Federal Agencies Prepare Plans for Shutdown

OVERVIEW

Congress is barreling towards the first full-government shutdown in roughly seven years as existing levels of government funding expire at midnight tonight, Sept. 30. On Sept. 19, prior to breaking for a week-long recess, the Senate failed to advance a House-passed short-term continuing resolution (CR) (H.R. 5371) that would fund the government through Nov. 21. The Senate voted 44-48, failing to clear the chamber’s 60-vote threshold for passage. The House advanced the measure earlier in the day by a 217-212 vote; Republican Reps. Thomas Massie (R-KY) and Victoria Spartz (R-IN) voted against the bill, and Rep. Jared Golden (D-ME) was the only Democrat to vote for the measure. The Senate also failed to advance a CR (S. 2882) backed by congressional Democrats. Senate Appropriations Committee Ranking Member Patty Murray (D-WA) and House Appropriations Committee Ranking Member Rosa DeLauro (D-CT) introduced the measure; it would extend government funding through Oct. 31, permanently extend the Affordable Care Act’s (ACA) enhanced Advance Premium Tax Credits (eAPTCs) that are set to expire at year-end and repeal the Medicaid provisions in the One Big Beautiful Bill Act (OBBBA) (H.R.1). The Senate voted against the measure, 47-45. Democrats remain united in their opposition to a clean CR and insist on a CR that, at a minimum, extends the ACA credits and ideally also restricts President Trump’s ability to rescind congressionally appropriated spending and repeals the Medicaid provisions included in H.R.1. Republican leadership is opposed to including ACA extensions in a short-term CR, though Senate Majority Leader John Thune (R-SD) is willing to negotiate their potential inclusion in a later package.

On Sept. 29, President Trump met with the Big Four congressional leaders—Senate Majority Leader Thune, Senate Minority Leader Chuck Schumer (D-NY), Speaker Mike Johnson (R-LA) and House Minority Leader Hakeem Jeffries (D-NY)—to discuss options to keep the government open. The meeting was a shift from last week when the president canceled plans to host Democratic leadership at the White House, but the conversation was ultimately unproductive, further increasing the likelihood of a government shutdown.

Each party blames the other for the impending shutdown, and the federal government is bracing for the expected impacts. On Sept. 24, the Office of Management and Budget (OMB) released a memo, directing federal agencies to consider Reduction in Force (RIF) notices for all employees in programs, projects or activities (PPAs) that satisfy the following conditions: (1) discretionary funding lapses on Oct. 1, 2025; (2) another source of funding, including H.R. 1 is not currently available; and (3) the PPA is not consistent with President Trump’s priorities. The memo also asserted that “federal programs whose funding would lapse and which are otherwise unfunded … are no longer statutorily required to be carried out.”

MECHANICS OF A SHUTDOWN

If the House and Senate fail to enact a funding agreement by midnight on Sept. 30, all federal agencies will have to stop nonessential work. Each agency will follow its individualized shutdown plan, but at a minimum, nonessential workers will be furloughed and federal workers will not receive paychecks for the duration of the shutdown. Agency operations considered nonessential will come to a halt, meaning that pending rulemakings will face delays and litigation may be put on hold. In general, expect major reductions in staffing and operations at agencies funded by the annual congressional appropriations process. Shutdowns lasting only hours or days are minimally impactful, but the longer they continue, the more heavily agency operations will be curtailed.

There are several key exceptions to the shutdown’s impacts. Mandatory spending programs not subject to the annual appropriations process, such as Social Security, Medicare and Medicaid, will also continue to function as normal. Additionally, services funded through user fees, such as immigration services funded by visa fees, will continue to operate while funds last. Some agencies may also temporarily make use of other previously appropriated funds such as mandatory reconciliation funds that they have yet to fully deplete.

At a high level, discussed below is how a shutdown will impact various sectors:

• Health Care. The Department of Health and Human Services (HHS) will be strained to support many vital programs, as the agency expects to furlough roughly 41% of its workforce, or 32,460 staff members, according to its FY2026 contingency plan. Each of the operating divisions will continue, as necessary, to support exempt activities with advanced appropriations, carryover balances, emergency supplemental balances, third-party funding or user fees. HHS will exempt staff as necessary to support mandatory funded activities, such as Medicare, Medicaid and other mandatory health program payments. However, only 53% of staff at the Centers for Medicare and Medicaid Services (CMS) will be retained, 25% at the National Institutes of Health (NIH), 35% at the Centers for Disease Control and Prevention (CDC) and 86% at the Food and Drug Administration (FDA). HHS will cease all non-exempt activities in the event of a lapse in appropriations, including oversight of extramural research contracts and grants, or being able to process FOIA requests or public inquiries, data collection, validation and analysis. Among other activities, the FDA cannot accept new drug applications, CDC communication about health-related information will be hampered, CMS will be unable to provide oversight to major contractors or provide beneficiary casework, and the NIH will not have the ability to admit new patients to the Clinical Center, except for those who are medically necessary.

• Housing and Financial Services. At the time of this alert, the Department of Housing and Urban Development (HUD) had yet to publish an updated contingency plan. Per HUD’s 2023 contingency plan, Federal Housing Administration (FHA) and Ginnie Mae would maintain mortgage market operations. The National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), will be unable to issue new policies during a shutdown, though existing policies will stay in force and claims will continue. The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) face sharply reduced market oversight capacity, historically furloughing more than 90% of staff under prior shutdown plans (SEC, CFTC), although market operations will not be directly affected. Agencies funded outside the annual appropriations process will not be directly impacted, including the Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency (FHFA), the National Credit Union Administration (NCUA), the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, among others. 

• Taxation. The Treasury Department released updated contingency plans for the Internal Revenue Service (IRS) and departmental offices on Sept. 29. Due to mandatory, supplemental funding from the Inflation Reduction Act available through 2031, the IRS will not face a lapse in appropriations and operations will continue as normal for five business days. The plan also notes that all employees are funded by these multiyear appropriations and therefore are exempt from furlough, remaining on duty during the shutdown. No staff are categorized as performing activities to protect life, property or constitutional duties because ongoing operations are already covered by multiyear appropriations. The plan outlines that, if needed, shutdown activities will take no more than half a day to implement. It also emphasizes that operations, including taxpayer services, enforcement and IT will remain fully staffed and funded.
  
  Additionally, it is not expected to significantly affect the work of the Office of Tax Policy (OTP) and IRS Chief Counsel on implementation of OBBBA, though external engagement with stakeholders will likely pause until funding resumes.
  
• Energy, Environment and Interior. In the event of a shutdown, the Environmental Protection Agency (EPA)’s guidance states that it will furlough or send reduction-in-force notices to roughly 13,432 employees, or approximately 90% of its staff. During a shutdown, EPA will continue emergency and disaster assistance, litigation, Superfund site monitoring and certain activities funded by the Infrastructure Investment and Jobs Act and the Clean Ports program from the Inflation Reduction Act. The Department of Energy (DOE) guidance states it will furlough approximately 8,100 employees and maintain around 5,707 full-time staffers who will conduct activities to protect life and property. The guidance does not offer many details as to what activities will continue during the lapse of appropriations, but instead lists more than a dozen DOE offices that will maintain a small staff, and Senate-appointed staffers that will stay on for the duration of the shutdown. DOE’s 2024 guidance noted that the agency would continue financial assistance agreements and contract obligations, but prohibit the awarding of any new grants, contracts and cooperative agreements. According to the Department of the Interior’s (DOI) guidance for the National Park Service (NPS), roughly 9,300 employees will be furloughed. Park roads, trails and lookouts will remain accessible to visitors; and any parks with accessible areas that collect fees under the Federal Lands Recreation Enhancement Act will utilize those fees to provide basic visitor services. During the lapse, NPS will not provide visitor services to parks without accessible areas. The Bureau of Land Management’s (BLM) guidance states it will furlough roughly 4,000 of its approximately 9,250 employees. It will maintain staff that engage in the processing of oil and gas permits/leases, as well as those whose work focuses on mineral resources necessary for energy production. BLM will also continue permitting activities for oil and gas, and transmission rights-of-way.  

• Education and Labor. The Department of Education (ED) released its updated contingency plan Sunday night, stating that it will furlough 95% of its staff, excluding the Office of Federal Student Aid, for the first week of lapsed funding. Should the lapse last longer than a week, the plan will need to be readjusted to phase in employees as necessary on a partial or rotating basis, but the combined number of employees working at any time may not exceed 5% of ED’s total full-time equivalents (FTE), which would be 122 FTEs. Student aid, such as Pell Grants and Direct Student Loans, will continue to be disbursed, and borrowers will still have to make loan payments. The processing of Free Application for Federal Student Aid (FAFSA) applications will continue, as will the servicing of federal student loans. Title I and Individuals with Disabilities Education Act (IDEA) grant funding will also remain available. States, school districts and additional grantees will still have access to the funding released by the administration over the summer, including Title I-C for migrant education, Title II-A for professional development, Title III-A for English-learner services, Title IV-A for academic enrichment and Title IV-B for before- and after-school programs. Negotiated rulemaking and other actions necessary to implement the One Big Beautiful Bill Act (H.R.1)are expected to continue, including the planned Reimagining and Improving Student Education (RISE) Committee hearings.
  
  The Department of Labor (DOL) released its updated contingency plan on Sept. 26, and of DOL’s 12,916 employees, 2,560 will be retained during a shutdown due to the essential nature of their duties. In the event of a shutdown, DOL will continue work on the United States Mexico-Canada Agreement (USMCA) and make payments authorized by the American Rescue Plan Act (ARPA), with respect to the unemployment compensation program and unemployment insurance (UI) modernization activities. DOL will also continue providing benefits to workers under entitlement programs such as the Federal Employees’ Compensation Act and Trade Adjustment Assistance (TAA), among others, and administer and pay unemployment insurance benefits. DOL will also continue conducting child labor investigations and processing disaster Dislocated Worker grant applications. DOL will not continue to process foreign labor certifications or new TAA determinations. Job Corps centers housing students will remain in operation while funds remain available, and federal oversight of these centers will continue. The following DOL agencies will cease operations: Bureau of Labor Statistics, Veterans Employment and Training Service, Office of Federal Contract Compliance Programs, Office of Disability Employment Policy, Women’s Bureau, Office of Administrative Law Judges, Administrative Review Board, Benefits Review Board and Employees’ Compensation Appeals Board, with the exception that one or more furloughed employees may be excepted on an intermittent basis as needs arise.
  
• Agriculture and Nutrition. The Department of Agriculture’s (USDA) most recent shutdown guidance was released in FY2024. While certain employees will remain on duty to maintain continuity for critical operations, nonessential staff will be furloughed. Programs such as the State Meat and Poultry Inspection, Cooperative Interstate Shipment and Talmadge-Aiken programs have been excepted in previous shutdowns from furlough and continued to operate, as well as a variety of food safety surveillance and investigation operations. However, state and county-level offices, including those of the Farm Service Agency and research-focused services, will likely experience reduced staffing. Beneficiaries of programs like the Supplemental Nutrition Assistance Program (SNAP) will receive their October 2025 benefits. If the shutdown persists, USDA may need to rely on contingency funds to support future payments. Recipients of the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) may not receive benefits if the shutdown lasts longer than a week, as the program’s contingency fund can only sustain payments for one week without federal funding. Additionally, Secretary of Agriculture Brooke Rollins recently announced a likely financial assistance package for American farmers, though a shutdown would delay the disbursement of such aid.

• Transportation. The Department of Transportation (DOT) released updated shutdown guidance on Sept. 30, 2025. DOT reports a total workforce of approximately 55,000 employees, 12,000 of whom are employed by agencies including the Federal Aviation Administration (FAA), Federal Highway Administration (FHWA) and Office of the Secretary (OST), with compensation not funded through annual appropriations. These employees will likely remain on duty during a government shutdown. According to the updated guidance, 13,294 air traffic controllers, personnel responsible for certifying commercial aircraft, hazardous materials inspectors, certain grant payment processors and other designated DOT employees will not be furloughed. DOT’s guidance also clarifies that current airport development grants, airport inspections and training and hiring of new air traffic controllers will not be affected by a government shutdown. However, the guidance explicitly notes that aviation rulemaking, most administrative support functions and investment planning will be suspended during a government shutdown. It should be noted that like all federal agencies, DOT has broad authority to determine which operations and staff are essential to their safety mission during a shutdown.

• Defense and National Security. The Department of War released its guidance for a government shutdown on Sept. 27, outlining how the department will continue operations in the absence of FY26 appropriations. It states that all military personnel will continue to perform their duties, and the department will prioritize Southern Border security, Middle East operations, Golden Dome, depot maintenance, shipbuilding and critical munitions. Contracts and travel may continue up to the limit of the funds obligated prior to the lapse in appropriations, but new contracts and travel would be halted, unless tied to excepted missions. Leadership is also being urged to minimize costs, consolidate duties and review operations to ensure legal compliance, and civilian personnel not involved in excepted activities will be furloughed.
  
  While the House passed its version of the FY26 National Defense Authorization Act on Sept. 10, the Senate did not pass its version ahead of the Sept. 22 recess week and impending government shutdown. Using the Senate Armed Services Committee’s passed bill, with one manager’s package of amendments included, the House and Senate will still move toward an informal conferencing process to reconcile differences between the two versions of the bill. This process is expected to continue throughout the fall, with the House and Senate Armed Services committees targeting a compromise and final passage before the December recess, despite a shutdown. For more information, please see our full alert on the matter.
  
• International and Trade. U.S. embassies and consulates are expected to remain open during a shutdown, with State Department consular and diplomatic operations domestically and abroad continuing from residual funding or fee balances (subject to available fees), per recently released State Department guidance. Despite this, most training at the Foreign Service Institute would be paused and more than half of State Department employees furloughed, with about 10,300 in excepted positions out of nearly 27,000. Non-excepted activities such as new grant and contract obligations, new official travel and most representational events would cease. According to Department of Homeland Security guidance, U.S. Customs and Border Protection will continue collecting tariff revenue and most economic and security operations will proceed, with roughly 14,000 of 272,000 DHS employees expected to be furloughed. At the Department of Commerce, the new contingency plan specifies that tariff investigations tied to national-security rationales, including ongoing Section 232 probes, will continue during a shutdown, along with certain ITA overseas and fee-funded activities, even as nonessential functions such as routine antidumping and countervailing duty proceedings typically pause. The plan also makes clear that the Bureau of Industry and Security (BIS) will remain heavily staffed, with more than three-quarters of its personnel excepted, allowing export control, enforcement and emergency licensing operations to continue given their national security importance. At the Office of the U.S. Trade Representative (USTR), the contingency plan states that none of the USTR’s 237 employees will be furloughed, as operations will draw on funding outside the annual appropriations process. This will allow USTR to continue advising on tariff measures under the International Emergency Economic Powers Act (IEEPA) and to sustain enforcement of the U.S.-Mexico-Canada Agreement, which is financed separately.

OUTLOOK

With a shutdown all but guaranteed, the length of the lapse will be the main variable in determining the impacts. Shutdowns can drag on, and the longer a shutdown is, the more impactful it will be for longer-term agency operations and individuals who rely on government services. In the short-term, congressional and agency officials are likely to cancel or decline most meetings and appearances as the resources that remain are concentrated on key operations.

The extent to which a shutdown impacts congressional activity will depend in part on how leadership chooses to respond. Some congressional staff will be furloughed, reducing capacity in offices across the Capitol, but the floors of both chambers will remain open. Congressional leadership will likely bring only a limited number of measures to the floor, suspending all other legislative business until an agreement is reached to reopen the government. Committees will similarly suspend most, if not all, of their hearings and other public events. Whether they are furloughed or exempted, employees across the federal government will not be paid until the shutdown concludes; pay frequency varies but generally falls either biweekly or monthly depending on the employer. As pay dates approach or are missed, pressure on lawmakers to resolve the stalemate will intensify.

Once a shutdown begins, the House and Senate will need to agree on a CR to reopen the government and continue negotiations on a year-long funding deal. However, significant disagreements—specifically over ACA extensions and presidential authority over congressionally appropriated spending—make the path to an agreement uncertain. The Senate could still avert a shutdown if enough Democrats change course and support the House-passed CR, but Minority Leader Schumer drew considerable criticism from other Democrats in the spring for breaking with his House counterparts to support the current full-year CR. Speaker Johnson kept the House out of Washington this week, leaving no alternative legislative route to avoiding a shutdown as the clock runs down.

For additional information on how a shutdown will impact your industry, check with a member of the Brownstein team.

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THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING AFFECTS OF A SHUTDOWN OF THE GOVERNMENT. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.