Government shutdown extends into second week

As the U.S. government shutdown dragged into its ninth day, the two parties Thursday appeared no closer to agreement than when the stalemate began Oct. 1. The Senate met to consider, for the seventh time, a pair of partisan short-term continuing resolutions to fund the government. Both failed. House Speaker Rep. Mike Johnson, R-La., said he would not call lawmakers back to the House to consider a bill that would ensure military troops get paid.

More than half of the flight delays across the country are being caused by controller staffing shortages, according to the U.S. Department of Transportation, and Transportation Secretary Sean Duffy Thursday warned controllers who don’t show up for their jobs that they may be laid off from the already shortstaffed operation. Air traffic controllers are expected to work without pay during the shutdown.

On Wednesday, Duffy also announced a funding patch for a key rural airport program that had been set to run out of money Sunday. The federal government will reallocate $41 million to the Essential Air Service program to keep it running until at least early November. The program provides subsidies to airlines to maintain flights to small and rural communities. It supports 170 local airports across the US and in Puerto Rico.

Republican lawmakers in both chambers began to talk about the possibility of passing full-year appropriation bills, although the Democrat and Republican appropriators have yet to agree on topline spending numbers for fiscal 2026, which began last week.

The longer the shutdown lasts, the more it will impact cities, states and other bond-issuing entities. Though mitigated by reserves in the beginning, the “effects of a shutdown multiply quickly, including funding lapses, project delays, business cancellations, furloughs and layoffs,” the National League of Cities said in a letter urging Congress to reopen.

A government shutdown affects about 26% of federal spending, which is considered discretionary, according to S&P Global Ratings. Funding for non-discretionary programs like Medicaid, which comprises roughly one-third of total state budgets, and Medicare are not affected by government shutdowns. Those programs account for over half of not-for-profit hospitals’ payor mix, Fitch Ratings said in an Oct. 1 report.

Federal highway funds are also not affected by the shutdown. Airports, which generally enjoy strong liquidity and balances sheets, could see “non-material operational disruptions” but the financial risk “remains very low,” Fitch said. “Airport capital projects could be delayed if federal grant funding is held up,” the agency added.

Areas with high concentration of federal workers, like Washington, D.C., Virginia and Maryland, are more exposed than other regions, said Thornburg Investment Management’s muni team in a brief.

“In addition, there is the risk that in these states, sales taxes are negatively impacted due to reduced tourism and sales taxes,” the firm said. “Fortunately, most states currently enjoy historically robust rainy-day funds, following strong post-pandemic fiscal performance, which would allow them to handle any reduction in federal funding. In addition, state and local governments have the ability to autonomously adjust their budgets as needed.”

A key sticking point remains the extension of Affordable Care Act premium subsidies, which are set to expire Dec. 31. The premiums could more than double without the credits.

Senate Democrats, who retain some leverage because 60 votes are needed there, say the credits must be extended to get a deal. President Trump and some top Republicans have said they’re open to the extensions but not until Democrats agree to re-open the government.