Government Shutdown Advisory: Summary Of Possible Lapse In Appropriations

Highlights

• Much of the federal government is funded by 12 annual appropriations bills. Federal fiscal year (FY) 2026 begins on Oct. 1, 2025, and, if appropriations bills have not been enacted before that date or a temporary funding measure – known as a continuing resolution (CR) – has not been enacted, a gap (or lapse) in appropriations will occur.
• Federal government shutdowns have a wide range of effects, the severity of which can depend on the shutdown's length and how the Office of Management and Budget (OMB) directs agencies to operate (or not operate) during a shutdown.
• As of this writing, no FY 2026 appropriations bills have been enacted. Bicameral, bipartisan negotiations had begun on full-year appropriations for the Agriculture-FDA, Legislative Branch and Military Construction-Veterans Affairs bills. Though any final agreement on those bills will not be ready in time for Oct. 1, 2025, it could be enacted as part of a future CR.

Much of the federal government is funded by 12 annual appropriations bills. The federal fiscal year (FY) for 2026 begins on Oct. 1, 2025, and, if appropriations bills have not been enacted into law before that date or a temporary funding measure – known as a continuing resolution (CR) – has not been enacted, a gap (or lapse) in appropriations will occur.

Timeline

On Sept. 19, 2025, by a vote of 217-212, the U.S. House of Representatives passed a Republican-sponsored CR (H.R.5371) to keep the government open through Nov. 21, 2025, generally extending funding at current levels with enhanced security funding for government officials and extension of some expiring authorizations related to veterans' benefits and healthcare. They included the Medicare-dependent hospital and low-volume adjustment programs, telehealth and hospital-at-home flexibilities, as well as the Cybersecurity Information Sharing Act. The bill also would have delayed Medicaid Disproportionate Share Hospital cuts that are set to become effective Oct. 1, 2025. Later the same day, however, the U.S. Senate rejected H.R.5371 by a 44-48 cloture vote.

The Senate also rejected a Democrat-sponsored CR (S.2882) on Sept. 19, 2025, to fund the government at current levels through Oct 31, 2025, by a 47-45 cloture vote. Though the Democratic version included an extension of the same public health provisions as the CR (H.R5371), it also included a permanent extension of the enhanced premium tax credits (EPTCs) that are set to expire on Dec. 31, 2025. The bill would also repeal the healthcare provisions in the One Big Beautiful Bill Act (OBBB), Pub. L. 119-21. On Sept. 18, 2025, the Congressional Budget Office (CBO) released an analysis¹ estimating that a permanent extension of the EPTCs would cost roughly $350 billion between 2026 and 2035 and expand health insurance coverage to an additional 3.8 million people by 2035. In addition, repealing provisions of the OBBB that restrict marketplace eligibility and enrollment – such as those targeting certain immigrants and low-income individuals – would add about $272 billion in costs and increase coverage by 2.9 million people in 2035.

Next steps are unclear as lawmakers departed for the Rosh Hashanah recess, and the House is not scheduled to return until after FY 2026 begins. President Donald Trump is now scheduled to meet with House and Senate Republican and Democratic leadership on Monday, September 29, after previously cancelling a proposed meeting with the Democratic leaders last week.

On Sept. 24, 2025, it was reported that the Office of Management and Budget (OMB) has directed agencies to consider extensive employee layoffs in unfunded programs that are not administration priorities if the government shuts down on Oct. 1, 2025. An OMB memo directs agencies "to use this opportunity to consider Reduction in Force (RIF) notices for all employees in programs, projects, or activities (PPAs) that satisfy all three of the following conditions: (1) discretionary funding lapses on October 1, 2025; (2) another source of funding, such as OBBB, is not currently available; and (3) the PPA is not consistent with the President's priorities." The memo asserts "Federal programs whose funding would lapse and which are otherwise unfunded ... are no longer statutorily required to be carried out."

The memo was first reported by Politico, citing an OMB source as saying the following programs "will continue regardless of a shutdown": Social Security, Medicare, veterans benefits, military operations, law enforcement, U.S. Immigration and Customs Enforcement (ICE), U.S. Customs and Border Protection (CBP) and air traffic control. Notably, each of these programs has funding from the OBBB or other mandatory or advanced appropriations that may be spent during a shutdown or involves activities easily deemed by OMB to be necessary for the safety of human life or the protection of property under the Antideficiency Act.²

History of Government Shutdown and Potential Impacts

The relevant laws that govern shutdowns have remained relatively constant in recent decades. However, OMB exercises great discretion in how it defines and interprets exceptions to the law, and OMB's actions under the Trump Administration have led to great friction with Democrats and some Republicans in Congress.

The Antideficiency Act generally bars the government from incurring obligations³ or making expenditures in the absence of appropriations.⁴ It also bars the government from receiving voluntary services from federal personnel in the absence of appropriations that pay their salaries, except for "emergencies involving the safety of human life or the protection of property."⁵ Accordingly, federal agencies are required to curtail many activities in the absence of an appropriation, commonly referred to as a "government shutdown." Every agency is required to develop and update shutdown contingency plans, which will be posted to agency websites once approved by OMB.

OMB's Circular No. A-11 (August 2025) provides that activities financed with appropriations that have not lapsed can continue to operate in a shutdown, which could include mandatory funding (i.e., reconciliation bills or entitlement program funds) or unexpired prior-year funding with valid apportionments.⁶ However, the salaries of agency personnel executing or supporting these legally exempted activities may be funded by lapsed appropriations, so whether a particular program will continue to operate in practice can best be determined by reviewing the agency's contingency plan. OMB states these plans will be posted to agency websites once approved by OMB.⁷

In the past, there have been funding gaps that led to occasional government shutdowns. In many cases, these were "partial" government shutdowns, as some of the 12 regular appropriations bills had already been enacted. The government was shut down previously for:

• 21 days, beginning Dec. 16, 1995
• 16 days, starting Oct. 1, 2013
• 35 days, beginning Dec. 21, 2018 (five of the 12 regular appropriations bills had been enacted in advance of this shutdown; agencies and activities funded by those measures were unaffected)
• two brief shutdowns in January 2019 and February 2019

In prior instances, not everything that the federal government does was discontinued during a gap in discretionary appropriations. Some activities – such as those funded by permanent, mandatory or advanced appropriations – are not dependent on a current-year appropriation, so their funding continued in an appropriations lapse. Common examples include Social Security, Medicaid, Medicare, Supplemental Nutrition Assistance Program (SNAP) and veterans' healthcare benefits.

In addition, activities funded by user fees or trust funds that are independently available outside of the appropriations process (for example, student loan processing, reimbursements from the Highway Trust Fund or Medicare provider claims payments) have historically continued as long as staff responsible for processing those payments are also called into work.

Activities funded through bills outside of the annual appropriations process typically continue during shutdowns, including, for example, the advance appropriations in the Infrastructure Investment and Jobs Act (IIJA), Pub. L. 117-58, and mandatory appropriations in budget reconciliation acts such as the OBBB and American Rescue Plan (ARP) Act, Pub. L. 117-2. Of note, the Trump Administration received unprecedented levels of new funding for enhanced ICE and CBP operations in the OBBB.

Even for activities funded with lapsed appropriations, the Antideficiency Act allows several excepted activities to continue, including, for example:⁸

• activities necessary to protect human life or safety or property
• activities necessarily implied by law to perform statutorily required activities
• activities necessary to discharge of the president's constitutional duties or power

Unsurprisingly, U.S. military operations typically continue during a shutdown due to the vital national security interest. In addition, recent reporting indicates other safety-critical activities will remain operational, including federal law enforcement and air traffic control.

Federal government shutdowns have a wide range of impacts, the severity of which can depend on the shutdown's length. In addition to the disruption of internal government functions, the unavailability to the public of many government services and lack of access to public facilities, shutdowns can profoundly impact government contractors, public and private recipients of federal grants, and the general public.

For instance, those traveling could experience delays due to air traffic controllers and Transportation Security Administration (TSA) officers having to work without immediate pay. And though social safety net programs such as SNAP will continue to function, a lengthy shutdown period could squeeze remaining funding. On the other hand, less-essential activities utilized by the general public – such as national parks – could be suspended until government funding resumes.

Some federal contracts funded with unexpired prior-year funding may be eligible to continue. It is a best practice for federal contractors and grant recipients to contact their program officer to discuss these issues in advance of a potential shutdown, as these individuals may be unavailable once the shutdown is triggered. Historically, contract activity during a CR relies on obligation authority, and agencies could place orders on existing contracts where the prior-year funding is already obligated, such as government-wide and large task-order-type contracts. For example, during prior shutdowns, contractors working on some Pentagon acquisition programs had less exposure because they had access to unused funding from multiyear appropriations.⁹ The Pentagon's updated shutdown guidance released on Sept. 27, 2025, generally permits activities that are funded with unexpired appropriations, including funding provided in the OBBB, to continue during a shutdown.

The Congressional Research Service also has online resources to assist interested parties in understanding the implications and history of government shutdowns:

• Government Shutdowns and Executive Branch Operations: Frequently Asked Questions (FAQ) (Updated Sept. 2, 2025)
• Past Government Shutdowns: Key Resources (updated Sept. 22, 2023)
• Federal Funding Gaps: A Brief Overview (published Sept. 7, 2023)

Contingency Plans by Agency

Historically, a week prior to a shutdown, federal agencies publish contingency plans for how they will operate in the event of a lapse of appropriations. These plans traditionally were posted together on the OMB website, but the current OMB site states each agency's website will exclusively host the contingency plan for the agency. Contingency plans lay out what functions will continue to be provided and which federal workers must report to work because they are deemed "essential." OMB directed agencies to update their contingency plans in August 2025, noting that plans would be published once approved by OMB.

As of today's date, the following updated agency contingency plans have been published:

• Internal Revenue Service
• Social Security Administration
• U.S. Department of the Army
• U.S. Department of Defense (also referred to as the U.S. Department of War)
• U.S. Department of Education
• U.S. Department of Health and Human Services
• U.S. Department of Homeland Security
• U.S. Department of Justice
• U.S. Department of Labor
• U.S. Department of Transportation
• U.S. Department of the Treasury
• U.S. Department of Veterans Affairs
• U.S. Environmental Protection Agency
• U.S. Food and Drug Administration

For illustrative purposes only, this Holland & Knight document provides details of prior contingency plans for 13 key departments and agencies:

• U.S. Department of Agriculture
• U.S. Department of Commerce
• U.S. Department of Defense
• U.S. Department of Education
• U.S. Department of Energy
• U.S. Department of Health and Human Services
• U.S. Department of Homeland Security
• U.S. Department of Housing and Urban Development
• U.S. Department of Justice
• U.S. Department of Transportation
• U.S. Department of the Treasury
• U.S. Environmental Protection Agency
• U.S. Social Security Administration

There is no guarantee the current administration will adopt all or any part of prior contingency plans.

For more information or questions regarding the potential government shutdown and its impact, please contact the authors or another member of Holland & Knight's Public Policy & Regulation Group.

Footnotes

1. The Estimated Effects of Enacting Selected Health Coverage Policies on the Federal Budget and on the Number of People With Health Insurance, Congressional Budget Office

2. See 31 U.S.C. 1342.

3. In this context, "obligations" are referred to as "A formal order legally committing the federal entity to ultimately pay a future liability."

4. 31 U.S.C. 1341.

5. 31 U.S.C. 1342.

6. See id. Sec. 124 ("Agency functions that are financed with appropriations that have not lapsed may continue and are 'exempt' from any shutdown procedures, even while a lapse has occurred in other appropriations.").

7. See A-11 Circular (Aug. 2025) ("Once the updated lapse plan is reviewed by OMB, the agency will publish the final lapse plan using a specified landing page on their agency website.").

8. See e.g., 31 U.S.C. 1341-1342; OMB's A-11 Circular (Aug. 2025) at Sec. 124.

9. For a discussion of practices during prior budget impasses, see Holland & Knight's previous blog post, "A Contractor's Guide to the Impending Government Shutdown," Sept. 21, 2023.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.