Counting Costs: The Impact of a Government Shutdown on the Security Industry

A federal government shutdown on Oct. 1, 2023, seems all but certain, as the expectation in Washington, D.C., is that Congress will be unable to pass the 12 annual appropriations bills that fund government operations – or even adopt an extension of current spending under a “continuing resolution for temporary relief” – before the beginning of the new fiscal year. While there have only ever been four U.S. government shutdowns in which operations were affected for more than one business day, it’s critically important for SIA members to understand not only what is happening, but also how it could impact their business and the industry as a whole.

Why is a government shutdown looming?

In June 2023, with bipartisan support in both the House and the Senate, Congress adopted the Fiscal Responsibility Act, which removed the federal debt ceiling and established new spending limits for annual appropriations. At the time, it was anticipated that these limits would define the overall scope of the 12 annual appropriations bills and that Congress would proceed to pass them at the agreed-upon levels and avoid a shutdown.

The Senate Appropriations Committee followed through and has adopted all 12 appropriations bills with bipartisan support; however, tensions have developed within the House, as some members now object to the previously agreed-upon levels of funding and aim to allocate less than what was agreed to in the Fiscal Responsibility Act.

Moreover, the House bills being proposed contain unagreed-upon policy provisions that would face significant challenges in garnering any support from the Senate and White House.

In cases where the House and Senate pass different versions of bills, the next step is convening a conference committee, which is responsible for reconciling the differences between the two chambers and producing a compromise version that must pass both chambers before heading to the president for final approval. This process is complex and often contentious and takes time – which is something the federal government does not have with the close of the current fiscal year – Sept. 30 – looming large.

Also, in contrast to the most recent government shutdown, which lasted for 35 days in December 2018 and January 2019 and was only partial, as appropriations had already been agreed to for the U.S. Department of Defense and four other major departments, the looming shutdown could affect all federal agencies dependent on appropriations, making it more similar to the October 2013 shutdown that lasted 16 days.

What is a government shutdown?

A government shutdown is complex and contentious and occurs when the government’s funding expires and Congress fails to pass a budget or continuing resolution to fund operations. While the immediate consequences of a government shutdown are felt most by federal employees, its ripple effects impact various industries, notably including the security industry.

Because agencies are not able to spend or obligate any funding without an appropriation or other direct authorization from Congress, a government shutdown will commence if Congress fails to enact the 12 annual appropriation bills by the start of the new fiscal year. Once a government shutdown is triggered, federal agencies must cease all nonessential and nonemergency functions until Congress acts.

How does a government shutdown impact the security industry?

The extent of a shutdown’s impact on an individual business depends on factors such as the duration of the shutdown, the agencies and programs left unfunded and each company’s unique reliance on federal government support and contracts.

Outlined here are some of the potential ways in which a government shutdown could broadly impact the security industry:

1. Contract delays and uncertainty: Security companies that contract with the federal government for services such as cybersecurity and physical security could face delays in contract payments, gaps in service and communication with federal agencies and even disruptions with implementing new or existing projects. Creating not only a strain on the financial resources of the company but also creating gaps in the integrity of security services and products.
2. Security vulnerabilities: During a government shutdown, most agencies would have to reduce staffing levels, including those responsible for the administrative side of certain cybersecurity and physical security projects and oversight leading to potential vulnerabilities in processes and procedures as well as a lack of particular federal resources. Further, any “essential” or “emergency” staff that are allowed to continue working are often required to pick up the workload from their peers who are not, resulting in less efficient work product, delays and an increase in security vulnerabilities.
3. Research and development: Government agencies fund research and development in the security sector, including technologies related to homeland security and public safety as well as national defense. A shutdown could disrupt funding and management of these programs, potentially delaying not only the development, but also the implementation of new security technologies.
4. Regulatory and permitting oversight: Agencies with regulatory oversight or permitting authority play a crucial role in setting and enforcing security standards and procedures. A shutdown can slow or even halt their ability to carry out regulatory oversight, halts access to federal permits and loans and could impact the ability for security companies reliant on federal security standards, projects, and procedures to operate.
5. Holistic impact: Aside from any particular private business operations impacted, a shutdown also undermines public confidence in the federal government and elected officials and even directly impacts the overall economy and reduces GDP growth and market activity.  

In conclusion, a government shutdown, caused by a lapse in federal funding due to budgetary disputes, can have a far-reaching impact on the security industry. From contract delays and uncertainty to security vulnerabilities and disruptions in regulatory oversight, the consequences of a shutdown extend far beyond the immediate federal workforce and could affect the stability, integrity and effectiveness of the security industry.

Due to the extreme volatility and uncertainty that comes with any threat of a government shutdown, security companies should have contingency plans in place to mitigate the potential disruptions and other unforeseen challenges that may follow.