If you've been reading The Paycheck Chronicles for a few years, you'll probably know that my motto is, "Prepare for the worst and hope for the best." I'm dragging out that reminder again because the Pentagon has been making quiet plans for the possibility of a government shutdown. One possible effect of a government shutdown is that military servicemembers might not get paid on time. There are two separate potential issues here: the federal budget, and the debt ceiling. While these two topics are very different, they often get lumped together because they have the same result in your pocketbook: unsurity of military (and other) paychecks.
The Federal Budget ProblemThe federal government's fiscal year begins on 1 October each year, and ends on 30 September of the following year. Congress and the President are, in theory, supposed to agree to a new funding plan before the fiscal year ends. It's been years since that's happened on time. Instead of passing an actual budget, Congress and the President can use one or more continuing resolutions to extend funding until final decisions are made. This has been a common practice in recent years.
If, however, Congress and the President fail to agree to a budget or a continuing resolution, then the government authority to spend money is severely curtailed. Expenses that are part of multi-year budget items or things that are part of mandatory spending can still be paid. Expenses that require yearly appropriations and authorizations can not be paid. Unfortunately, military pay falls in the yearly appropriations and authorizations category. Servicemembers would be expected to continue working, but they would not get paid until a budget or continuing resolution was passed.
The Debt Ceiling ProblemThe other key time is sometime in October or November, when the federal government runs out of cash and the ability to borrow more money. In the past, debt ceiling crises have been averted by last-minute legislation. Each time, the lawmakers increase the stakes; a debt ceiling compromise brought us sequestration. While it is likely that some sort of compromise will occur again, it is not a sure thing. Many legislators are frustrated with the unresolved larger issues in Congress, and the debt ceiling is a visible way of protesting.
If the debt ceiling is not increased, the Treasury has to pay its daily bills out of its daily income. Unfortunately, our country spends more each day than it makes. There are a variety of ways this dilemma can be handled, but none are good. Details are sketchy because this has never actually happened before. However, it is likely that hitting the debt ceiling would result military pay will be held up in some fashion. (Note: lots of comments have asked "when?" That's the sketchy part. There are a variety of ways that the Treasury could prioritize and pay their obligations. We can't predict what method would actually be used.)
Obviously, none of these things could happen. But you need to be prepared in case they do.
Coming tomorrow: What You Can Do Now To Prepare For The Worst.