The Budget and the Debt Ceiling: How A Government Shutdown Could Affect Military Pay

Editor’s note: Government Shutdown! Every time I publish something like this, I get a bunch of people telling me that I’m being dramatic. Or that the military will always get paid. Or that I’m being irresponsible for getting people upset. That’s not the intent at all. If you’ve spent any time at all around these parts, you know that I am ALL about education. My job is to help people understand what is happening and how it COULD impact them personally. More information and understanding is never a bad thing. This article has been rewritten and has incorporated other articles that were previously separate.

What Is A Government Shutdown?

Government shutdown, budget, appropriations, debt ceiling – what do all these things mean?

Whenever we start talking about a government shutdown, there is a lot of confusion. It’s understandable – these things are confusing. Heck, I have to re-learn it every single time it comes up, just to be sure I’m not messing something up – and this is my job. There are a lot of little details, and it’s often unclear how the parts fit together.

A government shutdown is when the federal government ceases many operations. It typically happens for one of two reasons: either Congress has failed to appropriate the money to spend (budget), or we have run out of ability to borrow (debt ceiling). We will talk about these two parts separately because even though they often get discussed together, they are very different things.

THE FEDERAL BUDGET PROCESS

How The Budget Process Works: Appropriation vs Authorization

Our federal government spending is organized by a two-part process. The two parts are called appropriations and authorizations. They’re entirely separate but they work together. Like peanut butter and jelly.

To relate them to your personal budget: Appropriations are like deciding how much you will spend on travel this year, and you move that into your travel account. You’re appropriating the money for that purpose. Authorization is like deciding where you are going to go, how you are going to get there, and whether you are sleeping in a tent or a five-star hotel. You already had the money with the appropriation, but authorization is the plan for spending it.

As far as the military is concerned, authorization is passed in the form of the National Defense Authorization Act, or NDAA. Thankfully, there is a provision whereby spending automatically remains at the previous year’s level until the new NDAA is passed. So that’s not the big(gest) concern here. Our big problem is:

Appropriations

Appropriations, often called “the budget,” is when the federal government sets a broad spending plan for the fiscal year. Our constitution requires that all money spent by the federal government be pre-approved:

“No money shall be drawn from the treasury, but in consequence of appropriations made by law; and a regular statement and account of receipts and expenditures of all public money shall be published from time to time.” – Article one, Section nine, Clause seven of the U.S. Constitution

By law, the budget is supposed to be finalized by the start of the fiscal year, which runs from 1 October to 30 September, with the 2021 fiscal year running from 1 October 2020 to 30 September 2021. Unfortunately, setting a budget that big is hard, so it is pretty normal (in the last couple of decades) for Congress to fail to approve the budget by the 1 October deadline.

If we don’t have a budget by the 1 October deadline, Congress can choose to pass a continuing resolution that permits the government to keep running until a budget can be passed. These continuing resolutions have expiration dates, and sometimes a series of continuing resolutions are passed before the actual budget is done.

If this seems a little backwards, let’s return to our personal example. Have you ever planned a trip before you had the money for it? That’s what happens when the NDAA is passed before the budget is passed – Congress has made plans for the military budget, but they still can’t do anything without a budget. Just like your amazing world cruise can’t happen until you have the money.

THE DEBT CEILING

Just like many families and companies, our federal government spends more money than it earns. In order to pay its bills, it borrows money.  Because it always spends more than it earns, it is always borrowing more and more money.

Now, everyone agrees that this is a bad idea, so legislators try to set limits on how much the country can borrow.  It’s like a credit limit, but it is self-imposed. Imagine you got a credit card, but told the bank that you only wanted to be able to borrow $500.  It is called the “debt ceiling,” because it is an upper limit, or ceiling, on how much debt the country is allowed to accrue.

We run into this debt ceiling a lot. (Over 70 times in the last 50 odd-years – that’s more than once a year!)

Why Does This Keep Happening?

Unfortunately, because the country does not have a balanced budget, the federal government keeps running into the debt ceiling. Instead of figuring out a way to fix the problem, Congress votes to increase the amount we’re allowed to borrow. In theory, everyone agrees that this is a bad idea, but in reality, the country is going to be in a big mess if it runs out of borrowing power.

And so these votes to increase the debt ceiling become difficult. Various political groups like to attach controversial issues to debt ceiling bills. This means that Congress isn’t just voting on whether to be able to borrow more money, they also have to deal with whatever other issues have gotten wrapped up in the same discussion. That makes it hard to come to an agreement.

Because it is hard to come to an agreement, sometimes (many times!) Congress doesn’t pass a new borrowing authority before we run out of money. Without the ability to borrow more money, the federal government can’t make payments.

How A Government Shutdown Affects Military Pay

Government shutdowns can affect military pay. Anyone who tells you that military pay will not be affected by a government shutdown is either a) very optimistic, or b) not very knowledgeable. I

t’s true that it has been decades since a government shutdown affected military pay, but that doesn’t mean that it can not happen. And the Coast Guard, while technically not part of the Department of Defense, did not get paid for a lengthy period earlier in 2019 because the Department of Homeland Security was not funded. Frankly, it seems like anything is possible right now.

How a government shutdown can and will affect military pay depends on why the shutdown occurs – budget or debt ceiling.

A Budget-Related Government Shutdown

Talking about budget-related shutdowns, the Defense Finance and Accounting Service (DFAS) – you know, the people who pay you – says,

“the Department of Defense has no legal authority to pay any personnel – military or civilian – for the days during which the government is shut down.”

Yup, they said it. They don’t have the authority to pay you during a shutdown – unless someone specifically gives them that authority.

Thankfully, a number of different things come together to reduce the likelihood of a government shutdown delaying service member’s pay. Notice I said reduce, not eliminate.

First, government shutdowns are usually short – one to 21 days. Most last less than a week. Because military members are paid twice a month, most shutdowns fall in between pay periods. Legislation to end the shutdown usually specifies that some or all federal workers will be paid for the time of the shutdown. However, as we saw last week, even the threat of a shutdown can potentially delay military pay if the timing is right – or wrong.

Second, Congress understands that military pay is a politically sensitive topic, and typically tries to find a way to pay the military. In the 2013 government shutdown, Congress passed the Pay Our Military Act, which guaranteed that service members would continue to be paid for any shutdown during the 2014 fiscal year. In the event of another government shutdown, it is possible that Congress would pass a similar bill. Note that I said possible, not probable or likely or guaranteed. Don’t make your plans based on the fact that this happened once in the past.

However, please remember that just because things have unfolded this way in the past does not guarantee that they will happen the same way in the future. There is no guarantee that military pay will not be affected by a budget-related government shutdown, regardless of what your buddy or your neighbor or your Facebook friend tells you. Because without a budget, the government can’t spend money, and paying people is spending money.

A Debt-Ceiling Related Government Shutdown

A debt ceiling shutdown would be a very different situation.  We haven’t had a debt ceiling shutdown before, so no one actually knows how things will unfold.

The federal government brings in about 70 cents for each dollar it spends.  Without additional borrowing, it won’t be able to pay the millions of “bills” that come due each day.

There are several theories about how the Treasury could make its payments.  There are a number of issues that come into the decision:  legal authority, physical capability (in terms of computer systems, etc.), long-term implications, and sensibility.

Many people suggest that Congress, the President, or the Treasury Secretary can prioritize certain obligations.  First, there is no legal provision for the prioritization of payments.  Second, even if Congress, the President, or the Treasury Secretary could legally prioritize certain payments, it is unlikely that the computer can be reprogrammed to effectively sort the approximately 100 million payments made each month.  Previous Secretary of the Treasury Jack Lew repeatedly stated that the Treasury would not be able to prioritize payments in the event of a debt ceiling crisis.

The next suggestion is to make payments as the money comes in.  It is thought that the Treasury would have to wait until it has enough money to pay an entire day’s worth of bills, and then do so.  For example, the Treasury might not have enough money to pay Monday’s bills on Monday, but it might have enough money by Tuesday.  This would result in a payment delay which would grow if the situation were not resolved.  This is a technically challenging option because it is unclear whether the payment systems can be adjusted to make this happen.

There are other ideas, but they all run into the same challenges:  legal authority, physical capability (in terms of computer systems, etc.), long-term implications, and sensibility.

The reality is, no one is exactly sure what will happen if the federal government is unable to borrow to pay its bills.

What Should You Do?

For starters, become informed. These issues are important, and not just because they could hold up your paycheck. Fully understand the situation. Every time our country reaches these semi-emergencies, I have readers tell me that it isn’t possible for the military not to get paid on time. It is possible, and it has happened in the past. (Thankfully, it has been decades. *Except for the Coast Guard, which is part of the Department of Homeland Security and not part of the Department of Defense.)

Second, formulate a loose plan. No need to do anything drastic at this point, but consider your options. Do you have a solid emergency fund to tide you over until pay arrives? How are your bills structured – do you have wiggle room with amounts or due dates? If you’d like to be  proactive, consider delaying purchases or cutting some costs. Just for a few weeks until the dust settles. Or even picking up that part-time job that you’ve been considering.

Third, consider how you would like to be prepared if this happens again next year, or the year after that.  It is easy to become comfortable when the military pays twice a month, every month. If you seriously knew that your pay might not happen on time each October, how would you prepare differently? Since this is the reality of our current fiscal and political climate, take steps to be prepared for it.  See also: 12 Ways To Prepare For The Next Government Shutdown

Will A Government Shutdown Affect Military Retirement Pay?

Government shutdowns for budget issues should not affect military retirement pay. That’s because military retirement pay is budgeted in the years when it is earned, not when it is paid. A government shutdown because we’ve reached the debt ceiling is an entirely different question and frankly, folks aren’t sure.

Will A Government Shutdown Affect Veteran Benefits?

Most benefits through the Department of Veterans Affairs will not be affected by a government shutdown because the money for these programs is allocated outside of the federal budget process. This includes disability compensation, pensions, health care, education claims processing, and VA home loan guarantees. But, just like with all these other questions, we don’t really know what happens in a debt ceiling situation.

Government shutdowns can and do delay military paychecks. Be informed, prepare for the worst-case scenario, and encourage your legislators to get this problem solved.

Please ask questions if you don’t understand. I love explaining this stuff, even if I do have to re-teach myself every single year 🙂 .

More articles on this subject:

12 Ways To Prepare For The Next Government Shutdown

10 Things To Do During A Government Shutdown

Kates Rants: Military Families Need Emergency Funds, Too