Overview
Bottom Line Up Front. While appropriations talks had been proceeding this summer relatively smoothly, events over the past week have drastically increased the chances of a shutdown. At present, it appears increasingly likely that the full federal government could shut down on October 1, as both parties have grown more entrenched in their positions. A government shutdown would also increase the chances of another year-long continuing resolution (CR).
Digging In. Despite initial indications that Democratic leaders might accept a commitment to address Affordable Care Act (ACA) tax extenders after passing a seven-week CR, House Minority Leader Hakeem Jeffries (D-NY) made clear this week that Democrats will insist on including ACA language in the CR in exchange for Democratic votes. This line in the sand from Democrats, combined with Republican insistence that any ACA deal is considered in the full FY26 funding agreement instead of a short-term CR, heightens the likelihood of a shutdown.
The recent turn of events followed a planned meeting between Democratic leadership, Republican leadership, and President Trump was abruptly cancelled by the President, who dismissed the Democratic demands as "unserious and ridiculous."
OMB Takes the Reins. In response to the latest signs of a budget stalemate, the Office of Management and Budget (OMB) has directed federal agencies to begin formal preparations for a possible government shutdown. What is unusual about the request this year is OMB requested that agencies must identify which programs, projects, and activities (PPA) would be subject to a "reduction in force" (RIF) notice—meaning permanent layoffs of federal employees—should funding lapse.
Traditionally during a shutdown, agencies are required to determine which employees are "essential" to critical operations and which are "non-essential." Essential employees continue working without pay until the shutdown ends, while non-essential staff are placed on temporary, unpaid leave and return to their positions once the government reopens. The introduction of RIFs, however, represents a significant departure from that precedent, replacing temporary furloughs with permanent job cuts.
The memo directs agencies to apply RIFs to PPA that satisfy all three of the following conditions: (1) discretionary funding lapses on October 1, 2025; (2) another source of funding, such as H.R. 1 (Public Law 119-21), is not currently available; and (3) the PPA is not consistent with the President's priorities. This would exclude all mandatory programs and all advanced appropriations. The memo also explains that furloughs will be exercised during a shutdown. It is not yet clear how many RIFs the administration will administer.
Democratic leaders have condemned the memo as a form of "blackmail," and argue that the Trump administration will continue firing federal workers regardless of whether funding lapses. OMB’s approach escalates the political stakes of budget negotiations, turning what has historically been a temporary disruption into a potential mass downsizing of the federal workforce.
On the Brighter Side? In contrast to the CR stalemate, appropriators made some progress last week on negotiating a minibus package containing Ag-FDA, Leg Branch, and MilCon-VA. House Republican appropriations cardinals for those subcommittees met last week to discuss remaining areas of disagreement. According to House Appropriations Committee Chairman Tom Cole (R-OK), conferees would be able to "hash it out" because of their relatively minor differences. Similarly, last week, Senate Appropriations Committee Chair Susan Collins (R-ME) acknowledged the package is "virtually done."
With all the attention on a CR and the possibility of a government shutdown, it is unlikely that a formal conference on the minibus will occur anytime soon. Moreover, we believe a shutdown would increase the likelihood of a year-long CR—potentially wiping out much of the work already done on FY26 appropriations. As defenders of "regular order" we hope we are wrong about this. Drop us a line if you see it differently!
