Gov’t Shutdown: Challenges, Minimal Long-Term Impact

A report released Tuesday by Minnesota Management and Budget found that the shutdown in July posed challenges for the public and state employees who were out of work for 20 days-but the state won't feel a long-term economic impact.

Although there were challenges experienced by various stakeholders, the long-term economic impact of the 20-day state government shutdown in July-the longest in the state's history-is expected to be minimal, according to a report released Tuesday by Minnesota Management and Budget.

The report-which carefully examined the impact of the shutdown-found that direct costs incurred by the state were offset by compensation savings. While the state lost $49.7 million during the period, it also saved about $65 million in payroll expenses, as 19,000 laid-off state workers didn't receive paychecks for those 20 days. After factoring in $10.4 million in state costs related to unemployment compensation, which about 17,000 state employees applied for, and various other expenses in shutdown preparation, the financial impact to the state represented somewhat of a wash.

But even though the state's overall balance sheet wasn't hurt by the shutdown, some state funds did experience significant losses. According to the report, various funds together lost an estimated $49.7 million. The most significant revenue losses included $33.5 million in Department of Revenue tax compliance monies, nearly $10 million in estimated lottery revenues, $3.5 million in Department of Natural Resources fees associated with the closure of state campgrounds and the interruption in selling hunting and fishing licenses, and $150,000 in forgone Minnesota Zoo admission revenues.

In addition to losses experienced during the shutdown, preparing for it also came with a price tag of about $7.1 million and recovering from it cost about $2.94 million, the report found. Approximately 200,000 staff hours were redirected from normal operations to preparation and recovery efforts.

In outlining the challenges prompted by the shutdown, the report said that “widespread frustration among the public occurred in response to the stoppage of highly visible public programs, such as the delay or break in processing various permits and licenses, state Web sites being shut down or dormant, the closure of state parks, and a lack of information of what services continued and those that did not.”

However, the report also said that the public impact of the shutdown was mitigated by the fact that about 80 percent of state spending continued through court order-school aid payments, several health and human services payments, and tax aids and credits that comprise the majority of the state budget and continued to be processed.

The shutdown affected the private sector in a variety of ways-including halting highway construction projects and delays associated with professional licenses and permitting.

Additionally, it created “a challenging and difficult environment for the state work force,” according to the report, which named the temporary layoff of 19,000 state employees as the single most significant impact. “Employee stress and frustration increased dramatically due to the uncertainty of the situation.” In addition to thousands of employees going without a paycheck, many also worried about whether they would continue to have health care coverage.

The report included a look at how many employees worked through the shutdown in agencies deemed “critical” to the state. Those that employed the greatest numbers of employees during the 20-day period were the Human Services Department (4,368), the Corrections Department (3,711), the Veterans Affairs Department (1,262), and the Public Safety Department (1,003). Many state departments reported that they employed no one during the shutdown.