District of Columbia stays afloat during government shutdown

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WASHINGTON — As the federal shutdown nears a month in duration, the District of Columbia is staying afloat through employment diversification and strong reserves, according to a recent S&P Global Ratings report.

The rating agency rates the District's general obligation bonds at AA+ with a stable outlook, and said the shutdown could continue for some time before its credit quality would be affected.

Federal workers make up about one-third of the district’s total employment. However, over the past 10 years, the share of government jobs as a percent of overall jobs has declined.

Shutdowns can hinder income and sales tax trends, but the District’s reserves reached 22% of operating expenditures or $1.8 billion following seven consecutive years of operating surpluses.

Over the weekend, Congress approved a bill guaranteeing back pay for furloughed federal employees after the shutdown is over, according to Vox. It would benefit the District since they could collect back personal income taxes.

This isn’t the District’s first shutdown. Before two stints in 2018, a shutdown lasted for 16 days in October 2013.

“The management team has been through shutdowns before, so we think D.C. is well positioned to handle this temporary disruption,” said Nora Wittstruck, an S&P analyst.

In April 2013, Congress passed the Local Budget Autonomy Act, which gives the District more control over its budget. In the past, Congress was required to approve a portion of the budget, and the president could veto a portion of it.

“Prior to that time, there may have been a little more uncertainty over their ability to spend their locally derived revenue than there is now with the Local Budget Autonomy Act in place,” Wittstruck said.

D.C. also has strong liquidity, Wittstruck said, which will help them maintain their operations throughout the shutdown. The duration of the shutdown could become a concern for not only D.C. but other state and local governments.

“Obviously, if the shutdown continues for several more months or even a year as the president said in the press, we would need to take a look at the rating, but there would be a lot of local government and state level credits that could come under pressure if the shutdown occurred for that long,” Wittstruck said.

Next door in Maryland, the shutdown is having a more significant effect, with about 172,000 residents being impacted by it, according to a press release. Each biweekly payroll for which those residents aren’t paid results in $778 million of lost wages.

As for state revenues, the lost wages mean roughly $57.5 million less in combined state and local income tax withholding and $2.1 million less in sales tax collections.

“These estimates account for only the direct impact, the macro impact would be somewhat larger,” Andrew Schaufele, director of the Bureau of Revenue Estimates, wrote in the release. “Additionally, other less immediately visible impacts may materialize, uncertainty always reduces business investment.”

Schaufele estimated between 230,000 and 245,000 residents have direct federal jobs, with 90,000 being affected the shutdown.

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