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Thursday, October 24, 2013

Government Shutdown: Operations of the Department of Defense During a Lapse in Appropriations

Pat Towell and Amy Belasco
Specialist in U.S. Defense Policy and Budget

Because Congress did not provide any FY2014 funding for the Department of Defense (DOD) by October 1, 2013, the beginning of the new fiscal year, DOD, like other agencies, is now subject to a lapse in appropriations during which agencies are generally required to shut down. The Office of Management and Budget (OMB), however, has identified a number of exceptions to the requirement that agencies cease operations, including a blanket exception for activities that “provide for the national security.”

With the approach of the Treasury Department’s estimate of an October 17, 2013, deadline for raising the debt ceiling, concerns have grown about the potential effect on government programs and workers. If the Treasury Department were to continue the current practice of paying bills as they come due, DOD programs ranging from payments to military retirees to contractor bills could be delayed or reduced, a situation that differs from the current government shutdown. It is difficult to predict effects because of the uncertainty about Treasury actions, but payment delays could affect all programs and personnel. Negotiations are currently underway to deal with the upcoming deadline.

Concerns about DOD’s implementation of the government shutdown continue. On September 25, 2013, DOD issued guidance and a contingency plan that limited the types of “excepted” activities that would continue to be carried out during a shutdown to military operations, unspecified other operations and national security activities, and those necessary to protect the safety of persons and property. As a result, during the lapse in appropriations, some DOD personnel would be “excepted” from furloughs, including all uniformed military personnel, while others would be furloughed and, thus, not be permitted to work. Those civilian personnel who support “excepted” activities—roughly half of DOD’s 750,000 civilians—would continue to report for work while the remainder would be furloughed and not paid. Normally, such “excepted” military and civilian personnel would continue to work but would not be paid until after appropriations are subsequently provided.

With enactment of H.R. 3210, the Pay Our Military Act (POMA), on September 30, 2013, however, many defense personnel will be paid on time, including all active-duty personnel, most civilians, and some contractor personnel. On October 5, 2013, Secretary of Defense Chuck Hagel announced that the language in H.R. 3210 would allow DOD to recall most but not all of its civilian employees to work. In addition to those DOD civilians already designated as “excepted,” the Administration interpreted H.R. 3210 as permitting the Secretary to recall (and start to pay) those DOD civilians “whose responsibilities contribute to the morale, well-being, capabilities and readiness of service members.” This revision of DOD’s Contingency Plan would increase the number of DOD civilians returning to work from roughly 50% to about 95%, according to DOD Comptroller Robert Hale. As the services and DOD components implement this decision, civilians will return to work starting this week, and be paid on time under H.R. 3210.

DOD is continuing to review whether the number of contractor personnel, also covered under H.R. 3210, will be increased. Those defense civilian or contractor personnel who were or remain furloughed would only receive pay for that period if Congress passes legislation to pay furloughed personnel. On October 5, 2013, the House unanimously passed H.R. 3223, which would provide retroactive pay for all federal employees, as occurred during the 1995 to 1996 shutdown. The President has announced his support of the bill. The Senate has not yet taken it up.

On October 10, 2013, in reaction to considerable controversy in Congress, the President signed H.J.Res. 91, Honoring the Families of Fallen Soldiers Act, to provide for payment of death gratuities and other funeral expenses. Both houses had passed the bill unanimously. Previously, the Secretary of Defense had determined that such expenses were not covered under POMA. CBO estimates that the new law would cost about $150 million over the course of a year.

On October 2 and October 3, 2013, the House passed five “mini” Continuing Resolutions (CRs) providing funding for the District of Columbia, NIH, various museums, Veterans Administration disability programs, and pay for non-activated reservists, generally at FY2013 levels including the sequester now in effect. That package includes H.R. 3230, which would expand the number of reservists who would be paid on time from activated reservists (such as those deployed for the Afghan war) who are already covered by H.R. 3210, to non-activated duty reservists who are performing weekend drills. Based on press reports of reactions from the Senate leadership, however, the Senate is not likely to take up the bill.

The authority to continue some activities during a lapse in appropriations is governed by the Antideficiency Act, codified at 31 U.S.C. 1341 and 1342, as interpreted by Department of Justice (DOJ) legal opinions and reflected in Office of Management and Budget (OMB) guidance to executive agencies. Subject to review by OMB, each agency is responsible for making specific determinations on which activities may continue during a shutdown and which may not.

Legally, according to DOJ and OMB guidance, activities that may continue during a lapse in appropriations include (1) activities “necessary to bring about the orderly termination of an agency’s functions”; (2) administration of benefit payments provided through funds that remain available in the absence of new appropriations, including, in the case of DOD, military retirement benefits; (3) activities and purchases financed with prior year funds and ongoing activities for which funding has already been obligated; (4) activities undertaken on the basis of constitutional authorities of the President; and (5) activities related to “emergencies involving the safety of human life or the protection of property.” The Defense Department attributes its authority to carry on national security-related operations mainly to Section 1342 of the Antideficiency Act, which permits the continuation of activities to protect human life and property.

In addition to military operations, other activities that would continue under a shutdown by virtue of the Anti-Deficiency Act include operation of DOD Dependent Schools, child care centers, and DOD medical activities, including TRICARE services for dependents, but not non-essential services, such as elective surgery in military medical facilities. Passage of POMA considerably broadened the types of support activities, primarily performed by civilians, that would continue during the shutdown. A CBO estimate suggests that POMA appropriated $200 billion, or about one-third or of DOD’s $614 billion FY2014 request.

The roughly 5% of DOD’s civilians who would continue to be furloughed continue to face a pay gap, potentially imposing hardships on many families, unless legislation providing retroactive pay is enacted. Contracting activities that supported military activities and payments to vendors derived from prior multiyear appropriations could also continue. The status of many contractor personnel remains unclear. While some new contract obligations to support “excepted” activities could be signed, monies could not be disbursed while other new contracts would be delayed. This could create some confusion and, potentially, disruptions to supplies of some material and services, particularly if full funding for DOD is not restored soon.

Date of Report: October 15, 2013
Number of Pages: 34
Order Number: R41745
Price: $29.95

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