Shutdown’s ripple effect: Contractors, small businesses face devastating economic hit

Business and professional groups are warning that the current federal funding lapse will cause economic harm to not only government employees and contractors, but the broader U.S. economy and national security as well.

“Federal agencies are not able to use the capabilities of contracting partners to sustain vital operations in a government shutdown,” said James Carroll, CEO of the Professional Services Council. “The national security consequences cause unnecessary risk to U.S. citizens both at home and abroad.”

In a column just days ahead of the Oct. 1 shutdown, Carroll sounded the alarm about multiple risks to the nation.

“Shutdowns negatively impact essential federal missions, harm the U.S. economy, and cause inefficiencies and financial losses that have long-term consequences for our country,” he wrote in his commentary.

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The Northern Virginia Chamber of Commerce counts many government contractors among its members. Other NVC member companies such as law firms, accounting firms and real estate firms provide services to government contractors.

The shutdown is an economic threat to federal employees and contractors. Paychecks are delayed and sometimes lost.

“This financial uncertainty immediately hits local businesses, from small storefronts to large firms, affecting everything from revenue streams to long-term investment decisions,” the chamber wrote in their statement.

The chamber’s concerns are backed by stark numbers. PSC estimated that at least 1 million federal contractor employees across the nation will be impacted by the shutdown and most of them will not receive back pay.

“For small and mid-sized businesses, which form the backbone of the federal contracting base, this can mean devastating cash flow disruptions and workforce losses,” Carroll said.

Code for America, a nonprofit organization that works to improve government service delivery, said all Americans will suffer.

“Governing isn't a game—the well-being of real people hangs in the balance,” said CEO Amanda Renteria. “A government shutdown deals a direct blow to people across the country who are doing everything right but still need assistance to put food on the table, access health care, and make ends meet.”

Renteria said families facing food insecurity, seniors who need health care assistance and veterans will have a harder time accessing needed benefits,

“The furloughing or firing of federal workers will deepen dysfunction and make it harder for government to deliver for the people it serves,” Renteria said.

PSC cited a Congressional Budget Office report on the last shutdown in December 2018-January 2019, which lasted 35 days..

While that shutdown was partial, it still cost the economy $11 billion including a permanent loss of $3 billion in the gross domestic product.

“Shutdowns freeze progress on vital IT and cybersecurity initiatives, waste taxpayer dollars, and undermine the government’s ability to attract and retain top technology talent,” said Tim Brennan, PSC's vice president for technology policy and government relations.

The groups urged Congress and the president to act quickly.

“People deserve a government that works for them. Our leaders in Washington must do better,” Renteria said.