Learn from the States to Avoid a Shutdown in D.C.

With the 22^nd government shutdown of the past five decades looming, many Americans are concerned about losing access to various public services. Don’t fret! The IRS, America’s favorite government agency, promises to remain “fully operational” in the event of a government shutdown and “all employees will be at work and will be paid timely” thanks to funds from the poorly-named Inflation Reduction Act.

Of course, that’s little comfort for anyone who isn’t an IRS employee. If lawmakers in Washington, D.C. want to avoid government shutdowns, observing the 50 laboratories of democracy is the best way to learn sound tax and fiscal policy.

Before diving into what Congress can do to course-correct, here’s why a shutdown looms this week:

• Government funding runs out at 12:01 AM on October 1 (the first day of the new federal fiscal year) if members of Congress do not reach a budget deal.
• The House of Representatives and the Senate have competing views of spending going forward.
• Many conservative members of the House are advocating for a spending plan focused on spending reform, citing unsustainable spending levels and the national debt ($33 trillion and counting) exceeding 120% of GDP.
• Members of the Senate are pushing a spending bill that continues business-as-usual spending.
• There is a continuing resolution that would fund the government through November 17, 2023.

In addition to keeping the IRS open, D.C. promises to continue other programs such as funding Ukraine while active duty military remains on the job without pay. It’s clear D.C. does not have its spending priorities in order, and others are taking notice as well.

For example, Moody’s Investors Service (the only credit rating agency that still gives the U.S. a AAA credit rating) notes that another shutdown will negatively impact the U.S. credit rating. A lower credit rating would mean higher borrowing costs, making business-as-usual spending even more unsustainable. Fitch Ratings already downgraded the U.S. to AA+ this summer and S&P downgraded the U.S. to AA+ back in 2011, citing unsustainable levels of spending and debt.

As we have written about in The Wall Street Journal and The Orange County Register, credit downgrades could spell disaster for federal funding to the states, especially Medicaid funding, as D.C. cuts funding to the states to fund other federal priorities.

The best thing lawmakers in D.C. can do is to look to the states. It’s time for DC to abandon business-as-usual spending in favor of priority-based budgeting. It takes longer than the current method of automatic increases, but it’s worth it. Priority-based budgeting focuses on five key budget questions:

1. What is the proper role of government?
2. What are the essential services the government must provide to fulfill its purpose?
3. How will we know if the government is doing a good job?
4. What should all this cost?
5. When cuts must be made, how will they be properly prioritized?

After the market downturn in 2001, Washington state lawmakers from both parties worked with then-Gov. Gary Locke, a Democrat, and used priority-based budgeting to trim waste. The Priorities of Government budgeting initiative eliminated a deficit of more than $2 billion without resort to burdensome tax increases.

It is important, however, to think about budget solutions as “arrows in the quiver,” not “silver bullets.” No single reform will solve all fiscal problems, but sound solutions like priority-based budgeting will help make significant improvements to fiscal health. It’s time for D.C. to see how the states get it right!

To learn more about sound fiscal policy and various budget solutions, take a look at the ALEC State Budget Reform Toolkit.