Hold that beer: Businesses begin feeling pain from the government shutdown
Airlines can’t get permission to add new planes to their fleets. Mortgage lenders aren’t able to verify the income of borrowers. And brewers can’t sell new beers while label approvals are on hold.
In ways both small and large, businesses are beginning to feel the bite of the government funding impasse that has shuttered nine major departments, slowing federal reviews of everything from pipelines to mergers.
“The impact will multiply as the days and weeks continue,” said Stan Collender, a longtime congressional budget aide who now edits @thebudgetguy blog in Washington. “It’s only going to expand.”
The shutdown entered its 14th day on Friday with little sign that President Trump and Congress will resolve the standoff over a border wall that has halted operations across roughly a quarter of the federal government. Trump and top lawmakers from both parties met at the White House late Friday morning, yet each side was digging in its heels as a new Democratic majority took over the House.
The effects are beginning to ripple through the economy. Here’s a look at how commerce is being caught up in the dispute:
Disruptions for airlines
Some airlines are beginning to have trouble adding aircraft to their fleets and starting new pilot training programs, the Washington trade group Airlines for America said in a statement Thursday.
Commercial carriers can’t do those tasks or dozens of other routine actions without Federal Aviation Administration inspectors signing off, said Mike Gonzales, a vice president at the Professional Aviation Safety Specialists union. And now the vast majority of the FAA’s 5,000 such employees are not working, Gonzales said.
Southwest Airlines, for example, believes the shutdown “likely” will delay its plans to begin service to Hawaii, Chief Executive Officer Gary Kelly said in a message to employees on Monday.
And while Delta Air Lines is hoping to begin flying a new airliner, the Airbus SE A220, by Jan. 31, it can’t get approval without the FAA’s now-furloughed safety inspectors. Delta doesn’t expect any disruption to its schedule, the carrier said in an emailed statement.
Most training of air traffic controllers has been suspended, slowing the arrival of new people in a system that is already at a 30-year staffing low, said Paul Rinaldi, president of the National Air Traffic Controllers Assn. union.
The FAA stressed that “the nation’s airspace is fully safe and operational,” pointing out that “air traffic controllers and the technicians who maintain the nation’s airspace system continue to work without pay as they fill a critical mission to ensure the public’s safety.”
Homebuyers and lenders are beginning to see the effects of the shutdown as an Internal Revenue Service income verification operation goes dark. That could mean delays for borrowers in getting approved for mortgages.
The service usually helps mortgage lenders confirm income information on loan applications within two to three days, but the IRS says it is barred from processing that paperwork without a spending deal.
December and January are quiet months in the real estate industry, but “if this goes beyond another week, it’s going to delay closings,” said Pete Mills, senior vice president of policy at the Mortgage Bankers Assn.
Although the IRS can accept tax returns during a shutdown, it can’t process refunds until Congress reaches a deal.
A prolonged shutdown extending into tax filing season, which typically begins in late January or early February, could force taxpayers to wait longer than anticipated for refund checks they were planning to use to pay bills or make large purchases.
That creates a business opportunity for tax advising and software company H&R Block Inc. The firm is offering customers as much as $3,000 of their refunds in advance starting Jan. 4 — even if the IRS is closed. The no-interest loans would be repaid out of taxpayers’ federal or state refunds.
The shutdown also has halted some government reviews of foreign investment decisions and mergers.
The Federal Communications Commission, which had been operating with leftover funds, suspended most operations on Thursday, including its reviews of proposed mergers such as wireless provider T-Mobile’s $26.5-billion bid for Sprint.
And Canadian miner Americas Silver warned investors in a filing Wednesday that its merger with Colorado-based Pershing Gold could be delayed beyond a Jan. 14 target, as it waits for approval from the Committee on Foreign Investment in the United States.
Cfius, which reviews foreign acquisitions of American companies for risks to U.S. security, notified the mining company that deadlines for transactions under review or investigation have been paused amid the shutdown.
Food and drugs
Although the Food and Drug Administration is still reviewing pending applications, which are supported by user fees, it isn’t accepting any new applications for approvals.
Brewers, too, will have to wait to roll out new beers. The Alcohol and Tobacco Tax and Trade Bureau, which approves beer labels, has been shut. The agency received about 200,000 requests last year for new beer, wine and spirits.
Medical marijuana company Nutritional High International warned investors that without a new spending agreement, some protections against federal prosecution have disappeared, at least temporarily.
At issue is a rider that Congress has added to spending bills for the past four years to block the federal government from prosecuting individuals for violating federal laws against regulated medical cannabis as long as they are acting in accordance with state rules. The lapse in appropriations means there is no safeguard in place and the government has “the authority to prosecute individuals” for some violations, the company said in a Dec. 27 filing.
The shutdown is paralyzing work to develop required environmental analyses for energy projects, highways and other infrastructure.
The Fish and Wildlife Service isn’t able to work on fresh court-ordered analysis of Dominion Energy’s $7-billion Atlantic Coast pipeline, designed to ferry natural gas across 600 miles of West Virginia, Virginia and North Carolina.
The shutdown also is creating further delays for TransCanada Corp.’s Keystone XL pipeline. The State Department, one of the agencies without federal funding, has been developing a new review of the $8-billion project: a supplemental environmental impact statement analyzing Keystone XL’s potential effects on greenhouse gas emissions, cultural resources and the energy market.
The Environmental Protection Agency, Interior Department and Council on Environmental Quality are deeply involved in analyzing the consequences of major government actions, as required under the National Environmental Policy Act. Their shutdown can spill over to other departments too.
“With the broad shutdown at all of those agencies, certainly there is plenty of NEPA work that has slowed or been halted, and it will affect the timing of decisions,” said Ann Navaro, a Bracewell LLP partner who previously worked at the Interior and Justice departments. If the shutdown “continues into next week or longer, I would think we would start to see a pretty significant impact in terms of slowing analyses and other decisions.”
The shutdown appears to have ensnared Interior Department permits authorizing seismic surveys to help locate oil under the Atlantic Ocean. Five companies, including TGS-NOPEC Geophysical Co. ASA, Schlumberger Ltd. subsidiary WesternGeco Ltd., and a unit of ION Geophysical, were on the verge of getting those approvals before funding lapsed.
For now, many other energy-related permits are still flowing out of the Interior Department, which has taken steps to ensure the government shutdown doesn’t mean an oil industry shutdown.
But broader work to accelerate offshore energy development has hit a snag. For instance, the Bureau of Ocean Energy Management was putting the final touches on a plan for selling offshore drilling leases in U.S. waters before the shutdown. That work has stopped now.
And the shutdown threatens to postpone public meetings this month on developer Vineyard Wind’s bid to build a large-scale wind energy project 15 miles south of Martha’s Vineyard. The ocean energy bureau, which is analyzing the project’s potential environmental effects, said meetings scheduled for Jan. 8 and 9 Tuesday and Wednesday in Massachusetts and Rhode Island would be canceled if the federal government is still shut down as of Monday.
Traders in the dark
The shutdown imperils the planned Jan. 8 release of a closely watched foreign trade report from the Census Bureau that sheds light on exports of soybeans, crude oil, automobiles and other goods — especially critical as markets search for evidence that China is re-emerging as a buyer of U.S. agriculture products.
As traders are increasingly in the dark, so are some government regulators keeping watch over them.
While the Securities and Exchange Commission continues to monitor stock trading, only about 275 of its most essential staff members are working. And for the most part, the agency isn’t opening fresh investigations into potential misconduct. The agency also isn’t approving plans for new initial public offerings or applications from mutual fund companies to launch exchange-traded funds and other products. If the shutdown persists, high-profile share sales planned for this year by Uber, Lyft and other companies could be delayed.
As about a third of national parks close — and others stay open but with limited services — the effects are spilling over to the gateway communities and businesses that depend on tourist travel to the sites. Some 425,000 visitors typically spend $20 million daily during January in towns and communities around national parks, according to the National Parks Conservation Assn., a public interest group.
“Many of the businesses around national parks are small businesses so they don’t have margin for error,” said John Garder, a senior director with the Washington-based association. “For some parks this is the busiest time of year. We are seeing cancellations. There is a lot of visitor confusion.”
Some businesses inside the national parks also are closed. Sen. Patrick J. Leahy (D-Vt.) highlighted the plight of Hurricane Ridge Winter Sports, which operates a snow play area and small ski lift in Olympic National Park in Washington State. The road up to Hurricane Ridge is closed because no National Park Service personnel are around to plow the snow.
Even businesses in the shadow of federal buildings are seeing sales plummet.
At City Cup & Coffee, a cafe across the street from two federal buildings in Oakland, business is down 60% amid the shutdown, said owner Sam Samhouri, who has cut his orders of coffee and pastries as a result.
“All my customers aren’t working,” Samhouri said in a phone interview. “Between the Democrats and Republicans, we are paying the price.”
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