Federal Funding Deadline: Four Possible Scenarios and Implications

1. Continuing Resolution Passes

On September 19, just before adjourning for recess this week, the US House passed a continuing resolution (CR) on a party line basis by a vote of 217-212, with two Republicans voting no and one Democrat voting yes. The CR would extend government funding at current levels through November 21.

Despite being nearly 100 pages long, the House-passed CR is described as a “clean” stopgap measure by Republican leadership, largely maintaining existing funding levels (currently set at FY 2024 levels) and including additional security funding for federal officials and lawmakers, as well as a funding fix for the District of Columbia to allow the city to spend its own locally raised taxpayer dollars. The measure also extends authorizations for certain health care and veterans’ programs but does not include major new policy provisions or funding increases for other priorities.

Concurrently, US Senate and House Democratic leadership has released their own CR proposal, which would extend funding through October 31 and includes key provisions such as a permanent extension of enhanced Affordable Care Act (ACA) tax credits and a repeal of recent Medicaid and health care spending reductions. This proposal also provides additional security funding and includes guardrails to prevent the administration from unilaterally rescinding funds through so-called “pocket rescissions” or other measures. Republican leadership has criticized the draft proposal as overly partisan and expensive, claiming it would cost over $1 trillion, and has rejected its inclusion of health care policy changes, arguing that such issues should be addressed separately from short-term funding.

Regardless, bipartisan support is necessary to advance a CR given the Republican’s narrow 53-47 majority in the Senate. The afternoon of September 19, the Senate held test votes on both the Democratic CR proposal and House-passed Republican CR. Both measures fell short of the 60-vote threshold needed to overcome the threat of a potential filibuster in the Senate, highlighting the current impasse resulting from a lack of bipartisan agreement. On September 23, President Trump canceled a meeting with Democratic leadership, stating he did not believe the meeting would be productive given their “unserious and ridiculous demands.”

The Senate is expected to return from its recess on September 29, leaving little time for last-minute negotiations. It is notable that the House is in recess until after the shutdown deadline, which increases the pressure on the Senate to pass the House-passed CR.

If a funding deal is reached before the start of the fiscal year on October 1 and a CR is enacted, organizations can expect continuity in federal reimbursements, grant draws, and program oversight, though there may be some short-term administrative delays as federal agencies adjust to the new funding timelines. A CR also would provide Congress with additional time to negotiate full-year appropriations for FY 2026, but it does not resolve underlying disagreements, meaning further funding deadlines could arise later in the year.

2. CR Passes With Three Negotiated Appropriations Bills

Alternatively, Congress could also enact a short-term CR that funds most agencies at current (FY 2024) levels while simultaneously enacting three full-year FR 2026 appropriations bills that were already passed in the House and Senate: Military Construction and Veterans Affairs (MilCon-VA), Legislative Branch, and Agriculture. This would likely move as a CR “minibus,” including the three negotiated bills with agreed top line numbers, while extending current funding for the remaining nine bills to a certain date while continued negotiations between parties are underway.

In this scenario, organizations funded by the three finalized bills should expect more reliable and timely federal reimbursements and grant draws, while those dependent on CR-funded agencies would continue to face uncertainty and administrative caution regarding cash flow and fund allocation decisions. Regardless, the potential for last-minute policy riders or funding offsets could still negate the possibility of this scenario occurring, especially given the brief timeline for any negotiations to occur before the September 30 deadline.

3. CR Does Not Pass: Brief Shutdown

If Congress fails to pass a CR or full-year appropriations by September 30, which now seems likely, the federal government will enter a partial shutdown. In the event of a brief shutdown, lasting a few days to a week, many federal agencies will be forced to furlough non-essential staff, suspend program approvals, and pause routine communications and technical assistance. The Office of Management and Budget (OMB) and the White House will execute shutdown plans, determining which government employees are essential and which are not. Essential employees will continue working during the shutdown but will not receive pay until the government reopens.

Obligations for new grant awards and contracts are typically halted and reimbursements for ongoing programs may be delayed, creating short-term cash flow challenges for organizations that rely on timely federal draws. However, funding for essential services such as Social Security, Medicare, Medicaid, and most SNAP benefits are expected to continue, as are fee-funded operations like those of the US Citizenship and Immigration Services (USCIS), assuming that the personnel required to run these programs are deemed essential.

On September 24, the OMB released a memo calling on certain agencies to prepare reduction in force (RIF) plans during a possible shutdown. In the memo, the OMB directs agencies to prepare for a shutdown by identifying programs, projects, and activities (PPAs) that meet the following criteria:

1. Discretionary funding will lapse on October 1.
2. No alternative funding source is available.
3. Is not consistent with the President’s priorities.

The memo then directs agencies to begin drafting RIF plans to permanently eliminate jobs in those identified areas, breaking from the standard scenario in which nonessential employees are furloughed during a shutdown and brought back once the government is reopened.

The impact on organizations would likely include delays in federal grant processing, slower response times from federal partners, and uncertainty around the timing of payments. Historically, brief shutdowns have been resolved quickly as public, political, and market pressure mounts, but even a short disruption can create operational headaches. Additionally, the recently released memo outlining the OMBs more permanent plan for RIFs in targeted PPAs underscores the possibility of more long term impacts resulting from even a brief shutdown.

4. CR Does Not Pass: Extended Shutdown

A more serious scenario would be an extended government shutdown, which could last several weeks or longer if Congress remains deadlocked. The most recent record for a shutdown was 35 days, from December 22, 2018, to January 25, 2019, and the consequences were significant for both federal agencies and the organizations they partner with or assist. The risk of a prolonged shutdown is higher in a polarized political environment, especially with the upcoming election cycle intensifying partisan divisions. Extended shutdowns also tend to erode public trust and can have lasting effects on vulnerable populations who depend on federally funded services.

In an extended shutdown, the impacts described above would be magnified: reimbursements and grant actions could be delayed for weeks, new awards and contract modifications would stall, and federal technical assistance, monitoring, and data reporting would be severely limited or unavailable. Programs that rely on administrative processing [(such as those administered by the US Departments of Housing and Urban Development (HUD), Health and Human Services (HHS), and Agriculture (USDA)] could experience cascading delays, even if benefit payments continue under mandatory funding, if the employees who administer those programs are deemed non-essential.

In Summary

Given the uncertainty surrounding the federal funding deadline, organizations are strongly encouraged to prepare for all four scenarios. Even if a CR is ultimately passed, organizations should anticipate potential interruptions in federal processing and plan accordingly to ensure continuity of operations and services. Organizations should proactively communicate with their federal program officers and any relevant pass-through entities to clarify the status of grants and contracts and review agency-specific shutdown contingency plans, which are typically posted on the OMB and federal department websites. OMB’s memo instructing agencies to submit their updated lapse plans including any proposed RIFs will likely alter these contingency plans. Therefore, it is imperative to monitor guidance as the situation evolves and prepare clear communications for beneficiaries and staff.

ArentFox Schiff’s Government Relations practice group is closely monitoring for any developments on these ongoing federal budget negotiations. For additional guidance on the potential impacts of a government shutdown, please contact your AFS attorney or any of the authors of this alert.