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Budget Delays Will Escalate Shutdown Effects

TIMES STAFF WRITER

A week ago, as politicians bickered over continued funding for the federal government, many Americans seemed to take the prospect of a shutdown in stride. What if the bureaucrats went home and nobody noticed, some joked? And for the first couple of days of the partial shutdown, the halting of all but essential government services had limited visible impact.

The airlines kept operating, for example, because air traffic controllers were deemed “essential” workers and remained at their posts. The same was true for veterans’ hospitals, the Border Patrol and the armed forces, among other functions.

But now, with the shutdown approaching a full week and with the deadlock between President Clinton and congressional Republicans continuing, the costs--financial and otherwise--of sending home tens of thousands of so-called nonessential government workers are beginning to be seen and felt.

These effects range from the simple, such as business excursions by bureaucrats stopped in mid-trip, to the more complex, such as a halt in the collection of data that federally funded scientists use to stave off flu epidemics.

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“The longer this goes . . . the less it is about closing parks and the more it affects people’s lives profoundly,” Housing and Urban Development Secretary Henry G. Cisneros said Saturday.

Discussing his own agency, Cisneros said that if the shutdown continues into this week, it will jeopardize millions of dollars in payments to municipal housing authorities.

For example, he said, every two weeks Chicago’s public housing agency draws $4.7 million in federal funds to operate the city’s huge and troubled housing projects. Nationally, 3,400 housing departments draw a total of $25 million each day in federal housing assistance. Without a quick resolution to the budget stalemate, these housing agencies will have to make tough decisions about how to pay utilities, whether to furlough employees and what to do about leaky roofs, plumbing problems, broken furnaces and security, Cisneros said.

He also said that if a solution is not reached by Monday, he will ask the Office of Management and Budget for permission to bring back 1,000 furloughed employees to oversee disbursement of funds left over from last year’s programs or available from multiyear funding. Initially, HUD furloughed 97% of its employees--a greater percentage than any other department--and kept only 400 workers on the job, Cisneros said.

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At the Pentagon, an official said that “everything is just queuing up.”

The result, he said, will be higher costs and lower efficiency down the road for hundreds of programs at the Defense Department and elsewhere.

Among the most immediate wastes will be expenses from activities that were halted in midstream but must be started up again after the funding impasse is broken. The Pentagon official cited a researcher who had just flown across the country to gather data for next year’s defense budget but was called home when his office shut down. The trip was wasted, and the government will have to pay for another one when funding resumes.

Similarly, a senior Education Department official said he is faced with swallowing several thousand dollars already paid out for a training program for a department employee. The worker had to withdraw from the training classes, and the fees are not refundable.

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The FBI Academy at Quantico, Va., meantime, is in the process of sending home 260 senior law enforcement officials from around the world, having halted an 11-week training program it conducts several times a year for chiefs of police, other senior American officials and foreign law enforcement officials.

Stories like these, each one small and largely invisible to the general public so far, exist by the thousands across the government. Taken together, they suggest that the out-of-pocket cost of the budget imbroglio will eventually prove to be substantial.

More significant are disruptions in routine government activities that will be costly--and in some cases impossible--to compensate for after the crisis ends.

Consider the Centers for Disease Control and Prevention: Late autumn is normally a time when CDC scientists are busy mapping out the likely course of this year’s onslaught of influenza and gathering biochemical materials needed to prepare vaccines for next year’s flu season.

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They collect and analyze flu “isolates,” or samples, from across the nation and around the globe, including the Far East, where the viral strains that could attack the United States next year are now beginning to emerge. This information is needed by early next year for scientists to prepare vaccines for next fall. (Last year, about 70 million doses of flu vaccine were used in the United States.)

“Decisions for next year’s vaccine will be made from isolates recovered in the next five weeks,” said Dr. John LaMontagne, director of microbiology and infectious diseases for the National Institute of Allergy and Infectious Diseases. He added that time is critical for the processing of samples and sending data to vaccine manufacturers.

“If you reduce that by a significant factor, a third or a half, for example, you might have more disease,” he said.

That possibility is now looming. Surveillance of flu cases in the United States has been shut down, according to Dr. Claire Broome, deputy director of the CDC, because many of the CDC’s flu specialists have been designated nonessential and told to go home.

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“That’s the thing that is so hard, because we believe almost everything we do is important,” Broome said. “What we’re being told, by law, is: You cannot do important things unless they are also urgent, meaning a clear threat to life.”

At the Justice Department, about 75% of the work force remains on the job, including about 65,000 people in law enforcement operations that are considered necessary to protect life or property and about 9,600 others funded through fee-collection, Atty. Gen. Janet Reno told reporters last week.

Yet some law enforcement operations have been curtailed, she said, including collection of money owed the government from civil judgments, fraud assessments and other fines. Also, litigation involving the government, including federal lawsuits, is being curbed or halted.

Federal investigations are continuing for the moment, Reno said. “I think what’s going to happen if the shutdown continues to run longer, we’re going to have to bring in more and more staff to ensure the proper handling of all such investigations,” she said.

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At the Defense Department, all uniformed personnel remain on the job. That means, among other things, that recruiters for the armed forces technically can go to work. But they cannot use government cars, which restricts their outreach efforts, one official said, and they cannot formally sign up recruits.

Since the Pentagon tries to keep a smooth flow of recruits coming in to replace those leaving the service, a disruption “will create a big hole” if the shutdown continues much longer, the official said. Ways could probably be found to close the gap, the official added, but at a cost in money and efficiency.

The issue is only money at the Securities and Exchange Commission, not health or crime or soldiers to fill uniforms. But the shutdown is beginning to raise concern at the financial regulatory agency nonetheless.

So far, the impact on the SEC has been minimal, officials said, thanks to a $12-million special account the agency maintains at the Treasury Department for just such emergencies.

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But the supply of money will run out some time in the first week of December. At that point, Wall Street could feel significant consequences.

James M. McConnell, the SEC’s executive director, said that if the federal government is still shut down, the commission would cease all activities not deemed essential. It would continue to receive corporate filings, maintain a skeleton crew to oversee the nation’s securities markets and monitor “critical” enforcement activities, such as sending lawyers to scheduled court appointments and guarding against fraud.

But the SEC would have to stop all routine examinations of securities, refuse most new enforcement cases and refrain from reviewing the filings it receives, he said.

Theodore A. Levine, general counsel at the brokerage firm of PaineWebber Group Inc., said that if that happens, “there would be immediate and significant impact” for Wall Street.

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If the SEC stops reviewing proposed new stock offerings, it would effectively delay or block firms from growing by issuing new shares. In addition, brokerage firms often ask the SEC’s opinion in advance of a transaction in order to avoid breaking securities rules. Without prior advice, many financial transactions would be postponed or canceled.

Levine said a reduced level of SEC surveillance and enforcement could also undermine investor confidence in the markets.

In the meantime, the dispute over the federal budget is having one slight benefit for corporate America: much lower fees to file documents with the SEC. That’s because the SEC’s budget no longer is in effect and the fees automatically revert to the much lower levels specified in the original federal securities laws.

But this benefit has a drawback to taxpayers, SEC officials say, noting the loss of over $15 million a day in revenue as a result of the lower fees.

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In fact, while congressional Republicans portray the federal government as a drag on the economy, not all business people see the issue in such black-and-white terms.

Kenneth Simonson, vice president and chief economist at the American Trucking Assn., said the transportation industry, a network of private contractors, is being hurt less by the fact that federal bureaucrats are not watching over the nation’s highways than it is by the fact that they’re not signing contracts.

“It’s a subtle thing, but I can tell you there is a financial impact,” he said. “I can’t put a dollar figure on it. But if we’re not doing business with the federal government, then we’re not making money. We’re no different than any other segment of the economy, because all of us depend on the government in some way or another.”

Times staff writers James Gerstenzang, Marlene Cimons, Scot J. Paltrow and Ronald J. Ostrow contributed to this story.

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