Final costs of federal shutdown could tally in billions, firms say

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WASHINGTON -- The government shutdown that ended this week will cost the U.S. economy several billion dollars, according to estimates by economic research firms.

But the affiliated damage -- such as the undermining of consumer and business confidence -- will be far greater, economists said, especially combined with the financial effects of the near-breach of the nation's statutory debt ceiling.

When the federal government shut down Oct. 1, permit offices across the country stopped accepting fees, contractors stopped receiving checks and research projects were put on hold. Such disruptions come with a price tag, although it will be small in the context of the $3.5 trillion the federal government spends every year.

It might take months for the Obama administration to come up with a thorough accounting of the direct cost to taxpayers of putting much of the government out of business and then reopening it. Several offices, including the National Aeronautics and Space Administration and the National Institutes of Health, said they were in the process of gauging the disruptions.

"The three weeks of government shutdown will cost the economy $3.1 billion in gross domestic product from lost government services," estimated Paul Edelstein and Doug Handler of IHS Global Insight, an economic research firm. "There will also be some impact from lost private-sector jobs tied to the shutdown, as well as a loss of consumer and business confidence resulting from the debt-ceiling showdown."

Mr. Edelstein and Mr. Handler added that the shutdown had delayed the data necessary to evaluate the shutdown: "The exact impact on the rest of the economy will be hard to measure until delayed economic data are released."

Putting huge parts of the federal government offline will produce some savings for the taxpayer, through reduced hours for certain contract employees and from lower operational costs, for instance. But those savings would almost certainly be overwhelmed by losses, user and permit fees. The government has lost out on millions of dollars that would have been spent at shuttered parks, caves, monuments and museums, for instance, with the National Park Service putting its toll at $450,000 a day.

Another major cost is related to payments to contractors and other service providers that the government missed. Some businesses might be due interest because of the late checks, or might request more compensation because of the disruption.

But the heftiest cost will be paying federal workers for time they spent idle -- about 800,000 workers were barred from working. Some offices might have to increase overtime to rush work that did not get done.

The best guideline, analysts said, for the price this time comes from the cost when the government was shut down in 1995 and '96 during President Bill Clinton's administration. At the time, Mr. Clinton estimated the combined cost at $1.5 billion, which would be about $2.2 billion in today's dollars. About 70 percent of that calculation consisted of paying furloughed employees for time they did not work.

But the cost was difficult to calculate and did not capture all the hours spent preparing for and fixing up after the shutdowns, analysts argued. "These effects are so unnecessarily counterproductive," Roy T. Meyers wrote in his definitive study of the 1995 and 1996 shutdowns.

The indirect costs of the most recent shutdown will be much bigger than the direct costs to the taxpayer, economists said.

In some cases, the shutdown has caused headaches and delays that might be quickly resolved once the government is fully operational. JetBlue, for instance, expected to take delivery of a new Airbus A321 in Europe earlier in October. But the Federal Aviation Administration employees required to complete the plane's registration were furloughed. "It's sitting on the ground in Germany," said JetBlue spokesman Mike Miller. "We hope to have it in service soon."

In other cases, the shutdown has caused more lasting damage to businesses and workers. Thousands of employees at federal contractors were furloughed and might not receive back pay. And a broad range of industries have taken a hit they might not make up in full. These include defense contractors faced with uncertainty about big projects and fishermen who will face a shortened king crab season because no fishing permits were issued during the shutdown.

nation - electionspresident - businessnews

First Published October 18, 2013 8:00 PM


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