The Politics and Real Costs of a Government Shutdown

Steve Odland: Welcome to C-Suite Perspectives, a signature series by the conference board. I'm Steve Olin from the conference board and the host of this podcast series. And in today's conversation, we're gonna talk about this ongoing US government shutdown.

Joining me today is Ron Klein, partner at Holland Knight and the former congressman from the State of Florida. Ron, welcome to the program.

Ron Klein: Thank you, Steve. Happy to be here.

Steve Odland: So Ron, our listeners are, business leaders, around the country and, everyone's been reading the headlines and we've experienced this before.

But let's just start with the basics. What technically, what is a shutdown? What's actually shut and what isn't shut?

Ron Klein: Okay, so maybe we'll start from the beginning here. The United States Federal Government runs on a fiscal year of September 30th is the last day. And of course, like any other government or even business for that matter and particularly with government, the federal government or state governments, you have to have a budget that is approved by the legislative body before the fiscal year starts in order for there to be authority to spend money.

In this case, the federal government for. Through Congress over the last number of years has been late and not meeting the September 30th deadline. This has been going on for many years. And what they will typically do in order to keep the government running, 'cause they have to do something, they have to create the authority to spend money is they will pass what they call.

You may have heard the term cr, which stands for continuing resolution. What that means is that the budget for the previous year will continue in the exact same. Category same amount in each category for a period of time. They'll do it for 30 days or 60 days, or five days just to get it to a place where they can pass the budget for the next year.

In this case they ended the year, didn't have a cr so the budget is not there to spend money and that it creates what they call a shutdown. A shutdown is a, the government doesn't have the money to spend, and with the exception of a handful of things. That means that people who are employed by the government, that means people who have contracts with the government people who are recipients of government spending, with the exception of, social security.

And like I said, there are a few exceptions, but it could be anything from military, could be construction contractors, could be air traffic controllers you've been hearing about. Could be programs. There's the latest one they've been talking about the last couple days is the food assistance program for people who depend on the government for assistance.

All those things are not funded and therefore will not receive money. And that doesn't mean certain people aren't working and they call them necessary employees like air traffic controllers. We can't have the whole system shut down, but it means they're not getting paid, so they're working without pay for the moment.

Typically what happens once the government is properly funded. They'll get back pay or retroactive pay.

Steve Odland: Now the problem with that is that, a lot of people live paycheck to paycheck. In fact, the majority of Americans live paycheck to paycheck, and government employees are part of that as well.

And so you see when they're not getting paid, you see these people calling in sick and trying to get cash through, whatever else they side jobs or, whatever else they can do to raise cash. Even the essential employees are down and so therefore, you can see airports being shut down or slowed down, or, flights being canceled as a result of that.

But that's just one area. So what is not shut down? What is still open and running?

Ron Klein: Again, they, first of all, everything you said is correct, Steve. Those are the rea that's the reality check. You can watch the parties bicker or the president saying, I wanna be involved or I don't wanna be involved, and all this is going on at the same time, but they're not getting the job done.

And the result is the things you just discussed. And that's just. A fraction of all the government operations that aren't funded now, things that are absolutely necessary to keep our lives running. For example, military, they're still working their job. They're not walking off the job. But certain things are, many agencies that are not considered essential.

That's the term they use. It could be the. Hud, the agency that handles housing and urban development. It could be HHS, the house the agency that handles health and human services. Again, some certain things like FDA approving drugs or the CDC watching the watching communicable diseases and things like that.

They're on a skeleton staff. So there's some real things going on here that people really need to be aware of because it does affect their livelihood and if it doesn't affect them. Immediately it's coming.

Steve Odland: And you've got inspectors like FDA, so food inspectors. You've got port port inspectors.

And is it disrupting shipments and receipts into ports and manufacturing of food and that sort of thing? Do you see Yeah. Abso

Ron Klein: To some degree it is. The inspectors you just talked about generally speaking are not doing the inspections. They're not working, they're not, most of 'em aren't considered essential.

Some of the courts some of the federal courts are in a slow down phase. But yeah, there are real things that affect people. Listen, there's leisure things like the national parks are closed, so for people who planned trips and things like that, but there are, like, the air traffic controllers is one of the reasons the last shutdown finally ended because the public said, wait a minute, stop too much.

We really depend on air. We depend on for business, for travel, for family, for all sorts of things. And in this case, enough air traffic control said at some point I can't work without getting paid. I need to find something else to do to get paid to to make ends made.

Steve Odland: You made a, an important distinction.

Okay. So there is the budget and Congress is supposed to pass a budget each year. They don't, they haven't done that in a long time. They've. Very seldom. It's really it's really a struggle. And I know they're frustrated as well, but they've gotten around it with these continuing resolutions or so-called crs, as you said, in this case.

The issue is they haven't passed the CR even, so forget about the budget. It's the cr even for 10 days, 20 days, two months, whatever it is, they haven't done it. Now this is, let's just. Blunt, it's politics, it's gamesmanship, and and both sides have employed it. And so typically there're they're there.

One side is trying to get something outta the other side. What are the issues currently? What does each side want?

Ron Klein: So let me be lemme clarify one point you just made. Okay. Thank you. To make sure that everybody understands what we're talking about here. The shutdown is because there is no CR or full appropriations bills passed, they eventually will pass a full appropriations.

That's what they do. It just takes longer than the September 30th date. The crs, as long as they're in place, will continue to keep the government operating under the previous year's budget, but they will eventually do now. They didn't do it last year. And they just kept the same number, but that's unusual.

Usually they didn't, they never get it on time, which was your initial point. But they eventually do, and sometimes it takes till Christmas week because everyone wants to get home for Christmas or whatever it may take, but they eventually get there. This year they seem to be really in their corners and that's why a shutdown occurred.

And until that gets resolved these agencies will not reopen. And what does each side want? Oh, so where are the lines? So I think what the Republicans are saying is, Hey we'll quote unquote negotiate things that you care about as long as you reopen the government.

That's the simple point. Just do a cr to keep the government open. And the Democrats are saying first of all, we think that one of the big issues, and probably the biggest thing they're hanging their head on is the healthcare. Subsidies for the, the less fortunate in our society that depend on the Obamacare subsidies those are gonna go up from about $800 to $2,400 a month if there's no subsidies in place.

That's a big deal for Democrats. The way they're hanging their hat on that Republicans are saying either that's not important or they're saying, we'll come back and negotiate that later. I think that, I think the real story here is the lack of trust on either side. The Democrats feel president Trump has gone back on commitments that Congress had authorized everything from U-S-A-I-D to a lot of other things that were already in place.

The Republicans feel like, Hey, we can't trust the Democrats for a variety of reasons there. So it's a trust factor. I think essentially President Trump's gonna have to weigh in at some point here and bring the parties together and say, listen you may have difference of views here, but we gotta find a solution here.

Until that happens, unfortunately, it's gonna drag out a bit.

Steve Odland: Okay so help me with that a little bit. 'cause this is in Congress and you have. It's really in the Senate because the House has passed it. Because the voting rules are different in the house. The Senate has requires a 60 Yeah, some vote or 60%, in this case they're up to 50.

What, 54 Ron?

Ron Klein: I think so.

Steve Odland: Yeah. So there's six votes shy of hitting the 60. So they do have a majority. They just don't have the the 60 super majority that they need. All right. So it's really there. Why are you saying that the president needs to weigh in? Is this the bully pulpit leadership issue, or is there something in the governance?

Ron Klein: Two things. Number one, appropriations bills require the signing by the president. The president's part of this process. It's a legislative bill that will fund the government and Right. But

Steve Odland: He can't sign it if they don't pass it. It's, there's, he's not required at this point until they.

Pass something.

Ron Klein: He is not required to do anything, but just any other bill, yeah. A president's office always plays a role in the development of legislation. Yeah. Because you don't, he's not gonna wait until something's dropped on his desk and say, I don't like it. Any big bill that comes through, whether it's transportation or healthcare, whatever it is, president's office, always have something to say about it.

I was just making the point. And I think that a lot of people are saying that, and this is not, it is not a blame thing. It's more of a just a leadership. Role that a president plays. This is typically when you have these kinds of shutdowns, a president, whoever it's Democrat or Republican, usually at some point has to step in and say, guys, we need to figure out this problem here and then log jam.

I

Steve Odland: just wanted to clarify that for our listeners. Sure. Because Sure. He doesn't have until that thing is passed, he, then he assign it or he doesn't, but he doesn't

Ron Klein: have a formal Correct. He doesn't have a formal role and it's a bill. So once the bill's presented to him, he can sign it, veto or whatever.

It's just more of a leadership kind of style thing.

Steve Odland: Okay. So now that it's not an unimportant point, it's a really important point because you're, to your point, this is, this happens on every bill that's required. So why is the White House not stepping in here?

Ron Klein: President Trump has a different style than previous presidents, Republican and Democrat. He just does things differently and he's president, he is entitled to do that. I'm just pointing out historically the role the president has played when it gets to a point like this, as they will step in, and in this case, president Trump has a pretty.

Lockstep Republican party behind him. So if he wants to do something presumably he's gonna have some following. He had, he did call the senators, Republican senators into the White House last week and basically told them to hold firm. So at the moment, I think, again, he's, he, listen I, this is not a question right or wrong.

He's, he believes in his line of thinking in terms of the way the budget should come out. Democrats have a different view and it's just gonna take some force of the public coming forward at some point and saying, guys, enough is enough. And one party. Usually ends this thing because there's some public pressure that boils up and says, Hey, listen, it's your fault.

And there's a political reason for someone to say, Hey, enough, and let's move on. That's probably what'll happen at some point. I don't think it's clear which party is feeling more at this point.

Steve Odland: No. And so it comes down to, and I'm oversimplifying it but it comes down to these subsidies because the Republicans have said.

Pass a clean continuing resolution, and then we'll talk about the subsidies. And you've heard many of the Republicans say, we can't go without subsidies. So it's not that they're saying no subsidies, they're just saying the process they want is a clean and then we will talk about it.

The Democrats are saying, no put the subsidies in and then we'll pass the bill. So there is some political gamesmanship. Yeah, and I think

Ron Klein: and Steve, in all fairness, I think you've had a number of Republican leaders, including number three. Scalise who's the number three in the house Caucus has said, no subsidies.

We're not doing subsidies no matter what. So I, it's not like there's a hundred percent, oh yeah, we're gonna do subsidies later on. There's no guarantees in this process anyway. But I think the repo, the Democrats are failing. This is their point of leveraging what they think is very important.

It's not like they're focusing on 10, 15 things here. They've got one item. And at this point for the moment, we'll see what happens.

Steve Odland: Got it. Okay. And so now the pinch point is probably gonna happen pretty quickly here because November 1st is the point where this stuff stops. Snap, as you said, snap and wic and the which of the food subsidies and payment and so forth.

So the pressure should build starting to next week, it feels you were there, you were, in the middle of, of all these, this stuff. It feels like everybody's waiting until the public pressure builds in order to see which way you know who's, whose side is in favor here and.

Which of these two approaches wins? Is that a fair read?

Ron Klein: Yeah,

Steve Odland: I think

Ron Klein: that's, I think that's correct. Another group I wanna mention, Steve, 'cause it, it may be some of our listeners that may be interested in this as well. Major government contracts are also not getting paid. Do you have major companies in the United States and subcontractors and sub subcontractors and material suppliers?

All sorts of people all the way down the food chain of the economy. That are also being impacted by the fact that the federal government is not cutting checks right now for services being rendered. So that's a big deal because if you're a business and you're not getting the flow, the cash flow of that money coming in for work that you're under contract to do, you can't pay your employees.

So it's not just a question of direct federal employees that are feeling the pinch air. Contract contractors at some point have to say, listen I can't go to the bank, or I can only go to the bank for so much before I know that I'm gonna get paid here. And it begins to have an impact through hundreds of thousands of jobs at the federal contractor level as well.

And some of these are military, some are defense, some are, again, the whole gamut. There's thousands and thousands of federal contracts that are equally part of the process here. Again, another pinch point that over time could have an impact. That will put pressure on Congress also, it's a recognition that's affecting the economy as well.

So these are things that are contributing to, and I think the secretary treasury secretary over the weekend said it's beginning to cut into into the economy a bit. So that's a good reason why Congress needs to get its act together.

Steve Odland: We're talking about the US government shutdown. We're gonna take a short break and be right back.

Welcome back to C-Suite Perspectives. I'm your host, Steve Lin from the conference board, and I'm joined today by Ron Klein, partner at Holland and Knight and former US Congressman. So Ron, you sat through these negotiations and all the machinations in Congress. I, I have never talked to a congressman who is.

A congressperson who is not frustrated by the process. It's not because they love it, it's just, this is, you jump on a moving train when you're elected and here you are. This US process is different. You don't see this elsewhere around the world, do you?

Ron Klein: We have a different system.

We're on a parliamentary democracy, which can fold if the coalition falls apart. We are in for fixed terms, so house members are in for two years. Senator's in for six years, and it, they come up every, a third of the Senate comes up every every two years. But it's a different system so people have fixed terms when they're in it.

Now I think my ob my observation when I got there is I think everyone, all my colleagues, Democrat and Republican, all came. To Congress for a good reason. There was something in their life that drove them toward public service, toward, maybe they had a child that had a healthcare issue, they wanna do something about that, or they're a teacher, or they're a farmer and they wanted to contribute to a greater good of this country.

That's the beauty of our democratic system, and I really believe that's why most people come. What's happened over the last number of years though, is it's become more of a little bit of a. A personal vengeance game. Social media in my opinion, has contributed to some of that feeling.

We used to get together, after hours Democrats and Republicans when I came in my class we had a number of people, including some members are still there. That we'd go out and have dinner after a good fight on the floor or something like that. You've heard about the Tip O'Neill, Ronald Reagan stories.

It was similar to that. Probably less and less today for sure. And there's less social time together. And more importantly there the people are just, becoming very in their camps and I'm a Democrat or I'm Republican and I have to do this. There's no reason why, in my opinion, there shouldn't.

There should be almost. Democrats all voting this way, Republicans all voting this way. It can't be that, that the, their districts are all set up that way. But yet, gerrymandering, other things have created either Republican districts or Democrat districts, and a lot of people feel like the art of compromise, which is a very important part of a democracy, doesn't suit them well.

Steve Odland: And there's just no center anymore. And so there's no overlap in ideology. And the leadership controls more than I think the average lay person understands. You can come in and have a different point of view, but it's very hard to go up against your leadership and, and have any success.

I agree, Steve. You're right. Yeah. Now, some parts of the administration are using workarounds during this, during this shutdown you've heard stories or we've heard stories about DHS and DOD. How can they do that? Is that, where are these funds coming from and is that legal?

Ron Klein: A lot of things are being done and the question, whether it's legal, probably ends up in the courts.

If there's a party that's aggrieved and they wanna take the government to, to court over that, and some of these things go all the way to the Supreme Court, some of these executive orders, it's a question of whether they're legal or not. What they're doing is they're taking appropriated money from specific programs and moving them around within the agency.

So the fact that they can move them around the agency, even though they're appropriate, is appropriated for specific programs. There is a question whether you can do that, and I think they did that for one cycle of military pay. They can't do it for another around though, so that's why the military pay is at risk here.

There's a discussion in the. In the papers today, or the media today about the fact that the food assistance, which is gonna run out soon. That HHS cannot do a workaround. It sounds like they're trying to apply maximum pressure even though they have done workarounds in the past for SNAP funding.

That's Snap is the name of the program. So I think the question is there may be some flexibility within the way the language is written in the appropriations bills. I think the government is probably pushing the envelope on how much it can do, and it's picking and choosing when it wants to do it.

But that's the way it's being played out at the moment.

Steve Odland: One, one thing that I, I'm not sure am Americans are real happy about, is it the Congress themselves continue to be paid through the shutdown. Is that legal? That doesn't seem, that doesn't seem consistent with with the rest of the government.

Ron Klein: It certainly doesn't sound like a good common sense thing that people who are causing this thing should continue to get paid. Believe it or not, it's in the constitution that the members of Congress have to get paid. What you've seen some of these members say as well, I will take that money and donate it to a local charity of.

That can use that money. Why it's in the Constitution. I don't know. It shouldn't be in the Constitution, but it is in the Constitution, so they get paid. But that's a pretty runs against the grain of what I think most Americas would think is fair. You guys are the ones causing this or can't come to terms on how to fix it, and yet you're getting a paycheck.

Steve Odland: I think some people argue that the intent of it being in the Constitution was that it wasn't a voluntary job, it was a paid job and it, but they were talking about shutdowns back then. You're a hundred percent right, Steve. Yeah. But it's it is an interesting thing. If the government can function, now we've been, we've been at this now for more than a, almost a month.

It's almost, we're coming up on the longest shutdown ever. If vital government activities can continue. Some people say the non, the non-vital activities just are non-vital. So why do we do 'em at all? There, I, you and I understand that, but there's some cynicism here saying, if it's not vital, then you know why are we doing it at all?

And so you have to go back to the list of things that are closed and these are things that citizens and businesses want. But what is required to stay open and, what could they theoretically save money on by, by just keeping closed.

Ron Klein: It's a discussion and I think probably the better way to handle it instead of under the threat of a shutdown is to do a better job of analyzing each one of these agencies.

Do zero based budgeting, make 'em go back every two years and start from scratch and say, Hey, I want to justify. You have to justify every single thing that comes up here. One, one thing I can tell you, I've serving in the Florida legislature for 14 years. Then Congress is, there are a lot of programs that are created.

With good intentions, but maybe they overlap with things that are already in place, but why aren't we getting rid of those things that are already in place if it's a replacement or something like that. Congress and state legislatures are not particularly good at the oversight of taking something away, and obviously there becomes vested interests of people and businesses that you know, become dependent on these kinds of things.

But if we wanna save money, that's a smarter way to do, would be to go back and do a zero based budgeting process as opposed to just saying, oh, we're gonna have a shutdown. And I guess the CD C's not that important because, if we can get along and there's no major outbreak of disease right now, and of course those things are not done on a daily basis.

They're done over years. The research. NIH funding for research for cancer and you can go on and on in different areas that would you, I think most Americans, almost everybody would say, yeah, these are very important as to things that maybe aren't as important. Fine, get Congress to do its job and do some good oversight and review of what's out there.

Steve Odland: I, you have to bring this up. 'cause the cynics are saying, oh, just save money. But, you can go without a meal. You can go without eating for a meal or two, but long term you're gonna die. So you do need to eat. And all of these things, all these pieces of the government are important to some piece of society or some function.

And and Steve,

Ron Klein: even though you can get you, you mentioned in the earlier part of our conversation about things like healthcare or food and things like that. There are loads of people. It's, yeah. Very uncomfortable about the realization of how many people in the United States. Are living paycheck to paycheck and they're one paycheck away from an illness in the family.

Having to go to the hospital, the one paycheck away from having food or a house or something that needs major work or damage or something like that, or some family emergency. That's not a real pleasant way to live. And yes, they're dependent. Maybe most of them are more short-term dependent. I know people like to say, oh, they're just dependent on government.

Most people aren't, but sometimes they need a temporary support. Unemployment insurance is an example of that. It's only there for a certain period of time to transition until the next job. But this is a serious issue. And when you say, we'll shut down food assistance, or shut down healthcare assistance or other, fuel assistance, in the north, in the northeast or the parts of the country, the west, where you have tough winters and you need some subsidy for fuel assistance for keeping heat.

It's real for people and we're a very generous country. We care about each other and, the government is, it plays part of that role. Now, other inefficiencies, all fair game. But there are some basic things that are necess necessary for keeping people alive and doing what's right for them.

Steve Odland: So your point is, yeah, you can shut this down temporarily, for from some, small period of time. But you gotta get this back open at some point here, and we're coming up against some of these hard stops. So how does this standoff end and when? I've heard

Ron Klein: people say Thanksgiving.

That's a trigger point of that's a long way off. That's a it's still about three, four weeks away. That's a long time away. But the reason they're saying that is a massive travel time when people are very dependent on transportation to go to and from where, wherever they're going.

People by then will the, maybe there'll be massive pressure based on all the things we've already talked about, the ne necessary things to keep people alive and supported. Huge numbers of people by that point in time, maybe laid off. Not just federal government jobs, but federal contractors, jobs, things like that.

You're gonna see a real bite into the economy, and I don't think anybody wants to see a bite in the economy, until people feel it, that's when it'll occur. I think that point is beginning to arise. I've heard some people say it'll be in the next week. I think, Steve, the one thing I can assure you is when it gets to that point.

It'll happen pretty quickly. It'll just fold like a deck of cards real fast. Right now they're in the corners and nobody seems to be coming out. President Trump is away on, on a far East trip. And again, I don't see, I don't see anything happening until he gets back. I think that's probably pretty certain.

Steve Odland: So some people are just saying change the rule. So there's majority vote rather than waiting for the 60 in the Senate and then we're done. But that has huge implications. Talk about that.

Ron Klein: Yeah, so what we're talking about here is the Senate operates off a different set of rules in the house.

The house is simple majority, there's 435 people. So one half, 50% plus one is what seizes the day. And if they all vote in a partisan way like they're right now you have. I think there's a maj. It's a very small majority right now in the house. It's three or four. I think at this point, one person has to be seated, so it's just a small number.

So it just takes a small number of Republicans to switch their vote or a small number of Democrats to, to go the other direction. So it's really, but. Right now it's strictly a hundred percent partisan, I think almost a hundred percent. So you've got the majority in the Republican party in the house.

So they have the vote there, and the Senate does take 60 votes 'cause of the filibuster rule. So until some democrats some additional Democrats go along with most of the Republicans, I think. I think grand. There's one or one, maybe one or two Republicans that are not on the same side. But it's, again, it's gonna take some.

Public pressure. That's the bottom line. Public pressure to say Enough is enough. Get your act together, solve this problem. And I, again, I don't wanna go back to the president, his role of being the leader of the country and stepping in and being that force to get Republicans and Democrats to come together and say, we have to finish this thing, but.

Again, I don't think they're gonna do it on their own between the House and the Senate. I think it's gonna require some leadership in the bully pulpit or the President to use his voice and his strength within his own party and public pressure on either side to come together. I don't, I can't give you a timeline, but I, it's at least a week away 'cause President Trump's away for.

Steve Odland: But they could change the rules. The problem with that is that that then means whoever has the majority in the Senate, essentially it, it becomes like the house and it's just, yeah. I think people,

Ron Klein: yeah, people should understand. The Senate operates, it's a hundred people, so it's far, it's one less than one quarter the size of the house it operates on, because they're six year terms.

You're not running back to the people every two years for a vote. Which is, it was the original design of the country Senate, more stability. House, the people's house, it comes and goes and changes quickly. So yeah, in this case, if you've made it like the house listen, our government goes back and forth.

Democrats are in charge one year Republicans the next year. You gotta be careful what you ask for. It's not like you're gonna be in power in perpetuity. So be prepared if you're gonna change the nature of the Senate. There's been a lot of hesitation to do that by both political parties.

So I don't think there's a great inclination, but maybe that'll change.

Steve Odland: So if this simple rules change would get us through this, but it would have, drastic ramifications going forward. That's right. Whoever, whichever party in the majority would essentially rule rather than this being more collegial and more.

Ron Klein: And Steve also to your collegial point. One thing about the Senate, because it requires this higher level vote, it requires more. Consensus. Okay. So it can't just be one political party running over the other political party. And if you had that, you'd have the changes in the government changing much faster.

Policy would go back and forth and back and forth. That's not how our system traditionally works. We don't we, we sometimes get frustrated. The government is so slow. At the same time it's a benefit to this country that government is methodical and deliberative.

Steve Odland: It's part of the whole checks and balances is your point.

And it's a really important point. So they should not fool with these rules or it would be bad. One final thing is what we're talking to the private sector companies here, what should they be doing, should, are there any, rules of thumb here on contingency planning and so forth?

Ron Klein: Yeah, I think, listen, there, there's a couple things that some are direct and some are, I already mentioned the direct ones. If you happen to be a contractor, you have to plan on the fact this may last you'll, you probably will get paid, but it's a, it is more of a cash flow management kind of scenario. You have to work out for yourself if it's more indirect and impact on the economy.

Hopefully it'd be temporary and they eventually get around to fixing this thing. But it's, in my opinion, it's a self-inflicted wound on our economy. But I think you just have to plan for the fact this may, I think it'll get resolved in a matter of weeks, but it could be another week or two.

Steve Odland: Former Congressman Ron Klein, thanks for being with us today. Thank you, Steve. Pleasure. Thanks to all of you for listening to C-Suite Perspectives. I'm Steve Oland, and this series has been brought to you by the conference board.