Government shutdown effects intensify

The federal government shutdown is stopping infrastructure funding and paychecks of key personnel that could put a total ground stop on air travel in the U.S. 

“I do want to talk about air traffic controllers for a moment,” said U.S. Department of Transportation Secretary Sean Duffy.  “They’re angry. I’ve gone to a number of different towers over the course of the last week to ten days and they’re frustrated.” 

The frustrations come from being designated as essential personnel by the government and working without getting paid.  

Over the weekend flight delays due to staffing shortages were reported at Los Angeles, Newark, Fort Meyers, Chicago O’Hare, and Reagan Washington National. 

Most furloughed government employees missed their first full paycheck last week with air traffic controllers scheduled for the same treatment on Tuesday.    

It’s estimated that roughly 900,000 federal employees have already been furloughed, and nearly 700,000 are working without pay.

In addition to the immediate effects on air travel, the lack of federal funding flowing to states is pushing them deeper into credit risk exposure as laid out by the B of A Securities municipal research team. 

“The impact on a federal shutdown on muni credit is often length and scope dependent,” said B of A.

“Public Housing Authority and Section 8 bonds supported by federal housing payments, bonds supported by federal lease payments on facilities leased by municipal entities to federal agencies, military housing bonds, and Grant Anticipation Revenue Vehicles are more exposed.” 

B of A downplays the threat to state and local governments but notes the impact is already being felt in and around Washington, D.C. 

Kroll Bond Rating Agency is looking at collateral damage to Capital Improvement Projects. 

“In the past, most capital freezes applied to new obligations rather than the withdrawal of funds already awarded for projects underway,” said KBRA.

“This represents a paradigm shift from automatic work stoppages to discretionary funding actions, with significant implications for public finance and infrastructure investment.” 

The National League of Cities is also keeping score on what’s happening on the local level.

According to NLC, “If the federal government shutdown continues into November, crucial programs for residents such as the Supplemental Nutrition Assistance Program and WIC, the special supplemental nutrition program for women, infants and children, which has not received any funding for fiscal year 2026, will run out of funds.” 

Native American Tribes are dealing with the shutdown by eyeing reserves. “Folks that had rainy day funds set aside for this, they’re going to see problems,” said Michael Stopp, Cherokee and Muscogee and the president and chief executive officer of Seven Star Holdings. 

“We saw in the beginning of the shutdown that many Tribes had learned from 2018 and made some adjustments in their budgets, but now we’re going into one of the longest shutdowns in history.”  

The shutdown is currently the second longest in history. First place goes to the 2018-2019 34-day marathon which happened during the first Trump presidency. 

The President has been trying to work around some of the more politically painful effects of the shutdown by moving money from other budgets to pay the military. There are also efforts underway to find money for SNAP. 

Senate Majority Leader John Thune has alluded to the possibility of writing “rifle shot bills,” aimed at keeping the military and ATCs paid. 

Any effort to finish the fiscal appropriations process has been pushed to the sidelines as both parties face the possibility of a year-long continuing resolution that would reset spending levels to the Biden era.