"Shutdown and Debt Ceiling Crisis Would Pose Distinct Challenges for Government Operations"

by Skadden, Arps, Slate, Meagher & Flom LLP

Absent intervening legislation, the U.S. federal government’s appropriations will lapse on October 1, 2013, prompting a government shutdown. Separately, the secretary of the Treasury has informed Congress that, no later than October 17, 2013, the federal government will exhaust its borrowing capacity under the statutory debt ceiling.1 Absent intervening legislation, insufficient cash may then remain on hand to meet all of the government’s obligations, causing what has been referred to as the “debt ceiling crisis.”

Although the government shutdown and the debt ceiling crisis are occasionally conflated, they have distinct effects on government operations and on parties interacting and transacting with the government. A government shutdown occurs when federal agencies experience a lapse in their legal authority to incur financial obligations. For that reason, many federal employees cannot continue working during a shutdown and many contracts and grants are not awarded. By contrast, in a debt ceiling crisis, the government generally retains the authority to incur obligations, but may lack the cash to liquidate all of its obligations on time.

Government operations during a shutdown are controlled by rules that, albeit complex, are well-established and elaborated by past practice. The debt ceiling crisis, however, is unprecedented and little is known about the way the federal government would operate in it.

Government Operations During a Shutdown

The Antideficiency Act, 31 U.S.C. § 1341, prohibits officers and employees of the federal government from entering into obligations in excess of appropriations.2 Appropriations that fund much of the federal government’s current operations will expire at 11:59 p.m. on Monday, September 30, 2013.3 If no further appropriations legislation is enacted, the Antideficiency Act will generally deprive federal agencies of their authority to enter contracts, make grants, employ personnel and incur other financial obligations.

Yet some governmental functions continue even during a shutdown. Guidance promulgated during past shutdowns (or near-shutdowns) by the White House Office of Management and Budget (OMB) and the Department of Justice’s Office of Legal Counsel has authorized agencies to obligate funds during a shutdown for, among other things:

  • activities funded by multi-year or indefinite appropriations;
  • activities necessary to the discharge of the president’s constitutional duties and powers (likely including the conduct of foreign diplomacy and the exercise of the commander-in-chief powers);
  • activities that, if suspended, would adversely affect the execution of certain funded functions (e.g., the unfunded disbursement activities for funded social security benefits); and
  • activities that, if suspended, would imminently threaten the safety of human life or the protection of property (e.g., air traffic control).4

In addition, consistent with guidance from the OMB,5 federal agencies are updating their contingency plans for operations during a shutdown. The plans are collected on the OMB website.6

With respect to the federal government’s litigation responsibilities, the Department of Justice’s plan indicates that criminal matters would continue without interruption.7 Civil litigation, however, would be curtailed or postponed to the extent that this can be done without compromising to a significant degree the safety of human life or the protection of property. This plan assumes the courts would continue operating during the shutdown.

Government Operations During a Debt Ceiling Crisis

In contrast to the well-documented government shutdown procedures, no formal guidance is available about the operational effects of a debt ceiling crisis. Past practice likewise does not offer a reliable roadmap for a debt ceiling crisis, because the statutory debt ceiling had always been raised before the crisis occurred. Nor do shutdown procedures generally offer an accurate analogy for a debt ceiling crisis, because the problem they address (lack of authority to obligate funds under the Antideficiency Act) is not the principal problem during the crisis (inability to borrow when cash is insufficient to meet obligations).

Some information has been made public about operational options the Treasury considered during the (ultimately averted) brush with the debt ceiling in the summer of 2011. For example, according to a letter to Senator Orrin G. Hatch from the Treasury’s inspector general, the “range of options” included “asset sales; imposing across-the-board payment reductions; various ways of attempting to prioritize payments; and various ways of delaying payments.”8 While the Treasury concluded that none of the options “could reasonably protect the full faith and credit of the U.S., the American economy, or individual citizens from very serious harm,” Treasury officials told the inspector general “that organizationally they viewed the option of delaying payments as the least harmful among the options under review.” The inspector general’s letter does not indicate that a final decision among the various options had been reached.

Efforts have also been made to establish by legislation the priority of payments during a debt ceiling crisis, and the House of Representatives passed such bills this year.9 The Obama administration has consistently opposed such legislation on the ground that prioritization of payments is “default by another name.”10


1 Letter from Jacob J. Lew to John A. Boehner, Sept. 25, 2013, available at http://www.treasury.gov/Documents/Debt%20Limit%2020130925%20Boehner.pdf.

2 31 U.S.C. § 1341(1)(A)-(B) (“An officer or employee of the United States Government or of the District of Columbia government may not make or authorize an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation; [or] involve either government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law . …”).

3 See Consolidated and Further Continuing Appropriations Act, 2013 (P.L. 113-6).

4 See OMB Memorandum 13-22, Sept. 17, 2013, available at http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-22.pdf; Office of Legal Counsel, Memorandum for the Director of the Office of Management and Budget, Government Operations in the Event of a Lapse in Appropriations (Aug. 16, 1995), available at http://www.justice.gov/olc/appropriations2.htm.

5 See OMB Circular A-11, section 124.2, available at http://www.whitehouse.gov/sites/default/files/omb/assets/a11_current_year/s124.pdf.

6 See http://www.whitehouse.gov/omb/contingency-plans.

7 See http://www.justice.gov/jmd/publications/doj-contingency-plan.pdf.

8 Letter from Eric M. Thorson to Orrin G. Hatch, Aug. 24, 2012, available at http://www.treasury.gov/about/organizational-structure/ig/Audit%20Reports%20and%20Testimonies/Debt%20Limit%20Response%20(Final%20with%20Signature).pdf.

9 Full Faith and Credit Act, H.R. 807 (113th Cong. 1st Sess.); Continuing Appropriations Resolution, 2014, H. J. Res. 59 § 138 (113th Cong. 1st Sess.).

10 Office of Management and Budget, Statement of Administration Policy on H.R. 807, May 7, 2013, available at http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/113/saphr807r_20130507.pdf.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Skadden, Arps, Slate, Meagher & Flom LLP | Attorney Advertising

Written by:

Skadden, Arps, Slate, Meagher & Flom LLP

Skadden, Arps, Slate, Meagher & Flom LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.