Different day, same story. The U.S. Senate and House of Representatives face yet another federal appropriations deadline this week.
If lawmakers do not approve a funding bill by midnight on Friday, the government will face a partial shutdown. Specifically, funding for six appropriations bills — those that support the Department of Defense, financial services and general government activities, the Department of Homeland Security, the Departments of Labor, Health and Human Services, and Education, legislative branch activities, and foreign operations and the Department of State — expire.
Earlier this week, House and Senate leaders announced they had reached an agreement that would allow a full-year appropriations bill for these activities to move forward before funding ran out. But this morning Punchbowl revealed lawmakers are still working on the text of the bill and are not likely to release the actual language until tomorrow. In other words: a partial shutdown still could happen. In fact, Punchbowl quipped, “[T]he 118th Congress has shown that deadlines are just dreams waiting to be crushed. Don’t assume anything.”
While it is somewhat obvious what would happen if the country cannot fund its defense or education programs, what happens in the “financial services and general government” category — particularly since some financial services agencies are funded by user fees?
Let’s take a look.
What Is In The Financial Services And General Government Spending Bill?
As the Congressional Research Service (CRS) explains, the Financial Services and General Government, or FSGG, appropriations bill includes funding for the Department of the Treasury, the Internal Revenue Service (IRS), the Executive Office of the President (or White House and all of its departments, including the Office of Information and Regulatory Affairs, which oversees the promulgation of all federal regulations), the judicial branch, the government of the District of Columbia, and more than two dozen independent agencies.
While essential personnel could continue to do their jobs during a government shutdown, operations at these branches and departments would be seriously curtailed. For the IRS, that means slowing down work in the middle of tax filing.
There are plenty of financial services functions that would continue, however. That is because, according to CRS, “funding for the regulation of much of the financial services industry” actually has nothing to do with the FSGG bill. As the experts in Congress’ research body explain, “Although financial services are a major focus of the FSGG appropriations bill, the bill does not include funding for many financial regulatory agencies” because they are “funded outside of the appropriations process.”
Banking regulators are among the entities that are not funded through the annual federal appropriations process. This list includes the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, and the National Credit Union Administration.
“None of these agencies receives primary funding through the appropriations process,” the CRS notes. (Indeed, as readers will recall, the fact that the CFPB is not funded via the annual budget process is the subject of a lawsuit currently pending before the Supreme Court.) Their functions will continue as normal even in the middle of a shutdown.
Two exceptions to this rule are the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which together oversee federal securities, commodities, and futures regulation and are funded through appropriations. “The CFTC funding is a relatively straightforward appropriation from the general fund,” CRS explains, “whereas the SEC funding is provided by the FSGG bill but then offset through fees collected by the SEC.”
The SEC has outlined what happens at the commission in the event of a shutdown. Broadly, the SEC noted that it “will have only an extremely limited number of staff members available to respond to emergency situations involving the safety of human life or the protection of property, including law enforcement.” In particular, its Division of Corporate Finance “will not be able to accelerate the effectiveness of registration statements,” which “raises concerns for registrants that plan to request acceleration of their registration statements or qualification of their offering statements in the near future.”
Still, remaining staff can be expected to carry out some tasks, at least on a limited basis. These tasks include:
- The Division of Enforcement, which will continue to monitor for submissions to the Tips, Complaints, and Referrals (TCR) system and will handle emergency enforcement matters, including temporary restraining orders or investigations of ongoing fraud or misconduct that poses a threat of imminent harm to investors.
- The Division of Investment Management, which will continue to monitor the activity of registered funds and look for changes in industry exposure or market access that may affect registrants or other market participants.
- The Division of Investment Management, which will continue to carry out limited monitoring of filings and registrant inquiries.
- The Division of Trading and Markets, which will continue to track market activity and monitor for systems issues or other events that could disrupt the fair and orderly operation of the securities markets.
- The Office of Compliance Inspections and Examinations, which will continue to perform emergency examinations and will continue its CyberWatch function, which provides real-time monitoring of system disruptions, intrusions, and compliance issues at critical market infrastructure.
- Operation of the EDGAR electronic filing system, which accepts submission of filings.
Importantly, as that last bullet point suggests, a partial government shutdown does not affect companies’ reporting obligations under federal law. As one law firm notes, for example, “Companies are required to timely file periodic and current reports with the SEC even during a government shutdown.”
Spending Bill Can Still Impact Financial Regulatory And Oversight Bodies
The fact that many agencies do not get funding through the annual appropriations process does not mean they will remain unscathed in the event of a shutdown, however. As CRS explains, it is, of course, not uncommon for the FSGG bill to contain “legislative provisions addressing various financial regulatory issues.”
For example, this year, House Republicans wanted to include language in the FSGG bill that would bar “funding for costly and heavy-handed regulations” at SEC, including the commission’s recently-finalized climate disclosure rule. That rule already has been released, of course, and its implementation was suspended last week by a federal court. House GOP lawmakers also wanted to include language in the FSGG bill that would subject the CFPB “to the appropriations process and replacing the CFPB director with a bipartisan, five-person commission.”
While neither of those proposals are likely to be in the deal that lawmakers hammered out over the weekend, we will not know for sure how that agreement will affect financial services regulations until the bill text is released tomorrow.
These policy riders are not the only thing regulators have to worry about, though. As noted above, a lapse in government funding would affect the executive branch’s Office of Information and Regulatory Analysis, or OIRA.
As George Washington University’s Regulatory Studies Center explains, Executive Order 12866 requires “significant” regulations to be reviewed by OIRA before regulatory agencies can issue them. These reviews have slowed during past shutdowns.
In the middle of the 2019 government shutdown, for example, “OIRA limited its oversight … to rules classified as … necessary to protect life and property … such as those related to national security, emergency and disaster assistance, etc.” Up until that shutdown, OIRA had conducted approximately 28 reviews per month throughout 2018. During the shutdown, OIRA completed just seven reviews. Additionally, prior to that shutdown, OFR published an average of 329 pages in the Federal Register per day. During the shutdown, it published an average of 114 per day, a 65 percent decrease. During the Obama administration shutdown in 2013, meanwhile, the Federal Register published 45 percent fewer pages per day.
Failure to enact the FSGG spending bill by midnight Friday would at least temporarily keep agencies from moving forward on their regulatory agendas. Which isn’t something too many Republicans on Capitol Hill would mind.
What Happens Next?
According to Punchbowl, in order to hold a vote on these spending bills before Friday, lawmakers “really need text to come out today.” That is because, under House rules, members of that chamber are supposed to have 72 hours to review all legislation.
House Speaker Mike Johnson (R-LA) already will have a difficult time holding on to the right flank of his conference for this vote. Not only is that group unhappy with the overall topline spending number, but, as The Hill reported, conservative-leaning lawmakers also believe the House Speaker gave up too much ground to Democrats when it came to Homeland Security funding and immigration.
Not giving members of the House ample time to review the spending bill will further exacerbate those wounds and could threaten the legislation’s passage in the House.
In the Senate, meanwhile, as Punchbowl reported, Senate Majority Leader Chuck Schumer (D-N.Y.) has said he will “put the funding package on the floor immediately once it’s received from the House. However, without a time agreement, it could take several days for this to pass.” That is because staff members for GOP lawmakers “say at least a dozen amendment votes have been requested — many of which center on immigration and border security.”
But these ideological and procedural concerns are up against the strongest force in Washington: the smell of jet fumes. Both the House and Senate are scheduled to begin a two-week long recess this Friday afternoon, and lawmakers will be eager to catch flights back home.
So will we have a shutdown, even if only temporarily? Or will Congress show it can move fast when members want to go home? We’ll find out on Friday.