were affected by the shutdown through their  daily management meetings. According to DOT officials, DOT developed  an emergency furlough recall form to document when an employee  needed to be recalled temporarily back to duty because of an emergency  situation, such as services needed to protect life and property. The form  allowed management to document its request for employee recall in  addition to outlining the internal steps that needed to be followed to obtain  approval and document the process. According to DOT officials,  management used a tracking log to ensure these emergency recalls were  internally monitored throughout the shutdown. DOT did not update its  contingency plan after the shutdown.
According to HHS officials, throughout the shutdown key management  officials were in constant communication to monitor the effects of the  shutdown on department operations and services including employee  furloughs. For example, the number of employees furloughed at HHS  changed according to the circumstances for each day of the shutdown,  according to HHS officials. Employees that completed the end of the  fiscal year financial close out for HHS initially were not furloughed, but  after they finished the financial close out they were furloughed. While  HHS did not document the number of employees furloughed each day  during the shutdown, HHS officials said, the key officials made decisions  orally as they were in constant communication throughout the shutdown.  HHS updated its contingency plan during the shutdown on October 10,  2013, to reflect the number of employees actually involved in the orderly  phase-down and suspension of operations. Specifically, on October 1,  HHS estimated that 1,103 employees were engaged in this activity, while  on October 10, HHS estimated that actually 429 employees were  engaged in this activity. HHS did not update its contingency plan after the  shutdown.
DOE officials said ongoing communication with management at the  department and component level allowed them to closely monitor the  shutdown and make decisions as needed to keep programs operational  based upon the availability of funding, as discussed earlier. For example,  although DOE planned to furlough some of the EM staff at headquarters  and at each site that it oversees, EM officials said that their federal  employees were not furloughed as projected in the contingency plan.  DOE officials said the Energy Information Administration was the only  component that furloughed a number of employees during the shutdown.  According to departmental officials, DOE managed its contingency plan  throughout the shutdown in an effort to assess the needs of the  department and components regarding furloughs for employees at EM  and its other components. However, DOE did not formally update its  written plan after the shutdown.
Officials at the three departments we reviewed said the daily  communication with OPM and OMB to address questions about the  shutdown was beneficial and helped lessen the uncertainty of the  situation. According to OMB staff and OPM officials, OMB and OPM had  daily telephone communication with agencies’ management to address  questions such as clarifying guidance and answering questions from  agencies relating to recalling furloughed employees. Issues discussed  included unemployment compensation for furloughed employees and the  treatment of the Columbus Day holiday for excepted employees. In  addition, OMB staff indicated that they addressed questions from  agencies regarding how to communicate shutdown information to their  employees through these phone calls. Prior to the shutdown, OMB  provided guidance to agencies instructing them to update their  contingency plans and to determine the number of furloughed and  excepted employees. During the shutdown, OPM posted frequently  asked questions on its website to provide details on how employees’ pay,  leave, and other personnel functions would be affected by the shutdown.
Consistent with Circular No. A-11, OMB staff told us that after the  shutdown, they did not direct agencies to update their contingency plans  or document in another way how the shutdown was planned for,  managed, or implemented in terms of lessons learned for future  reference. For a longer shutdown, such as one lasting more than five  days, documenting what actually happened once a shutdown is over  including how operations were fully resumed could help agencies better  prepare and plan in the event of a future shutdown. Federal standards  indicate that agencies should identify, record, and distribute pertinent  information to the right people in sufficient detail, in the right form, and at  the appropriate time to enable them to carry out their duties and  responsibilities. Without documentation of how the shutdown was  implemented, agencies may not have timely, appropriate information that  could help inform planning and implementation efforts in the event of a  future shutdown.
section_title: Selected Departments’ Longer-Term Effects from the Shutdown on Operations and Services are Difficult to Assess
paragraphs: The selected departments did not report any longer-term effects from the  shutdown on operations and services and indicated that it is difficult to  assess the effects from the shutdown in isolation from other budgetary  events, such as sequestration. However, officials raised concerns about  how the timing of the shutdown, occurring soon after sequestration,  affected the morale of its employees. The impacts of sequestration on the  workforce, which included reduced employee travel, training, and  monetary awards, affected employee morale. According to department  officials, this effect on employee morale was further exacerbated by the  lapse in appropriations.
According to HHS officials, once the shutdown ended, the department’s  functions were fully reestablished and operations were back to normal  within 6 months of reopening. Department officials do not anticipate any  longer-term effects from the shutdown on departmental operations and  services. However, according to HHS officials, the morale of HHS  employees was low as a result of being furloughed. Also, the longer the  shutdown lasted, the more challenges arose that they had to  unexpectedly manage. For example, furloughed federal employees were  eligible to apply for unemployment insurance benefits, which the  Department of Labor is responsible for administering. HHS needed  guidance on how to instruct its employees to apply for unemployment  insurance since each state has different rules and procedures. HHS  officials said they could not provide general guidance to all employees.  After the shutdown, the department had to work with OPM to instruct its  employees on how to repay the insurance benefits since they received  back pay. At the component level, NIH officials stated the longer-term  effects of the shutdown are much harder to detect than any immediate  disruptions to the operations of the agency. According to NIH officials,  there are also less tangible impacts, such as external partners’ decreased  trust and confidence in NIH to continue funding their research after it is  approved.
According to DOT officials, they are unable to identify any longer-term  effects of the shutdown on their operations and services at the  department level. However, DOT officials commented that the shutdown  lowered the morale of their employees. Officials explained that furloughed  employees were concerned about when they could return to work and  whether they would be paid.
DOE officials stated that the shutdown did not have any longer-term  effects on operations and services at the department level. Because the  shutdown came early in the fiscal year, the impact on agency’s operations  and services was minimized. A DOE official indicated that as a result of  the department’s annual data collection in August-September on  programs that could be affected by a lapse in appropriation DOE officials  were able to reevaluate budget priorities to maintain programs in order to  minimize effects on operations and services. The data collection is to  determine unobligated balances and which programs may have  insufficient funds for payroll on October 1.
section_title: Selected Components, Grant Recipients, and Contractors Faced Challenges Related to Grants and Contracts during the Shutdown
subsections: section_title: Planning Helped Selected Components Manage the Shutdown’s Effects on Grants and Contracts, but Grant Recipients and Contractors Faced Other Challenges
paragraphs: The effects of the shutdown on contracts and grants management were  more pronounced at the component level than at the department level for  the three selected departments we reviewed. Department-level officials  provided contract and grants management guidance from OMB to their  components. For example, DOE, HHS, and DOT provided guidance to  program offices at EM, NIH, and FTA, respectively, that were responsible  for implementing that guidance. DOT reported that grants management is  typically coordinated at the component level, so managing shutdown- related activities for contracts and grants at the component level was  consistent with standard practices. HHS reported the same for contract  and grants management. Officials at DOT and HHS stated that  conducting program oversight at the component level helped minimize the  effects of the shutdown at the department level at DOT and HHS. DOE  noted disruption in its departmental oversight of contracting activities in its  field offices.
subsections: section_title: Grants Management Activities Effectively Ceased at NIH and FTA during the Shutdown
paragraphs: All NIH and FTA grants management officials were furloughed and were  generally unavailable to assist grantees. According to NIH officials,  appropriate assistance would have been provided if an incident had  arisen in which a grant supported an excepted activity, such as the  protection of human life and property, but this situation did not occur.
At NIH, the grant peer review process used to assess grant applications  had to be rescheduled, adding to potential grant recipients’ uncertainty  about the timing of their research. NIH had to reschedule the review  process for over 13,700 grant applications. According to NIH, these  applications were scheduled to be reviewed by over 8,000 reviewers in  over 400 panels during the time of the shutdown. According to NIH, the  average delay from the original panel date to the rescheduled panel date  was 46 days, but after the shutdown NIH and the external peer reviewers  were able to act quickly and complete this process in time for all but 31  applications to meet the next milestone in January 2014. NIH reported  that deferring 31 applications to a later date is well within the typical range  of applications normally deferred for reasons other than a government  shutdown.
The National Institutes of Health’s Peer Review Process for Grant Applications  The National Institutes of Health (NIH) handles approximately 80,000 research  applications and engages approximately 20,000 reviewers per year during three annual  peer review cycles. The NIH dual peer review system is mandated by statute and all  applications are subject to peer review.   The first level of review is carried out by a Scientific Review Group composed primarily of  nonfederal scientists who have expertise in relevant scientific disciplines and current  research areas. Selection of scientists for peer review panels for the various study  sections is a multi-step process and it takes months to vet and balance scientific  expertise. NIH officials coordinate the nomination process, peer reviewer vetting, and  meeting schedules for the peer review cycle.   The second level of review is performed by National Advisory Councils or Boards within  NIH’s Institutes and Centers. Councils are composed of both scientific and public  representatives for their expertise, interest, or activity in matters related to health and  disease. Appointed members usually serve a 4-year term (or usually 6-year terms in the  National Cancer Institute) and require approval by the Secretary of the Department of  Health and Human Services or in some cases by the President of the United States. Only  applications that are recommended for approval by both the Scientific Review Group and  the Advisory Council may be recommended for funding. Final funding decisions are made  by the NIH Institute and Center Directors.
See 42 U.S.C. § 289a. NIH outlines the requirements of the peer review at Scientific Peer Review of  Research Grant Applications and Research and Development Contract Projects, 42 CFR Part 52h.
NIH and FTA grant recipients’ access to funds varied depending on  agencies’ grant processing systems and policies as well as the timing of  grant milestones. While grants management officials were furloughed and  unavailable, according to NIH officials, the bulk of NIH grants allowed  recipients to continue to draw down funds during the shutdown. The  exception was if the drawdown request triggered a Payment Management  System internal control flag. For example, some of the controls compare  requests to previous quarter draws, check if reporting requirements are all  met, and verify that the funds requested are within the grant’s budget  period. NIH officials said that there were two holds triggered during the  shutdown for NIH grants that were resolved by the excepted employees.  Among all Payment Management System users, 561 payments triggered  a hold during the shutdown. According to HHS officials, of these 561  payment requests, 84 requests valued at $65 million were paid despite  the hold and 477 requests valued at $165 million were not paid. Grantees  were notified about each payment that was rejected and instructed to  resubmit after the shutdown ended.
Like NIH, FTA grants management officials were furloughed and  unavailable to answer questions or provide assistance to grant recipients.  However, FTA did not process any new grant awards or make payments  to its existing recipients during the shutdown. According to FTA officials,  this had a minimal effect because FTA’s grant processing system is  typically offline and unavailable in early October for end-of-year closeout  processing and no new grant awards are processed. Specifically, FTA  officials told us that FTA had not awarded any grants from October 1 to  16 in the 5 years prior to the shutdown. FTA does, however, normally  make payments on existing grants in early October, but no payments  were made during the shutdown because employees were furloughed.
section_title: Contract Activities Generally Continued at EM and NIH, but Resulted in Disruptive Personnel Actions and Program Challenges for Some Contractors
paragraphs: While contract activities generally continued at EM and NIH, some  contractors experienced disruptive personnel actions and program  challenges. For example, EM did not furlough any federal contracting  employees during the shutdown because most of its programs were  exempt at the beginning of the shutdown and the agency had multi-year  appropriations available, but several EM contractors that operate and  maintain EM facilities experienced reductions because EM issued stop  work orders. These reductions included layoffs or forced use of annual  leave for 61 contracted employees at EM’s Portsmouth Paducah Project  Office and 1,715 contracted employees at its Savannah River  Remediation Site. Agency officials also told us that the looming possibility  of employee furloughs and the potential termination of contracts  decreased morale among contractor employees in the weeks leading up  to the shutdown.
Although the availability of multi-year funding gave EM some flexibility to  fund contracts, EM officials were still limited in their ability to manage  contracts and meet programmatic requirements. EM officials told us that if  EM had more advance notice of a potential lapse in funding, federal and  contractor personnel would have been better able to strategize as to how  to prepare for the funding lapse and would have slowed work at the end  of fiscal year 2013 to carryover more funds into fiscal year 2014 so that  work on contracts could continue. EM officials also reported challenges  with keeping equipment—particularly equipment for nuclear processes— running and staffed at necessary levels during the shutdown. For  example, officials told us that at the Savannah River Remediation Site  they had to reduce contractor support for operating melters—equipment  that processes nuclear waste into more stable forms such as solid glass  for safer long-term storage—to the lowest possible levels during the  shutdown. The officials also said that if the shutdown had continued much  longer, existing funding for even the minimum level of staffing and  operation would have been in jeopardy. Officials told us that melters can  never be shut down because if the temperature of the melters fell below a  certain threshold, the melters would not restart and would therefore  become permanently unusable. The officials said that DOE was in the  review process for excepting the melters from the shutdown if the  shutdown had continued past October 31, 2013.
Conversely, NIH officials told us that most of their contracting officials  were furloughed during the shutdown and that having limited staffing and  systems made it hard to complete excepted activities during the  shutdown. For example, some of the agency’s computer systems that are  used to locate and assemble contract data were unavailable during the  shutdown and many of the officials who run reports and analyze data  were furloughed. As a result, the excepted officials had to manually  search through other means to obtain the information they needed to  inform decisions, such as identifying contract options that were set to  expire. Officials reported that one NIH contract had an annual option that  expired during the shutdown, and 24 additional contracts had options that  would also have expired if the shutdown had continued through  November 1, 2013. The contract option that expired—an administrative  support service contract—received a stop work order during the shutdown  and resumed work after the government reopened with no additional  implications. After the shutdown ended, NIH officials reported having  sufficient time to exercise the options of the 24 other contracts with  options set to expire.
Unlike EM, NIH officials reported that the agency did not have the  flexibility of multi-year or no-year funding to maintain contracting activities  and NIH did not have a reserve of available funds from previous years to  support contracts during the shutdown. However, according to NIH  officials, the agency’s primary system for managing contracts is typically  offline for 6 days at the beginning of each fiscal year for scheduled  maintenance, during which time limited contracting activities are typically  logged into the system. As a result of this scheduled down time at the  beginning of the shutdown, NIH officials reported that contracting activity  was not significantly behind schedule when the government resumed full  operations.
section_title: NIH and EM Reported Returning to Normal Levels of Contract Activity and NIH and FTA to Normal Levels of Grant Activity Soon After Government Reopened With Minimal Expected Longer- Term Effects
paragraphs: NIH and EM officials indicated that they returned to normal levels of  contracting activity and operations within a few months and do not  foresee any longer-term effects from the shutdown on their contract  activity and ability to meet future milestones. NIH officials reported that  contracting activity and programs returned to normal levels of activity  within 1 month, and EM officials reported that some programs required 4  months to return to pre-shutdown levels of contract activity.
According to EM officials, a longer shutdown would have severely  affected EM contractors and their employees. Specifically, EM officials  reported that if the shutdown had continued for another week, reductions  were expected for an additional 1,500 contractor employees from two  contractors. Notices of the planned layoffs had already been issued for  these contracts prior to the government reopening. Furthermore, EM  contractors also planned to issue personnel notices on October 21, 2013,  which could have potentially affected another 5,000 contractor  employees.
FTA and NIH officials indicated that their agencies returned to normal  scheduling and timing of grant activities soon after the shutdown. FTA  officials said that they were able to recover quickly because grant  milestones were not scheduled to occur during the shutdown. Further,  FTA does not anticipate any longer-term effects on grants management  activity as a result of the shutdown. According to NIH, the NIH employees  and stakeholders involved in the peer review process and panels for grant  applications worked extra hours to get back on schedule after the  government reopened, but did not track the hours or costs associated  with this extra work. Because of their efforts, NIH officials said they did  not miss the next milestone, the second level of peer review held in  January 2014, and anticipated no longer-term effects on grants activity.
Officials from associations representing NIH grant recipients noted that  while the longer-term effects of the shutdown on scientific research are  hard to determine and cannot be quantified, there were other effects from  the shutdown that may influence grant recipients and their future  research. For example, officials from the associations that we  interviewed said some of the grant recipients they represent have  reported decreased morale and question if they should rely on federal  assistance for their research going forward. Additionally, one association  official expressed concern that the shutdown could contribute to scientists  working on smaller, more narrowly-defined projects because of financial  concerns for future grants, rather than pursuing more innovative, larger  projects that would be dependent on a higher cost grant for which the  federal government would likely be the primary source of funding.
Further, officials from associations representing grant recipients, including  those that receive NIH grants, noted that there may have been a loss of  research involving the life cycles of live organisms. Prior to the shutdown,  NIH determined which officials should be excepted to ensure the welfare  of all live specimens in NIH facilities, including over 1.8 million animals.  However, according to an official from an association we interviewed,  preserving live specimens at the grant recipient level could have been  challenging if the recipient was not able to receive the needed funds to  continue the research during the shutdown. These officials from  associations we interviewed did not provide a specific example of where  this problem occurred during the shutdown. However, according to NIH,  for some experiments a break in protocol would render the research  property (both animate and inanimate) useless and require some of it to  be destroyed.
section_title: Federal Contractors and Grant Recipients Faced Uncertainty during the Shutdown, but Indicated that the Effects Would Have Been Greater If the Shutdown Had Continued Longer
subsections: section_title: Communication Leading Up to and During the Shutdown Contributed to Uncertainty
paragraphs: Some associations with expertise in federal contracts and grants reported  that there was limited guidance leading up to the shutdown from  departments about how their federal contractors and grant recipients  would be affected by a potential shutdown. According to officials from NIH  and some associations with expertise in federal contracts and grants that  we interviewed, the lack of guidance contributed to the uncertainty that  contractors and grant recipients experienced regarding how the shutdown  would affect their ability to continue their work. On September 17, 2013,  OMB issued guidance to agencies on planning for a potential shutdown,  which included instructions on how agencies should manage grants and  contracts during a lapse in funding. However, according to officials at the  three departments we reviewed, per OMB’s advice they did not notify  their contractors and grant recipients about the possible shutdown until on  or after September 26—3 business days before October 1. According to  OMB staff, OMB was cautious about advising agencies to notify  contractors and grant recipients until it appeared likely that the shutdown  was an imminent possibility, in order to avoid unnecessary disruptions to  agency operations.
According to association officials, grant recipients and contractors across  the government had difficulty obtaining accurate, timely information about  how their programs would be affected once the shutdown began. Grant  and contract management officials who were furloughed could not  communicate with grant recipients or contractors to respond to questions  or provide other contract and grant support services. Further, officials  were generally not available to correct problems on automated payments  to grant recipients, as was the case with HHS’s Payment Management  System. Problems could be addressed only if the program was funded  with funds from a prior fiscal year (i.e., exempt from the lapse in  appropriations) or was otherwise excepted, for example if it met the life  and safety exception.
Another source of uncertainty for federal grant recipients was whether  agency programs could continue if they had authorizations that lapsed on  September 30, 2013. The authorizations for certain large programs  including the Supplemental Nutrition Assistance Program (SNAP),  managed by the U.S. Department of Agriculture, and Temporary  Assistance for Needy Families (TANF), managed by HHS, expired  September 30, 2013. While SNAP continued during the shutdown by  using funds authorized under the American Recovery and Reinvestment  Act of 2009 that were available through October 31, 2013 and TANF  continued by using unexpended prior year balances, the National  Association of State Budget Officers and Federal Funds Information for  States reported that some states had questions as to whether they would  be repaid for providing bridge funding to keep the programs operating  past October 31, 2013. HHS issued a statement on September 30, 2013  saying that in the event of a shutdown, the underlying TANF statutes  remained in place and states would be permitted to use their unspent  federal TANF funds from prior years for expenditures allowable under the  TANF statute. The Continuing Appropriations Act, 2014, allowed for  states to be reimbursed for expenses they incurred to keep grant  programs operational.
section_title: Contractors and Grant Recipients Experienced the Shutdown Differently Based On Their Specific Circumstances
paragraphs: The effects of the shutdown on federal grant recipients varied based on  the timing of milestones and the availability of funding. As the  Congressional Research Service reported, it is difficult to determine the  exact impact of a federal government shutdown on grant recipients  because the impact will vary depending on the current stage of each  individual grant award at the time of the shutdown and the duration of the  shutdown. Additionally, the impact may vary within a grant program and  across programs and agencies. The timing of milestones was a key  factor for both federal grant applicants and grant recipients because of  the resulting effects on the review process timeline for grant applications  and the availability of funds for current grant recipients. Officials from  associations with expertise in grants that we interviewed said that grant  recipients with funding available during the shutdown reported to the  associations that there were minimal effects from the shutdown.
At a government-wide level, Grants.gov, the online portal to apply for  federal grants which is maintained by HHS, was online and accepting  applications, but HHS’s Grants.gov support was decreased from 10  officials to 1 official. According to HHS, 6,725 applications were submitted  to Grants.gov during the shutdown, over 10,000 fewer applications than  during the same period in 2012. On October 21, NIH began processing  the error-free applications submitted during the shutdown or in the two  days prior to it.
Two of the associations with expertise in federal grants that we  interviewed—the National Association of State Budget Officers and  Federal Funds Information for States—both noted the importance of grant  award type in determining the effects of the shutdown on grant recipients.  For example, grant programs that receive mandatory advance  appropriations for the first quarter, such as HHS’s State Medicaid Grants,  and those funded in authorization acts, such as the Children’s Health  Insurance Program, generally continued during the shutdown.  Discretionary programs, such as FTA’s Transit Formula Grants, and  programs functioning as appropriated entitlements without advance  appropriations, such as HHS’s Social Services Block Grant, generally  were affected by the shutdown as funding was not available for new  grants and furloughs of agency grants management officials could have  affected the recipients’ ability to draw down prior year grant funds. Once  the shutdown ended, recipients of discretionary grants whose funding  was disrupted by the shutdown were eligible for reimbursement from the  agencies that manage the grants.
There were exceptions to how grant programs functioned during the  shutdown. Officials from associations with expertise in federal grants that  we interviewed, reported uncertainty among states as to the difference in  funding for mandatory and discretionary federal grant programs.  Specifically, at least one state publically reported it was uncertain about  how a mandatory grant with administrative costs funded with a  discretionary grant would be affected by the shutdown. For example,  unemployment compensation is a federal-state partnership and the state  is entitled to a grant from the Department of Labor to cover the necessary  costs of administering the program. While states were responsible for  making unemployment compensation payments during the shutdown,  states were unclear when they would be reimbursed for the administrative  costs incurred during the shutdown.
The degree of disruption caused by the shutdown varied among  contractors at NIH and EM as well. Whether or not a federal contract was  allowed to continue during the shutdown depended on a number of  variables including the availability of funds and the extent to which  contract employees required supervision by federal employees or access  to federal facilities to conduct their work. For example, NIH contractor  employees that are located with and receive technical input from federal  employees or access to federal facilities were generally furloughed while  contracted EM employees generally continued their work at most sites.  However, the DOE contingency plan noted that while multi-year and no- year funds would be used initially DOE might need to review the activities  of its contractors depending upon the length of the shutdown, the need for  government oversight, and the availability of prior-year funding. Only  those activities where the suspension of the function of the contract would  imminently threaten the safety of human life or the protection of property  would be permitted to continue.
Officials from industry associations that represent federal contractors told  us that the impact of the shutdown on contracted employees across the  government varied. Some contractor employees were reportedly laid off  during the shutdown and furloughed contractor employees were not  necessarily paid by their employer during or after the shutdown. For  furloughed contractors, several circumstances influenced whether they  could be paid during the shutdown, including whether work was allowable  based on the terms of the contract that they worked on, the availability of  other assignments, and whether their company chose to or was able to  compensate them out of its own pocket if contract funds were  unavailable. Specifically, one association we interviewed told us that  small businesses with federal contracts were reportedly less prepared to  weather the shutdown than larger contractors with revenue sources other  than the federal government. In addition to furloughs, some companies  with affected contracts required employees to use leave or take paid or  unpaid time off if they were unable to reassign employees to training or  other nongovernment projects. Contractors who were waiting on their  contracts to be renewed at the beginning of the fiscal year also faced  added uncertainty as to whether their work would continue once the  government reopened.
section_title: Effects of the Shutdown on Grant Recipients Would Likely Have Been Greater If the Shutdown Had Continued
paragraphs: While some grant recipients were able to obtain bridge funding so that  programs and services funded through federal grants would continue, this  was not sustainable over the long term and was challenged by the  uncertainty of the situation. As the Congressional Research Service  reports, in cases where the state is the primary grant recipient and is  tasked with administering a program that is partially or fully funded by  federal grants, the state has the discretion to decide whether to cover any  gaps in federal funding to maintain normal program operations, or  whether to suspend program operations during the lapse in federal  funding. In some cases, suspending program operations may include  furloughing state employees. Some states have large numbers of  federally funded state employees and at least eight states furloughed  state employees during the shutdown. According to an official from one  national association representing recipients of federal transportation  grants that we interviewed, transportation entities which use the funding  for operational costs were especially vulnerable. Some local paratransit  services which provide transportation to seniors and persons with  disabilities, including providing the elderly with rides to doctors’  appointments, expressed concerns about possible disruptions stemming  from a lack of funding if the shutdown continued. During the shutdown,  the association officials said that some of these entities had developed  plans to prioritize life sustaining travel, but that their flexibility to continue  operations was limited if the shutdown continued.
Similarly, an association official representing research grant recipients  noted that some NIH grant recipient institutions had made plans to bridge  the funding during the shutdown, but that this was not an option for all  grant recipients and was not sustainable over the long term. As one  university wrote in a press statement, it could temporarily use cash  reserves in unrestricted fund balances to cover any federal shortfall.  However, doing so would affect its cash flow and if the shutdown lasted a  few weeks, the university expected the shutdown to have a direct effect  on the student academic experience and the university’s ability to  continue to do research. Affected funding would include graduate student  funding, post‐doctorate funding, and other academic professionals and  faculty funding.
During the shutdown, it was an issue for states to maintain sufficient cash  flow to bridge funds for federally-funded grant programs. Even if a state  wanted to use its funds to continue services for a federally funded  program, it might not have had sufficient liquid assets to do so quickly. At  least 12 states publicly reported that funding for certain grant programs  was only confirmed through October, meaning the funding may not have  been available if the shutdown had continued into November. Some of  these states had expected to discontinue certain federally-funded  programs or services if the shutdown had extended into November, while  others expressed uncertainty over how they would have proceeded if the  shutdown had been longer. For example, the State of Kentucky had  expected to run out of funds for several programs before November 1  including SNAP, TANF, the Special Supplemental Nutrition Program for  Women, Infants, and Children (WIC), and the Low Income Home Energy  Assistance Program. Similarly, the State of Colorado noted that if the  federal government had not resumed operations or some other remedy  had not been put in place, the Colorado WIC program would not likely  have been able to serve participants in November.
section_title: Economic Effects of the Shutdown on GDP Were Limited
subsections: section_title: Estimates of the Economic Effects of the Shutdown on Real GDP Growth Ranged From 0.2 to 0.6 Percentage Points
paragraphs: We identified and reviewed the analysis of several economic forecasters  who predicted the effects of the October 2013 shutdown on the national  economy; however, there were no studies or academic research focused  on estimating all the economic effects of the shutdown. The forecasters  we identified predicted the effect of the shutdown on the real GDP growth  in the fourth quarter of 2013—which included the time of the shutdown— to be from 0.2 to 0.6 percentage points as a result of lost productivity of  federal workers. These forecasts were conducted either during or soon  after the shutdown ended. None of the economic forecasters we  interviewed further analyzed the effects of the shutdown since it ended or  plans to conduct future analysis as part of a formal study. The economic  forecasters we interviewed do not anticipate the shutdown having any  longer-term effects on national economic activity.
In January 2014, the Bureau of Economic Analysis (BEA), the agency  whose national economic statistics provide a comprehensive view of the  U.S. economy in the form of summary measures such as GDP, estimated  the direct effect of the shutdown on the real GDP growth in the fourth  quarter of 2013 to be a reduction of 0.3 percentage points, which is within  the range of estimates provided by the economic forecasters that we  identified. According to BEA, the shutdown did not have an impact on  current-dollar federal compensation since Congress authorized  retroactive compensation for furloughed workers. BEA derived this  estimated effect on real GDP from real federal government  compensation, one of the components of GDP. BEA adjusted real federal  government compensation estimates based on the number of furloughed  employees and the number of furlough days, for the reduction in hours  worked by federal workers to account for a reduction in services. Thus,  BEA estimates show a decline in real GDP based on the lost productivity  of the furloughed workers. BEA could not quantify the effects of the  shutdown on other components of GDP and the national income and  product accounts, such as personal consumption expenditures or private  wages and salaries, since they were embedded in the source data that  underlie BEA estimates and could not be separately identified.
section_title: Other Economic Effects of the Shutdown
paragraphs: The economic forecasters we interviewed believed the other economic  effects of the shutdown to be minimal and they generally limited their  analyses to the effect of the shutdown on direct effects of government  spending, specifically real federal compensation, as discussed earlier. For  example, one economic forecaster who did factor in some of the indirect  effects of the shutdown told us that he estimated the loss in real GDP  growth to be 0.36 percentage points, out of which only 0.03 percentage  points could be attributable to loss of support services or procurement of  other services by the federal government such as food and janitorial  services.
Given the challenge with identifying and analyzing the detailed micro-level  data that would let them capture all the ripple effects through the  economy, these economic forecasters did not take all the indirect or  multiplier effects into account. These economic forecasters told us that  effects such as impact on consumer and investor confidence were harder  to quantify since it is not possible to isolate the effect of the shutdown  from the general political uncertainty at the time of the shutdown.
One of the economic forecasters we interviewed believed that at the  economy-wide level, when one aggregates the effects over time and  across economic participants, these effects cancel each other out  because of substitution between activities and goods. For example, the  money that was not spent by furloughed federal workers at restaurants  near their work places may have been spent at restaurants around their  residences or at grocery stores. In addition, two of the four economic  forecasters told us that furloughed federal workers may have delayed  some purchases rather than canceling them altogether because they  were paid retroactively.
Though the economic forecasters we interviewed generally did not  analyze all the indirect or multiplier effects of the shutdown on the  national economy, the economic forecasters told us that they expect the  indirect effects to have been minimal due to several factors:
Duration and timing of the shutdown. Given that the shutdown  lasted for 11 working days, two of the forecasters we interviewed  believed it had a modest effect on the national economy. For  example, according to the analysis of one economic forecaster,  defense gross investment funding is usually set contractually about a  year before expected delivery so a shutdown was unlikely to delay  private production or construction of defense-related capital from one  quarter to the next. Also, if the contractors know that the funding is  secure and will be forthcoming eventually, this economic forecaster  said a brief shutdown would be unlikely to have an impact on defense  gross investment. Similarly, research projects are more likely to have  been delayed, rather than canceled, given the temporary nature of the  shutdown. We were also told that the timing of the shutdown  somewhat constrained its visible impact on the economy because it  occurred in the earlier part of the fourth quarter. Specifically, delays in  federal spending which occur within a quarter have no impact on the  growth rate of federal spending across different quarters, according to  the economic forecasters we interviewed.
Expectations of federal workers regarding retroactive pay. Two of  the economic forecasters we interviewed said the furloughed federal  workers expected to be compensated for the time of the shutdown,  which prevented major changes in the economic behavior of these  employees. Federal employees have historically received retroactive  compensation from previous government shutdowns and the day  before the shutdown, Congress authorized that members of the  armed forces and civilian employees who support these members  would receive retroactive compensation. Both of these factors  increased federal employees’ expectations that they would receive  retroactive compensation once the shutdown ended. This expectation  caused them to delay rather than reduce consumer expenditures.
section_title: Conclusions
paragraphs: The October 2013 government shutdown was disruptive for the selected  departments’ and components’ operations and services. According to  selected department officials, the time spent preparing to furlough federal  employees and determining which programs could continue took  resources away from the departments’ daily operations. The shutdown  also disrupted federal grants and contracts delivery at our selected  departments and components as a result of employee furloughs and  payment or work disruptions. Among other factors, the selected  departments were aided in managing the uncertainties of the shutdown  by their experience with preparing for prior potential shutdowns.
The three selected departments reported that their contingency plans  were important in directing their shutdown activities and that these plans  generally represented how the shutdown was implemented. According to  the departmental officials, the departments did not update their  contingency plans after the shutdown ended to reflect how they managed  the shutdown. OMB requires agencies to submit plans and update them  when changes in funding occur and every 2 years starting August 1,  2015. However, OMB does not direct agencies to formally document  lessons learned from planning for and implementing a shutdown, as well  as resuming activities following a longer shutdown, such as the October  2013 shutdown which lasted more than five days. Federal standards  indicate that agencies should identify and record pertinent information to  enable officials to carry out their duties. Without documentation of how  the shutdown was implemented and lessons learned from a longer  shutdown, agencies may not have timely, appropriate information that  could help inform planning and implementation efforts in the event of a  future government shutdown.
section_title: Recommendation for Executive Action
paragraphs: In its annual update of Circular No. A-11, we recommend that the Director  of OMB instruct agencies to document lessons learned in planning for  and implementing a shutdown, as well as resuming activities following a  shutdown, should a funding gap longer than five days occur in the future.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of DOE, DOT, and  HHS; and the Directors of BEA, OMB, and OPM.  We received technical  comments from DOE, DOT, HHS, BEA, and OPM which we incorporated  into the final report where appropriate. In oral comments received on  September 11, 2014, staff from OMB discussed our findings, conclusions,  and recommendation. In response to this discussion, we made minor  revisions to the recommendation language to reflect the importance of  agencies having timely and appropriate information after a longer  shutdown. On September 19, 2014, OMB staff did not state whether they  agreed or disagreed with the recommendation. However, OMB staff said  they agreed on the value of documenting lessons learned and will take  into consideration the recommendation as OMB develops next year’s  annual update of Circular No. A-11. OMB staff also provided technical  comments, which are incorporated into the report where appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days after the  report date. At that time, we will send copies to the appropriate  congressional committees, BEA, DOE, DOT, HHS, OMB, OPM, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-6806 or jonesy@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix II.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: You asked us to describe the effects of the federal government shutdown.  This report describes (1) how the shutdown of the federal government  affected selected agencies’ operations and services, including the  immediate and potential longer-term effects; (2) what is known about how  the shutdown affected federal contracting and grants, including the  immediate and potential longer-term effects, as reported by the selected  agencies and associations with expertise in grants and contracts; and (3)  what economic studies or reports state about the effect of the government  shutdown on national economic activity.
For this review, we selected three departments and three departmental  components to serve as nongeneralizable case studies: the Department  of Energy (DOE) and its Office of Environmental Management (EM); the  Department of Health and Human Services (HHS) and its National  Institutes of Health (NIH); and the Department of Transportation (DOT)  and its Federal Transit Administration (FTA). These departments and  components were selected based on the following criteria: (1) having  grants or contracts valued over $1 billion in fiscal year 2013, as reported  on USASpending.gov; (2) the percentage of federal employees expected  to be furloughed as reflected in the department contingency plans; and  (3) the potential for longer-term effects from the shutdown on operations,  grants, or contracts based on our determination using department  contingency plans, the dollar value of grants and contracts programs in  fiscal year 2013, and background research (including the Office of  Management and Budget’s (OMB) report on the shutdown). We selected  a component within each department in order to obtain detailed examples  of how components were affected by the shutdown in terms of operations  and services as well as grants and contract activity.
We assessed the reliability of OMB’s furlough data in its report, Impacts  and Costs of the October 2013 Federal Government Shutdown for use in  the limited purpose of background information. We checked OMB’s data  by comparing the data to the planned furlough data agencies reported in  their shutdown contingency plans, and we checked the data for  reasonableness and the presence of any obvious or potential errors in  accuracy and completeness. We also interviewed selected OMB staff  knowledgeable about the data and clarified the process whereby the data  were collected and verified. Additionally we assessed the reliability of the  federal grants and contracts data as reported on USASpending.gov for  the limited purpose of case study agency selection and background  information. We assessed the USASpending.gov data for accuracy and  completeness based on our recent report on the reliability of  USASpending.gov data. While the report noted inconsistencies with  USASpending.gov reporting, we determined that selected individual data  elements that we used for this report had sufficiently low percentages of  unverified information and therefore could be used for the limited  purposes of case study selection and background information. We believe  these data to be sufficiently reliable for the purposes of this report.
To describe the effects of the shutdown on the three departments’ and  components’ operations and services, we reviewed the documentation  from the department (including the contingency plan and guidance to  employees) and components (including details on programs affected by  the shutdown) and interviewed relevant departmental and component  level officials regarding steps they took for planning for and implementing  the shutdown and the effects of the shutdown on operations and services.  We reviewed OMB documentation (including its November 2013 report on  the effects of the shutdown, guidance to agencies on preparing  contingency plans and operating during a shutdown (OMB Circular No. A- 11 and OMB Memorandum M-13-22); reviewed Office of Personnel  Management (OPM) guidance to agencies; and interviewed OMB staff  and OPM officials. The information obtained from the selected agencies is  not generalizable to the rest of the government, but is descriptive of the  preparation and implementation of the shutdown and the effect of the  shutdown for the selected agencies. We did not assess whether  departments correctly implemented the shutdown or whether decisions to  except certain programs or employees were in accordance with the law.
To describe what is known about how the shutdown affected contracts  and grants at the selected departments and components and contractors  and grant recipients as reported by associations with expertise in grants  and contracts, we reviewed documentation from the selected  departments and components (including guidance to the recipients of  grants from the components and contractors employed by the  components) and interviewed officials managing grants and contracts  within the selected departments and components. We targeted our review  of grants to HHS and NIH and to DOT and FTA. We targeted our review  of contracts to HHS and NIH and to DOE and EM. We also reviewed  documentation on how federal grant recipients in general were affected  by the shutdown as identified through background research from national  associations as well as the Congressional Research Service. We  interviewed relevant officials from national associations which either  represent contractors and grant recipients or otherwise have relevant  expertise, including associations representing recipients of grants from  our selected departments and components. In selecting associations with  expertise in grants, we applied the following criteria: geographic dispersal  of membership; longevity of operations; recommendations from the case  study departments and components; and our judgment. For grants, these  included the American Association of State Highway and Transportation  Officials; Association of American Medical Colleges; Association of  American Universities; Community Transportation Association of  America; Federal Funds Information for States; Federation of American  Societies for Experimental Biology; National Association of State  Auditors, Comptrollers, and Treasurers; and National Association of State  Budget Officers. For contracts, these included the Professional Services  Council and the American Small Business Chamber of Commerce. For  information concerning the effect the lapse in appropriations had on  federally funded grant programs to the states, we also reviewed  documents from various state agencies, governors’ offices, and state  press releases. We did not independently validate the information with  state officials.
To describe what economic studies or reports state about the effect of the  government shutdown on national economic activity, we conducted a  literature review to identify relevant studies or reports of economic  forecasts and analysis and economists who have researched the issue.  We found that currently no studies have been undertaken; however, we  identified the work of several economic forecasters from financial services  firms who had analyzed and written about the effects of the shutdown on  the national economy. We reviewed the identified research predicting the  effects of the shutdown on the national economy and interviewed several  of the economic forecasters who had conducted relevant analyses.  Forecasters we interviewed included economists from Goldman Sachs,  IHS Global Insight, Macroeconomic Advisers, and Moody’s Analytics.  Using the results of the literature review, we also reviewed reports and  analyses from federal agencies and conducted interviews with federal  officials at the Bureau of Economic Analysis, Congressional Budget  Office, Congressional Research Service, and the Council of Economic  Advisers. At the time of our interviews, the economists we interviewed  from the financial services firms and officials from the federal agencies  were not aware of any planned or completed studies or reports on the  topic since the shutdown ended.
We conducted this performance audit from April 2014 to October 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Janice Latimer and Thomas  Gilbert (Assistant Directors), Namita Bhatia Sabharwal, Jessica Berkholtz,  Amy Bowser, Diantha Garms, Thomas James, Melissa King, Thomas  McCool, Susan Offutt, LaSonya Roberts, Cynthia Saunders, Shelia  Thorpe, Holly Williams, and William Woods made key contributions to this  report.