The partial shutdown of the federal government could have a noticeable effect on Maryland businesses, effects that may ripple into the state’s economy at large.
As the shutdown continued into its 21st day Friday, the total effect it has had on Maryland’s economy is unclear, but a continuing closing of much of the federal government could cost hundreds of millions of dollars.
Parts of the government were shut down Dec. 22 when Congress and President Donald Trump failed to fund departments, including Agriculture, Commerce, Justice, Homeland Security, Interior, State, Transportation, Treasury and Housing and Urban Development.
Trump has said he will not reopen the shuttered agencies unless Congress approves $5.6 billion to build a wall on the United States’ border with Mexico. Both chambers of Congress adjourned Friday without a resolution to the shutdown, and the it appears likely to continue into another week.
For federal contractors who do business with the affected agencies, the costs could be more significant than those for federal employees. Unlike federal employees, who will probably receive back pay, contractors will not be paid for the shutdown period, although some Democrats in Congress have proposed legislation to pay low- and moderate-income contractors.
It is hard to assess the direct effect on federal contractors based in Maryland right now. But in fiscal year 2018, about 1,620 prime contractors did work in Maryland for the affected agencies, according to the Maryland Department of Commerce. Those companies were awarded about $8.8 billion for the work.
Those numbers do not account for a significant number of subcontractors who also performed work for the affected agencies.
In addition to contractors, ancillary businesses that rely on government employees have also been affected, including restaurants, coffee shops and convenience stores near government offices.
Right now, it may be too soon to estimate what ripple effects these losses could have on the state’s economy. The last significant shutdown only registered as a blip, said Raquel Frye, a technical adviser for Towson University’s Regional Economic Studies Institute. But this partial shutdown has now become the longest ever.
“If it’s enough of an impact for several weeks, I don’t know that (small businesses would) be able to float that for that long,” Frye said.
She does not know when a tipping point might come when the state would be able to say the shutdown has had a significant economic impact. The state may not even know when that point was until after the fact. But, “I can’t imagine it would be that far off,” she said.
Those effects could start to be seen when consumer consumption and confidence starts to drop.
In the meantime, banks are trying to do what they can to support their business clients. M&T Bank is offering loan deferrals, interest-only payments and short-term bridge financing.
“We do have a portfolio of those types of clients. We’ve been proactively reaching out to all of those folks to let them know that we are here to help out,” said Eleni Monios, the bank’s business banking market manager for greater Baltimore and Delaware. “We tried to put something out very quickly to address businesses affected by this government shutdown.”
Most clients have been able to sustain the hit so far, according to feedback M&T has received. They should have cash flow to sustain another month to a month-and-a-half, they told the bank.
The bank makes the most Small Business Administration-backed loans in the agency’s Baltimore market, which includes all of Maryland except for Montgomery and Prince George’s counties.
For personal clients, banks have been treating the shutdown like a natural disaster, offering options to help consumers with mortgage, auto and other loan payments.
But M&T has not been able to execute that type of plan for its business clients because their normal partner in responding to a natural disaster — the Small Business Administration — has also been shut down.
That also affects businesses currently seeking loans. Because the SBA has been closed, SBA-backed loans cannot be processed. In the Baltimore market, that represents 78 loans totaling around $9 million.
“These applicants’ requests are sitting in limbo until the shutdown ceases,” Monios said. For new applicants, “There’s nothing that can be done. We can’t get them approved until the SBA reopens.”