States have started furloughing employees as the absence of federal funds is straining already tight state budgets, so more workers will be sent on unpaid leave or even laid off if the shutdown continues.
States running programs on cash reserves are uncertain whether the federal government will repay them for the absent federal funds and might cut back spending of state money if the shutdown continues, says Scott Pattison, executive director of the National Association of State Budget Officers (NASB). Approximately one-third of the $1.7 trillion that states spent in 2012 came from federal funds, he explains.
"If this goes on another few days you are going to see states begin to make announcements that they are going to have layoffs," Pattison says. Those notices will likely set the end of October as a time when layoffs would occur, he added.
Some states have already laid off federally-funded employees or sent them home on unpaid leave in response to the shutdown, or sent them notices to prepare for layoffs or furloughs, according to a report published on Thursday by the NASB.
"States are also seeking information on any possible legal ramifications that could result from furloughing employees, such as jeopardizing reimbursement from the federal government or compliance with entitlement program requirements," the report stated. "Several states have also issued formal or informal hiring freezes for federally-funded positions for the duration of the shutdown."
Michigan's government is preparing to place up to 20,000 workers on unpaid leave, says Kurt Weiss, spokesperson for the Michigan State Budget Office. Michigan state workers received advance furlough notice on Oct. 1 because union agreements with those workers require 30-day notification, Weiss says.
"I don't know if some states without those union agreements might be able to make swifter decisions on furloughs," Weiss says. "I don't think we will furlough anybody until Oct. 30. Most of the unions here require a 30-day notice because of those bargaining agreements, which we definitely want to honor."
The National Governors Association also sent a letter on Thursday to leaders of both parties in the House and Senate citing the shutdown's damaging effect on states' ability to recover from economic recession.
"States are not in a position to be the bank for the federal government," the letter stated. "As this impasse continues, we call on Congress and the administration to commit to fully reimbursing states and territories for the federal expenses they absorb during the shutdown."
The lack of federal funds is not as damaging to state pocketbooks as the damage the shutdown is causing to small businesses, with missing revenues, including sales taxes that could be damaged by lack of tourism as national parks are closed, Pattison says.
"States are very worried about economic impact that might decrease revenues, even a tiny amount," Pattison says. "A small decrease in revenue might mean a few million, but that's a lot of money for a state."