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Estimated reading time of this week’s update: 14 minutes
(1) FEDERAL GOVERNMENT SHUTDOWN:
Background: Fiscal Year 2026 began last Wednesday, October 1, 2025. Because Congress has not completed any of the 12 regular appropriations bills for FY 2026, all federal agencies and programs funded through annual appropriations laws were required to “shut down.”
On Friday, September 19, House Republicans passed a stopgap funding measure (continuing resolution or “CR”) 217-212, to keep the government funded through November 21, while appropriators work to complete the 12 regular appropriations bill.
However, later on September 19, the Senate failed to pass the House CR 44-48 (60 votes being required).
Senate Republicans hold only 53 seats, requiring support from eight Democrats to pass the CR with 60 votes. (Senate Republicans need support from eight Democrats, rather than seven, to pass the CR, since Republican Senator Rand Paul of Kentucky opposes spending levels in the continuing resolution).
The Senate also failed to pass a Democratic alternative 47-45 (60 votes being required).
Failed Democratic Alternative: Text | Sec-by-Sec Summ | Fact Sheet | Health Fact Sheet | D-Stmt
The Democratic alternative would have added to the stopgap funding bill three categories of provisions aimed at:
Permanently extending the expanded Affordable Care Act (“ACA”) health insurance subsidies due to expire this year. (Without an extension of the 2021 provision, millions of enrollees would see their health insurance premiums double in 2026 and 4 million would become uninsured over the next decade.) Background from KFF.
Reversing the nearly $1 trillion in Medicaid and other healthcare cuts in President Trump’s “One Big Beautiful Bill Act” (OBBBA) signed into law July 4, 2025. CBO estimates.
Protecting Congress’s power of the purse by extending the availability of funds illegally frozen by the Office of Management and Budget, including $4 billion illegally canceled through a “pocket rescission.” That maneuver withheld funds close to the end of the fiscal year leaving Congress insufficient time to approve or reject the cancellation of funds.
Fact Check: the Democratic alternative does not propose government healthcare for illegal immigrants. Immigrants who enter the country illegally are not eligible for Affordable Care Act subsidies or Medicaid.
Last Monday’s White House Meeting Made No Progress, As Trump Mocked Congressional Leaders: On Monday of last week, President Trump and the Republican and Democratic Leaders of the House and Senate met, but made no progress. President Trump displayed a lack of seriousness about avoiding a shutdown by placing on display Trump 2028 caps (reflecting his autocratic disdain for the Constitution and its limit of two presidential terms), and posting vulgar deepfakes following the meeting.
CR VOTES FAILED 3 MORE TIMES LAST WEEK: On Tuesday, Wednesday, and Friday of last week, the Senate repeated its votes on the House-passed CR and the Democratic alternative—defeating the House-passed CR three more times (55-45, 55-45, 54-44), and defeating the Democratic alternative three times (47-53, 47-53, 46-52)—60 votes being required for passage.
WHAT’S AHEAD THIS WEEK? Roll Call reports on Senators searching for ways to break the impasse on health insurance subsidies; and as of this morning, Politico says both sides are “showing little sign of budging. Democrats are refusing to open the government without an agreement on extending Affordable Care Act subsidies, and they’re digging in despite the Trump administration’s threat of mass layoffs. Republicans aren’t willing to negotiate until the government is open.”
Background - What to Know About Shutdowns: Shutdowns occur when federal appropriations for government agencies expire at the end of a fiscal year and Congress has not yet enacted the appropriations bills or stopgap funding for the new fiscal year (in the form of a continuing resolution).
Shutdowns are required by the federal Antideficiency Act, which makes it illegal for federal employees to incur obligations on behalf of the federal government without congressional spending authority.
Federal Employees are Furloughed Unless They Are “Excepted”: All federal employees must be furloughed when an agency is without 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.
Which Federal Employees Are Classified as “Excepted?” This is determined by each federal agency under the direction of the White House Office of Management and Budget (OMB).
For the number of “furloughed” and “excepted” employees at each agency, see our shutdown webpage (newly updated) for the latest information we have on each agency’s operations during the shutdown.
What About Back Pay? When appropriations become available, excepted employees must receive back-pay; and Congress has customarily also granted back pay to furloughed employees.
What happens to federal contractors? In general, departments and agencies cannot pay contractors during a shutdown; however, contracts that are funded by multiyear appropriations may continue; and contracts for services that cross fiscal years may continue.
What about the courts? The Supreme Court continues operations relying on permanent spending authority. Lower courts remained open during the last Trump shutdown using incoming court fees and funds available beyond the current fiscal year.
For more background on shutdowns, see https://appropriations.com/government-shutdown/.
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 were negotiating final versions of 3 bills: the Ag-Rural-FDA; Legislative Branch; and Military Construction-VA bills.
(2) OPINION: WHY LAYOFFS (“RIFs”) DURING A SHUTDOWN ARE ILLEGAL
The Antideficiency Act of 1870 makes it illegal and subject to prosecution, for any government official to make payments or enter into contracts on behalf of the federal government before enactment of, or in excess of, congressional appropriations “unless authorized by law.” (Note this exception, which a century later would become the subject of intense scrutiny.)
The Antideficiency Act’s broad prohibition implements the Appropriations Clause of the Constitution, which prohibits drawing money from the Treasury “but in Consequence of Appropriations made by Law.”
Although the Antideficiency Act was enacted in 1870, it was not until 1980 that the Department of Justice issued the first of three legal opinions that interpreted the Antideficiency Act as requiring the government to shut down.
In a 1980 Opinion, Attorney General Benjamin Civiletti, stated, “(I)f, after the expiration of an agency’s appropriation, Congress has not enacted an appropriation for the immediately subsequent period, the agency may obligate no further funds except as necessary to bring about the orderly termination of its functions.”
Civiletti’s opinion continued, “Because no statute generally permits federal agencies to incur obligations without appropriations for the pay of employees, agencies are not, in general, authorized to employ the services of their employees upon a lapse in appropriations.”1981—Interpreting the “unless authorized by law” exception: In 1981, AG Civiletti addressed which government functions are permitted to continue during a temporary lapse of appropriations: “The ‘authorized by law’ exception in the Antideficiency Act exempts from that Act’s general prohibition not only those obligations for which there is statutory authority, but also those obligations necessarily incident to initiatives undertaken within the President’s constitutional powers.”
Which duties within the President’s constitutional powers are therefore permitted to continue? AG Civiletti concluded that employees may continue their work, “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.”
In a 1995 Memorandum Opinion for the Director of the Office of Management and Budget (“OMB”), the DOJ Office of Legal Counsel, reiterated the exception for “functions relating to emergencies involving an imminent threat to the safety of human life or protection of property” and that excepted employees continuing to work, “may not be paid.”
Now, consider the Trump Administration’s September 2025 OPM Guidance for Shutdown Furloughs. It states that “In the context of shutdown furloughs, the term ‘excepted’ is used broadly to refer to employees whose work is funded through annual appropriations but who are not furloughed because they are performing tasks that, by law, are allowed to continue during a lapse in appropriations. Those tasks are referred to as ‘excepted work.’ Such tasks may include emergency work involving the safety of human life or the protection of property or the performance of certain other types of ‘excepted work activities’ as defined in DOJ and OMB guidance.” (emphasis added)
Notice that prior legal interpretations have clearly stated that employees may be excepted only if they are involved in functions “authorized by law” or relate to “emergencies involving an imminent threat to the safety of human life or protection of property.”
Trump’s OPM guidance makes a significant departure, asserting that safety of human life or protection of property is merely one type of “excepted work” that may continue during a shutdown; and that DOJ and OMB can identify “other types of excepted work activities.” However, there is no legal analysis explaining where this newly broadened authority is to be found in, or implied from, the Antideficiency Act.
The Trump OPM guidance then proceeds to state that agencies can implement Reductions in Force (RIFs) during a shutdown: “OMB has determined that agencies are authorized to direct employees to perform work necessary to administer the RIF process during the lapse in appropriations as excepted activities.”
However, this OPM guidance is contrary to the Antideficiency Act because:
RIFs during the current shutdown period are not authorized by law;
RIFs are not required for the orderly termination of agencies’ functions during the shutdown; and
RIFs are not necessary to respond to “emergencies involving an imminent threat to the safety of human life or protection of property.”
Conclusion: Implementation of layoffs (RIFs) during the shutdown, threatened by President Trump and OMB Director Russell Vought, would be illegal activities in violation of the Antideficiency Act. There is no legal basis for designating implementation of RIFs to be “excepted activities.”
(3) TARIFFS AND THE ECONOMY: US job losses in September; Consumer Confidence Declines Again; Doubts spread about Japan and S. Korea tariff “deals.”
U.S. Lost 32,000 jobs in September, says payroll processor ADP. Wall Street Journal says the ADP report shows a labor force that continues to deteriorate.
U.S. Consumer Confidence declined again as Americans worry about prices and the job market. Report from AP.
Trump’s tariff “agreement” (actually an MOU) with Japan promises massive investments ($550 b) by that country’s government in the U.S., all to be controlled by President Trump. This is an unprecedented shakedown of a key ally using the threat of high tariffs, to be paired with an unprecedented power grab by the President over domestic economic investments. At the time of the MOU, Trillions predicted these funds would never materialize, and recent reporting from Politico, confirms that doubts about the Japan deal are spreading.
The Administration is also trying to impose a similar deal with South Korea for $350 billion. “The Koreans either accept that deal or pay the tariffs,” said Commerce Secretary Lutnick—yet another attempt to shakedown a key ally.
(4) OTHER MAJOR DEVELOPMENTS ACROSS GOVERNMENT:
National Flood Insurance Program expired last week with the end of FY 2025, “leaving homeowners unable to access new coverage and potentially wreaking havoc on home sales in flood-prone areas.”
FEMA (Federal Emergency Management Agency) is paralyzed. Read this report from the Wall Street Journal about “Trump’s plan to shift responsibility to the states and shrink the agency.”
With Trump’s Trade War Killing U.S. Farm Exports, the Administration is exploring billions in bailout funds.
The Enemy Within: In last week’s gathering of generals, President Trump shockingly said he will use the military to fight “the enemy within” and some U.S. cities will be “training grounds” for U.S. troops. This would be a blatant violation of the Posse Comitatus Act that restricts the use of the federal military (including the National Guard when it is federalized) for domestic law enforcement purposes.
NATO – RUSSIA Tensions Escalate: As Russian drones enter NATO airspace, Putin says Moscow is ready to respond if NATO allies deepen support for Ukraine.
Federal worker buyouts kicked in last week, with the end of fiscal year 2025. 100,000 federal workers dropped off the payroll. Read this report by the Wall Street Journal on why this strains an already weakening U.S. labor market; and Reuters reports on how this brain drain is impacting U.S. government operations.
Another capitulation: Last week YouTube agreed to pay $24.5 million to settle a Trump lawsuit over the company’s 2021 decision to suspend his account in the wake of the January 6 attack on the U.S. Capitol.
Trump administration moves to curtail appeal rights of fired federal workers by stripping the independence of the Merit Systems Protection Board. Read more.
Cuts to Rural Health Care: The New York Times reports that a freeze on Medicaid payments is forcing cuts to rural health care.
2026 Tax Filing Season Troubles: Treasury’s Inspector General says DOGE cuts will impact the upcoming tax filing season, with IRS having lost 17 to 19 percent of their workforce.
Trump Pressures Colleges to Commit to his Political Agenda in exchange for access to federal dollars, reports the AP.
Administration offers $2,500 to Children to self-deport. Read more from Politico.
(5) THIS WEEK’S MUST READ:
As America fumbles, China races ahead – WP / Zakaria
Trump Keeps Blurring the Line Between Capitalism and Socialism – WSJ
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: (301) 509-5688. Email comments, suggestions, and questions to: ckonigsberg@capitolpublicpolicy.com.