Our story begins on October 1, 2010. With a fiscal year that starts on October 1 and ends on September 30, the first day in October is crucial. Because the President and the Congress had not yet agreed on the 2011 budget, in some way, they had to approve appropriations for agencies that get yearly funding.
Why can’t agencies just keep spending until they get their appropriations? Article I, Section 9 of the Constitution is one reason. “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Furthermore, Congress passed the Antideficiency Act that confirms the impact of a funding gap. Nonessential government activities have to stop.
There is a temporary solution called a Continuing Resolution (CR) which perpetuates funding until a new CR, a specific funding act, or the budget is passed. The problem is that the existing CR expires March 4th. Currently, we have neither a budget agreement nor a new CR. This 10 page Congressional Research paper provides a clear explanation.
What is nonessential? How are we affected by a shutdown?
The Economic Lesson
The budget process formally starts when the President submits a budget to Congress. The process for the 2011 budget began during February 2010 when President Obama sent his 2011 budget to the Congress. You can look at this Washington Post interactive for an overview of the budget process.
Between 1977 and 2010, there were 17 funding gaps. However, since 1993, we had only 2. The most memorable one ended in 1996 during the Clinton administration. It lasted 21 days, from December 16, 1995 to January 6, 1996.