January 18, 2019
By Dennis Kaiser
The partial shutdown of the U.S. Federal Government continues to cause myriad negative impacts across the country. But, a prolonged stoppage will “exponentially” exacerbate the situation, warns the Center for American Progress’ Sam Berger, who worked at the Office of Management and Budget under President Barack Obama.
Berger told Bloomberg, “Shutdowns don’t get bad linearly; they get bad exponentially.” Meanwhile, the White House and Congress work to sort out and solve the budget impasse in order to deliver funding for those parts of the government that remain shuttered.
The immediate effect has been felt by businesses, though economists point out a lasting and indirect result may be a weakening of consumer confidence. Ultimately, that could undermine the economy via retail sales declines.
Roughly a quarter of the government remains unfunded, since appropriations enacted before the standoff began fund departments such as Defense, Labor and Health and Human Services, and the U.S. Postal Service and U.S. Federal Reserve are funded through separate sources besides Congress.
Still, more than a dozen departments and agencies, ranging from Homeland Security to the Environmental Protection Agency, remain closed. And, that’s starting to affect the national economy and across numerous industry sectors including commercial real estate.
If the federal government stops paying rent on space it leases because there is no one to process checks, property owners would be impacted as soon as the end of this month. That’s when the General Services Administration would usually send out its January payments, Cushman & Wakefield’s Darian LeBlanc told Bloomberg.
The GSA leased more than 190 million square feet in nearly 7,000 buildings nationwide at the start of its 2018 fiscal year. That represents roughly $5.6 billion in annual rent payments, according to an agency report, and translates to roughly $460 million a month that landlords would not receive.
If GSA designates staff to process rent checks as essential, forcing them to work without pay, another risk must be mitigated. Namely, ensuring the source of the GSA’s rent payments, The Federal Buildings Fund, doesn’t go broke when other closed-down federal agencies stop paying the GSA for using its buildings.
Landlords face a thorny predicament if GSA stops paying because the law prevents them from evicting federal tenants, leaving them with suing as the only recourse. Building owners must also continue to operate and maintain properties.
Shifting to the residential side, the Department of Housing and Urban Development reports 1,150 rental assistance contracts with private landlords that expired in December or will expire in January can’t be renewed. That encompasses roughly 40,000 low-income households.
Then, there’s another 550 rental assistance contracts set to expire in February, affecting an additional 16,000 households. Should the shutdown stretch into March, subsidies for the great majority of contracts will end, along with all subsidy payments for the largest rental assistance program. The Center on Budget and Policy Priorities’ Sharon Parrott told Bloomberg, that will jeopardize vouchers used by 2.2 million low-income households. Ultimately, that may place landlords across the country in a dreadful position of asking tenants to pay full monthly rent or evict them.
The National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA) joined more than 200 organizations in signing on to a United States Chamber of Commerce coalition letter to President Trump and Congress calling for an end to the government shutdown.
NMHC notes, “this shutdown is having a very real impact on multifamily residents, communities and companies across the country. As the shutdown continues into its second month, the resulting challenges and unfortunate circumstances will only grow. NMHC/NAA urge Congress and the Trump administration to work together to end the shutdown.”
Numerous other impacts are expected as a result of a longer shutdown, too. Here’s a few key ones across various federal agencies:
- The Securities and Exchange Commission isn’t processing IPO listing plans or providing feedback. The closure is likely to result in no new initial public offerings on U.S. public exchanges.
- The shutdown of the Federal Aviation Administration and Department of Transportation means car and truck manufacturers may not be able to introduce new products, and airlines may not be able to sell tickets for planned new flight routes or add airplanes to their fleets.
- In the federal court system, appellate, district and bankruptcy courts will reduce operations. Though criminal cases should proceed uninterrupted, some courts have already suspended civil cases involving the federal government.
- The Food and Drug Administration has suspended some routine food safety inspections, though will restart high-risk food surveillance.
- The FDA isn’t accepting new applications for medicines, since it can’t collect fees that pay for pharmaceutical reviews, which impacts drugmakers.
- Breweries can’t roll out new craft beers, since applications are being held up by a Treasury Department agency responsible for approving labels.
- The government risks losing employees and contractors, some of whom may elect to seek other positions rather than keep working without pay.
- Regional and local transportation agencies that depend on federal funding may need to reduce transit services.
- The U.S. Department of Agriculture will have to halt food stamp benefits to 38 million recipients past February.
For comments, questions or concerns, please contact Dennis Kaiser