Navigating the uncertainty that comes with near-government shutdowns

Government shutdowns and federal funding gaps are a relatively recent phenomenon that has grown increasingly commonplace over the past few years, and they are taking a toll on federal agencies.

The US government first began experiencing federal funding gaps after the Congressional Budget Act of 1974, which set deadlines for when Congress had to pass federal budgets. Government shutdowns entered the scene in the early 1980s, when President Jimmy Carter’s attorney general, Benjamin Civiletti, issued legal opinions arguing that affected parts of the government must stop all non-essential functions when there is a gap in federal funding. Since then, there have been 10 government shutdowns in response to federal funding gaps.

However, Congress has approached the brink of shutdown multiple times—with the most recent incident happening this past November. And while Congress was able to pass a temporary government funding package that delayed the issue until early 2024, long-term funding for the rest of the year is by no means certain.

As the federal government’s appropriations and spending approval process continues to face upheaval, agencies across the federal landscape return to a place of questions and uncertainty. They need better strategies to cope with uncertain funding and the looming threat of potential shutdowns. At MDC, we have decades of collective experience in the world of federal budget nuances and rules. And while we can’t change the political realities that continue to result in near, partial, or full shutdowns, we can offer a few strategies to help agencies navigate the uncertainty caused by federal funding gaps. Read on to learn more.

Federal funding strategy 1: Prioritize

First, agencies should start by looking at what they can do to prioritize spending from least to most urgent. By understanding the criticality of all of the different requirements within their budget, agencies are better prepared to flex their spending as needed depending on how much budget they have available and which priorities are most important.

This type of analysis comes down to planning, prioritizing spending during specific periods, and analyzing data to understand what needs to be paid and what is more flexible. It’s especially important to have a forward-thinking mindset during Continuing Resolution (CR) periods in which the government is operating under a temporary spending bill while final appropriations are still in review with Congress and the President.

Because CR periods can lead to a heavy sense of risk aversion or short-sighted spending, prioritization acts as a guardrail to help guide agencies through these times of instability and uncertainty. We always recommend that agencies try to execute on higher priority and more impactful priorities earlier in the year. That way, agencies can avoid reaching the end of the year only to find out that they have money to spend without an actionable, mission-focused strategy in place to direct that spending.

Federal funding strategy 2: Stagger contract start dates

In addition to prioritizing spending, agency finance leaders should also integrate flexibility into their fiscal planning by staggering contract start dates throughout the year.

While authority and enactment can be challenging, practical changes like having contracts start later in the fiscal year and at different times can help take the pressure off of federal budgets by ensuring contract execution times are not front-loaded.

Additionally, even if full government shutdowns tend to be rare, we believe that finance leaders should always plan for the unknown. Many contracts today are created and managed centrally through headquarters, directly under the purview of the CFO. This gives agency finance leads the ability to advocate for increased flexibility in their contracts, such as changing contract timing for future year concerns. Many agencies are already in the midst of planning their FY25 budgets. That makes now the perfect time to begin thinking about how they can integrate more flexibility into their fiscal strategies. When designing a budget that’s built to withstand potential CR situations, we recommend agencies look into factors like the period of performance, future funding needs, and roadblocks that are preventing them from getting the information they need to accurately forecast future spending.

Federal funding strategy 3: Take care of your people

We have been pleased to see the investment that many governmental and military organizations are placing on financial planning programs for their employees, enlisted individuals, and their families. Whole life benefits of this type demonstrate a commitment to each organization’s people and well-being. Whether it’s simple financial planning resources, classes for extended family members, life counseling, or general awareness of the assistance available to employees are all helpful benefits that show that the organization and its leaders care. Finance leads can play an important role in advocating for broad financial literacy, workforce readiness, and generous resources for their people.

Most people who work in the government space do it because they care about the mission. They want to be difference-makers and are proud of the work they do. The federal government needs to continue to attract and retain strong talent, so these sorts of benefits are essential to ensuring employees feel supported during times of uncertainty.

Federal funding strategy 4: Take the long view and pay attention to detail

Finally, as agency leaders consider all of these elements to better plan for budget uncertainty in this culture of CR, MDC is here to help guide and advise agencies along each step of the way.

With our nearly a century of experience, we can help validate performance, programs, timing, and metrics. Like the agency finance leaders with whom we work regularly, we are committed to the essential missions of our government.

We can help leaders validate the actual performance of programs, making sure they have the right metrics, and we have the expertise in analysis and financial management needed to help agency, business, and mission leaders make the best decisions possible.