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Estimated reading time of this week’s update: 14 minutes
(1) FEDERAL GOVERNMENT SHUTDOWN: House-passed CR Has Failed 7 Times in Senate; Dems Are Withholding Support to Leverage Health Subsidy Extension and Restoration of Impounded Funds; Furloughed Employees and Backpay; Mass Layoffs Began Last Friday and Likely Violate Antideficiency Act; Speaker Johnson Warning Shutdown Could be Longest in History.
Background: The Federal government shut down on October 1st when the new fiscal year began because Congress has not yet passed funding bills for fiscal year (FY) 2026. Shutdowns are required by the Antideficiency Act, which makes it a criminal violation for federal employees to incur obligations on behalf of the federal government without congressional spending authority.
The House of Representatives in September passed 217-212 a stopgap continuing resolution (“CR”) to provide temporary funding through November 21st, but the Senate failed has to pass the measure seven times, most recently last Thursday. (The Senate also failed seven times to pass a Democratic alternative CR.)
With 60 votes required in the Senate to advance a CR, Republicans need the support of 8 Democrats or Independents to pass the measure. Thus far, only 3 have supported the stopgap funding (Cortez Masto (D-NV), Fetterman (D-PA), and King (I-ME). One Republican (Paul, R-KY) opposes the funding levels in the CR, which is why the 53-member Senate Republican conference needs to find 8 votes to reach 60.
Nearly all Senate and House Democrats are continuing to withhold their support of the stopgap measure in order to leverage an agreement with Republicans to add provisions that would:
(1) permanently extend the expanded Affordable Care Act (ACA) health premium subsidies (which will soon expire);(2) restore Medicaid funding cut by President Trump’s July budget law; and
(3) restore appropriated funds President Trump illegally impounded through a “pocket rescission.”However, there have been no negotiations with Democrats. House Speaker Mike Johnson has kept the House of Representatives out of session since September 29, in order to pressure Senate Democrats to accept the House-passed CR. The Hill reports that pressure is growing on Johnson to call the House back, but yesterday, October 13, Johnson warned the shutdown could be the longest in history.
On Sunday, Vice President Vance attempted to undermine Democrats’ shutdown strategy by alleging that ACA health insurance subsidies “fuel fraud.”
Fact: More than 24 million Americans are now enrolled in the ACA marketplace, which was established for people who don’t have access to insurance through employment.
During a shutdown, Federal employees are furloughed unless they are “excepted”: Based on prior legal decisions of the Department of Justice, all federal employees must be furloughed when an agency lacks funding, except when an employee’s duties are classified as “excepted activities” relating to the “safety of human life or the protection of property.”
Excepted employees are required to work, but are not paid until appropriations are enacted—unless funds authorized outside the annual appropriations process (called “mandatory spending”) are available to pay excepted employees.
For example, last Friday, President Trump ordered that (mandatory spending) funds from the July budget law (OBBBA) be made available to pay Department of Defense military personnel designated as “excepted.”
President Trump Is Using Mass Layoffs to Pressure Democrats: Last Friday, the Trump Administration announced the layoff of more than 4000 federal employees, in conjunction with the shutdown, from the following departments and agencies: Commerce-315; Education-466; Energy-187; EPA-25; HHS-1,200; HUD-442; DHS-176; and Treasury-1,446.
Trillions legal opinion: The use of “excepted employees” to carry out layoffs during a shutdown is a significant departure from well-established precedents that limit which activities are legally permissible during a shutdown.
A 1981 opinion from the Department of Justice interpreted the Antideficiency Act as permitting employees to work during a shutdown only “when there is a reasonable and articulable connection between the function to be performed and the safety of human life or the protection of property.” The Justice Department reiterated this interpretation in a memorandum to OMB in 1995.
As discussed in detail in last week’s Trillions, it is clear that managing the layoffs of large numbers of employees bears no reasonable or articulable connection to the “safety of human life or the protection of property.”
Yet, in OMB’s court filing on Friday, the Administration acknowledged that employees in four departments--Commerce, HHS, HUD, and Treasury—were recalled specifically to perform reductions in force (RIFs).
On Sunday, Vice President Vance doubled down and said there will be deeper cuts to the federal workforce the longer the shutdown continues.
On Monday, Speaker Johnson claimed he was unaware of the details of thousands of workers being fired by the Trump Administration last Friday.
AP reported Sunday that, “Labor unions have already filed a lawsuit to stop the aggressive move by… Trump ’s budget office, which goes far beyond what usually happens in a government shutdown, further inflaming tensions between the Republicans who control Congress and the Democratic minority.”
The government shutdown is “starting to bite.” Following are some of the notable impacts.
The shutdown has halted federal worker pay—for “excepted workers” (who continue to work) and furloughed workers (who will not return until the shutdown is over). Beginning with last Friday’s reduced paychecks, excepted and furloughed federal workers will have to rely on personal savings until the shutdown ends (except for limited circumstances where certain mandatory—not annually appropriated—funds are available).
Public Health Chaos: Friday’s RIFs included 1,300 staff at the Centers for Disease Control and Prevention. However, some of the RIFs were later rescinded. Read more.
Air travel: Flight delays and cancellations are spreading across the country due to staff shortages among unpaid air traffic controllers. Also, the Essential Air Service, which subsidizes flights to small and rural airports, will soon run out of money unless the shutdown ends.
Social Security and Medicare: While checks continue to go out to beneficiaries and providers, the reduced workforce is slowing applications for benefits and requests for assistance.
Veterans: cannot access career counseling or benefits assistance at regional offices.
Taxpayers: rushing to meet the Wednesday deadline for extended filing will have trouble accessing IRS customer service.
Farmers: face difficulties in planning for next year’s crops because there is uncertainty about what federal assistance they can expect.
Native American Communities: Some medical services, such as diabetes monitoring and telehealth sessions, have been curtailed or canceled.
Contractors: The “strain is deepening for federal contractors” who cannot be paid unless multiyear or mandatory funds are available for specific contracts.
Businesses: Executives are being forced to make decisions without the full benefit of key government economic data.
No New IPOs: The Securities and Exchange Commission, which has furloughed 90% of its employees, is not processing IPOs.
Entrepreneurs: The Small Business Administration is not processing small business loans.
Housing: Some home buyers are unable to close on mortgage loans because they are unable to get federal flood insurance.
U.S. Tourism: Smithsonian Museums are closed and the National Park Service has reduced operations.
Controversy on Whether Furloughed and “Excepted” Employees Automatically Receive Backpay at the end of the shutdown: A 2019 law enacted following President Trump’s first-term shutdown requires that all furloughed and excepted employees receive back pay once a continuing resolution is enacted. However, a controversy has arisen about whether backpay is triggered by enactment of a CR alone, or requires a special appropriation.
The Government Employee Fair Treatment Act of 2019, signed into law by President Trump after the last government shutdown, provides that “Each employee of the United States Government or of a District of Columbia public employer furloughed as a result of a covered lapse in appropriations shall be paid for the period of the lapse in appropriations, and each excepted employee who is required to perform work during a covered lapse in appropriations shall be paid for such work, at the employee’s standard rate of pay, at the earliest date possible after the lapse in appropriations ends, regardless of scheduled pay dates, and subject to the enactment of appropriations Acts ending the lapse.” 31 U.S.C. 1341(c)(2)
The Office of Management and Budget initiated a controversy last week, arguing that the “shall be paid” language above is contingent on the enactment of appropriations specifically for backpay. However, this is not the plain meaning of the language. The final clause, “subject to the enactment of appropriations Acts ending the lapse” means only that employees cannot be paid until appropriations are enacted that end the shutdown. Therefore, as soon as a CR is enacted ending the shutdown, the furloughed and excepted employees must be paid, in the author’s legal opinion.
Since OMB Director Russell Vought seems intent on continuing to threaten the backpay of federal employees as political leverage, this matter will likely have to be litigated in court, and suits have already been filed.
To access the numbers of “furloughed” and “excepted” employees at each agency, see our shutdown webpage for the latest information agency-by-agency information.
Overview of Action on the 12 Regular Appropriation Bills: When the shutdown is eventually resolved, appropriators will resume work on the 12 regular appropriations bills. At the time of the shutdown, the status of the bills was as follows:
The House Appropriations Committee had completed action on all 12 bills and 3 of the bills had been approved on the Floor (Defense, Energy-Water, and MilCon-VA).
The Senate Appropriations Committee had completed action on 8 of the 12 bills (each with substantial bipartisan support) and 3 of the bills had been approved by the full Senate (Agriculture, Leg. Br., MilCon-VA).
The House and Senate had begun negotiating final versions of 3 bills: the Ag-Rural-FDA; Legislative Branch; and Military Construction-VA bills.
(2) TRUMP USES SHUTDOWN TO GUT OFFICE OF SPECIAL EDUCATION PROGRAMS:
Mass Layoffs (Reductions in Force): On Friday, the Trump administration fired most employees at the Office of Special Education Programs at the Department of Education. The office is tasked with distributing over $15 billion under the Individuals with Disabilities Education Act (IDEA), which guarantees a free and appropriate public education to millions of children with disabilities across the country.
An official at the American Federation of Government Employees believes all employees of the Office of Special Education and Rehabilitative Services were RIFed on Friday.
One Department of Education source said, “I have no staff to put the money out and to monitor the states.”
President Trump has claimed that HHS staff will handle the special needs and nutrition programs for students, but the transfer from DoEd to HHS has not happened and HHS staff are also being slashed.
Read more about the closing of the Special Education Office:
Ed Dept layoffs hit offices that oversee special education – AP
Special education staff decimated after Trump shutdown firings - ABC News
Trump administration guts department overseeing special education - NPR
Education Department wipes out special ed office in shutdown layoffs – USA Today
(3) TARIFFS AND THE ECONOMY:
Moody’s Analytics says 22 states are already in recession or on the verge of a downturn. Chief Economist Mark Zandi says the states’ slowdowns stem from losing immigrant labor, increased tariffs, and federal job cuts. Also last week, International Monetary Fund (IMF) Managing Director Kristalina Georgieva told the Milken Institute, “Uncertainty is the new normal and it is here to stay.”
Trump Reignites Trade Tensions with China: Last Friday, President Trump announced 100% tariffs on all imports from China beginning November 1, calling it a response to China’s newly expanded export controls on rare earth minerals. For a useful chronology of Trump’s trade war with China, see this Reuters article.
(4) OTHER MAJOR DEVELOPMENTS ACROSS GOVERNMENT:
Federal Judges Warn of a Crisis at the Supreme Court: In a highly unusual public airing of concerns, dozens of sitting judges shared with the New York Times risks to the federal judiciary’s legitimacy as the Supreme Court releases opaque orders about Trump administration policies.
The Final Budget Deficit for FY 2025 was $1.8 trillion, according to the Congressional Budget Office. The accumulated debt held by the public at the end of FY 2025 was $30.3 trillion, and federal net interest payments on the public debt now exceed $1 trillion per year, projected to reach $1.8 trillion per year by 2035.
The Senate passed a bipartisan Pentagon defense policy bill last Thursday authorizing $925 billion for FY 2026. The bill, which passed 77-20, would overhaul military procurement. However, the Senate has not acted on the FY 2026 defense appropriations bill which provides most of the department’s spending authority.
Fact Checking the Cabinet Meeting: At last week’s Cabinet meeting, President Trump made numerous wildly inaccurate claims about vaccines, Venezuelan drug boats, wars he claims to have ended, taxation of Social Security benefits, lowering prescription drug prices and the 2020 election he still claims to have won. Read more from CNN.
Fact Checking President Trump’s Claims of his Tariff War Producing Trillions in Foreign Investment: See this AP article explaining why Trump’s claim to have secured foreign investments of $17 trillion is unrealistic. “(This) goes beyond Trump’s hyperbolic talk to his belief that the brute force of tariffs and shaming of companies (and countries) can deliver economic results.” The political reality is that his tariff shakedowns of companies and countries will produce only a fraction of his promised investments, while alienating trading partners around the globe and making them “less inclined to invest with the U.S. after being threatened to do so.”
Rural America Cuts: The Trump Administration has zeroed out funds to increase internet access for rural Americans.
Climate Tipping Points are Being Crossed: While the Trump Administration continues to roll back U.S. renewable energy investments—last week canceling the largest solar project in North America—the renewable energy market continues to grow, now surpassing coal. Despite the growth of renewables globally, scientists are warning that several climate tipping points have already been crossed.
Trump’s Border Czar: A former federal Inspector General says the scandal involving Trump’s border czar, Tom Homan, “has more red flags than a May Day parade.”
(5) THIS WEEK’S MUST READ:
“Funding that Congress intended to be spent by Sept. 30 seemingly never was. Some of it may have expired at midnight that day, in direct opposition to Congress’s will. In the mystery over what happened to it — and how much money is at stake — Congress has been losing more of its power.”
“DOGE, established by an executive order, may have canceled contracts and fired workers, but it never had the authority to cut spending in the first place.”
Six Surgeons General: It’s our duty to warn the nation about RFK, Jr. – WP
About the author: Charles S. Konigsberg, J.D., served as Assistant Director at the White House Office of Management and Budget for three successive Budget Directors; General Counsel at the U.S. Senate Finance Committee; Minority Chief Counsel at the U.S. Senate Rules Committee; Staff Attorney at the U.S. Senate Budget Committee; Director of Congressional Affairs at CFPB and AmeriCorps; and Staff Director of a national bipartisan budget task force.
He is author of the book, Trillions: A Primer on Federal Spending, Taxes, the U.S. Debt Ceiling, and Fiscal Law. Click here to purchase.
He is also Publisher of:
Appropriations.com which tracks the 12 appropriation bills and presidential impoundment developments each day;
andGovBudget.com which tracks major developments, by subject area, each day including: Law & Democracy | Cut Tracker | WH-OMB-DOGE | Economic News | Federal Taxes | Tariffs | Health and Human Services Programs | Debt, Deficits and Debt Limit | Discretionary Spending Programs | Mandatory Spending Programs | Immigration | Disabilities Programs | Defense | Climate/Energy | Budget Process
Speaking engagements and press interviews can be scheduled by calling: (202) 818-8578 or (301) 509-5688. Email comments, suggestions, and questions to: ckonigsberg@capitolpublicpolicy.com.
Everyone out there, you just can't find all this stuff one place other than on this Substack. Chuck, you're performing an immense public service
Everyone out there, you just can't find all this stuff one place other than on this Substack. Chuck, you're performing an immense public service