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Why a government shutdown could be a pricey proposition

If past is prologue, a looming government shutdown could actually cost U.S. taxpayers money.  A lot of money.

According to the Office of Management and Budget, the two shutdowns in 1995 and 1996 cost taxpayers $1.4 billion combined. Adjust for inflation and you've got $2 billion in today’s dollars.

Those two shutdowns lasted a total of 27 days, but there’s no telling how long the government could be shuttered this time around if Congress fails to act by Monday at midnight. Even shorter shutdowns have proven successful at draining government funds.

Speaking at the White House, President Obama says his message to Congress is: Do not shut down the government, do not shut down the economy.

In the immediate aftermath of the first government shutdown in 1981, the most conservative estimate  – conducted by the General Accounting Office (now called the Government Accountability Office) -- put the cost of shutting the government down for a single day at $8.2 million, or almost $21 million in  today’s dollars. A House panel later concluded that the day-long furlough cost taxpayers 10 times more than that.

“Past shutdowns have disrupted the economy, and this shutdown would as well,” President Barack Obama said at an address at the White House on Friday. “It would throw a wrench into the gears of our economy at a time when those gears have gained some traction."

It  may seem counter-intuitive that pressing the pause button on the federal government’s operations could come with such a hefty price tag … so why does it take so much cash to keep the government’s lights off? And why do estimates vary so widely?

First, there’s the actual mechanics of preparing for a shutdown, like alerting staff of procedures and preparing to secure files and facilities.  For example, during the first five day shutdown in 1995, the Labor Department alone spent almost $12,000 on postage, printing and paper for furlough notices. The Treasury Department calculated the cost of developing contingency shutdown plans at just over $400,000.

That process – and some of the costs associated with it – is already underway days or even weeks before a shutdown deadline, whether the crisis is averted or not.

“Those costs begin to be incurred now, when the debate is still going on,” said Bruce Yandle, a professor of economics at Clemson University who served as the executive director of the Federal Trade Commission during the Reagan Administration. “It’s what employees are already discussing around the water cooler. It’s already affecting decisions being made by management.”

The Senate passed a bill to fund the government though November 15, 54-44. NBC's Kelly O'Donnell reports.

The impact of a brief shutdown – or even just the threat of one – for government contractors can also mean higher costs for federal agencies in the future, although it’s almost impossible to assign a dollar amount, says Roy Meyers, a political science professor at the University of Maryland Baltimore County and a former CBO analyst.

“It can reduce the profits of the contractors,” says Meyers. “And the next time they consider working with the federal government, they count that as a risk, and they charge more.”

That impact could be felt acutely in the Washington, D.C., area, where many contractors are based. And that could be compounded by the impact on tourism in the District as federally-funded museums and monuments are shuttered. The shutdowns of the 1990s cost the District of Columbia an estimated $50 million in lost business and cancellations, officials said at the time.

There’s also the issue of back-pay for furloughed workers. While only those workers deemed “non-essential” would stay home during a shutdown – about 40 percent of the federal workforce during the mid-1990s  –  there’s a precedent for lawmakers granting those individuals their pay once the government is back up and running, even though they weren’t producing any work.

Cost estimates must also factor in delays in the collection of fines and fees typically gathered by federal agencies.

OMB said after the twin shutdowns in 1995 and 1996 that $2.2 billion worth of licenses for U.S. exports were delayed and that some $60 million in environmental fines and settlements were not collected or negotiated.

Sen. Kirsten Gillibrand, D-N.Y., talks about the Senate vote to avert next week's government shutdown, calling the debate a "Tea Party tantrum."

Most of those fees eventually get collected, says Yandle, but the delays and the inconvenience to businesses and consumers can end up having resonance that won’t show up in cost estimates at all.

“Those costs that cannot be estimated are often much more important than those that can,” he said.  

Meyers argues that a shutdown’s cost to the budget or the effects on the overall economy estimates – flawed as they may be –  pale in comparison the societal cost of a government that seems bent on playing political chicken rather than focusing on solving problems.

“The real costs are really not in terms of consumer confidence or any of the standard measures in macroeconomics or even the federal budget,” he said. “The real costs are in trust in government and belief that government officials are paying attention to the real issues of the country.”

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