INSIGHTi

Issues Raised by a Federal Government
Shutdown: Grants to State and Local
Governments and the COVID-19 Pandemic
December 14, 2020
At the end of the day on December 18, 2020, the second continuing appropriations measure for FY2021,
Further Continuing Appropriations Act, 2021 (Division A of H.R. 8900, signed into law December 11,
2020) will expire. If additional funding is not provided, funding for federal agencies and activities funded
through all 12 of the regular annual appropriations acts will lapse on December 19. The resulting lapse in
appropriations will require a shutdown of most federal agency operations, including those necessary to
administer federal aid to state and local governments.
On previous occasions, federal agency shutdown procedures have followed guidance provided by the
Office of Management and Budget. This guidance directed federal agencies to implement contingency
plans designed to guide operations during a government shutdown. Federal agency operations include
administration of over 1,700 congressionally authorized federal grant programs.
As shown in Table 12.3 of the OMB Historical Tables, the federal government currently provides over
$720 billion annually in outlays to state and local governments through federal grants. The Coronavirus
Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) provided additional funding to states
and local governments to address needs arising from the COVID-19 pandemic, including $150 billion for
the Coronavirus Relief Fund, and $5 billion for the Community Development Fund for grants provided
under the Community Development Block Grant program. A federal government shutdown may cause
disruption to, or may result in the cessation of, grant administration activities depending on the following
factors:
 the timing and duration of a federal government shutdown; and
 the choices made by federal, state, and local officials in anticipation of, or during, a
shutdown regarding grant program administration.
Congressional Research Service
https://crsreports.congress.gov
IN11554
CRS INSIGHT
Prepared for Members and
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Timing and Duration of the Lapse in Federal Funding
Delays in Providing Technical Assistance to States on CARES Act
Funding
The timing of a government shutdown could have an impact on the ability of state and local governments
to use CARES Act funding. For example, one of the largest appropriations for state and local
governments under the CARES Act was for direct payments to states from the Coronavirus Relief Fund
(CRF). Under current law, states must expend the CRF direct payments by December 30, 2020. However,
states have faced uncertainty regarding what expenses would be considered allowable under the CRF.
Because the Treasury Department (Treasury) has revised guidance on allowable expenses several times,
states continue to be cautious about expending CRF direct payments. Given the December 30 deadline,
there may be a need for uninterrupted technical assistance from Treasury. It is unclear whether key
Treasury CRF personnel would be furloughed during a government shutdown, and thus be unable to
provide the technical assistance needed by the states.
Delays in Awarding New Grants and Renewing Existing Awards
The timing of a government shutdown may determine the impact on new and existing grant awards.
When a shutdown occurs when grant awards have not yet been made, or are in the process of being
renewed, uncertainty about final funding can cause delays in awarding the grant. During a shutdown, an
agency may also furlough grant personnel or lack authority to undertake even preliminary grant
administration actions including establishing funding priorities, revising grant program regulations and
guidelines, reviewing grant applications, and calculating formula allocations. The lack of personnel and
possible lack of authority to approve changes in existing grant awards may also prevent grantees from
mitigating the impact of the shutdown, and impair the ability of state and local governments to address
urgent financial needs during the pandemic due to uncertainty about when funding will resume.
Delays in Payments for Existing Grant Awards
Though there are variations across states and federal grant programs, the longer the federal government is
shut down, the greater the impact on federal grant program payments. OMB guidance indicates that grant
management activities at the federal agency level for those agencies experiencing a lapse in
appropriations would not continue during a shutdown, except in very limited circumstances. These
activities include payment processing, routine oversight, inspection, accounting, administration, and other
grant management activities.
State predictions on how long federally-funded/state-administered programs can operate during a
shutdown hinge, in part, on how much the state retained in advance payments, including direct payments
provided under the Coronavirus Relief Fund; how many reimbursement payments they received prior to
the shutdown; and whether other sources of program funding can be used during the federal funding gap.
Generally grant recipients that have smaller operating budgets, such as those in rural communities, may
face more hardship than larger grant recipients as they may have limited resources to cover federal
funding gaps. However, given the financial impact of the pandemic on many state and local budgets, more
grant recipients may be challenged by scarce and limited resources.

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Congressional Research Service
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Grant Administration Choices at the Federal, State, and
Local Levels
In anticipation of, or during, a shutdown, federal, state, and local stakeholders make choices in
administering grant programs. For some programs, these choices may include whether to
 cover gaps in federal grant funding using state or local funds without guarantee of
reimbursement after appropriations are provided;
 furlough grant administration personnel at all levels of government, regardless of whether
the positions are grant-funded or funded from normal operating budgets; and
 designate grant administration personnel as essential or non-essential in contingency
planning.
During a funding lapse, certain program activities at the state and local level funded under existing grant
awards may continue, but may face limitations based upon state cash flow. Grantees may continue normal
activities until federal advance funding is depleted and then must decide whether to use other funding
sources until additional advance or reimbursement payments are received. This decision may be based on
the cash flow challenges of the state and the policy priorities of state elected officials. The fiscal strain
placed on states due to the pandemic may create additional challenges for states to be able to cover federal
funding shortfalls.


Author Information

Natalie Keegan

Analyst in American Federalism and Emergency
Management Policy




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IN11554 · VERSION 2 · NEW

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