Sacramento’s wobbly economic recovery wouldn’t be crushed by a shutdown of the federal government, but the region would surely feel the pain of employee layoffs and the likely jolt to consumer confidence. The heaviest burden would likely fall on hundreds if not thousands of federal employees in greater Sacramento facing the prospect of not collecting a paycheck.
With the White House locked in an impasse late Monday with congressional Republicans, economists and business leaders were left to ponder the impact a shutdown would have on a sluggish, uneven recovery that has finally brought unemployment in Sacramento down to 8.5 percent. The conventional wisdom: An impasse of a few days would be manageable. A few weeks or more, and the effect could be considerable.
“The longer it lasts, the more potential it has to be catastrophic,” said Garrick Brown, research director at Cassidy Turley commercial real estate in Sacramento.
Brown said the shutdown, which was set to take effect late Monday, arrives at a difficult time for Sacramento. “We’re still lagging the national recovery by about a year,” he said. “Where we’re at, we’re much more fragile. We don’t need anything pushing us off this tightrope.”
One particularly vulnerable sector is the region’s recovering housing market, where one out of every five home sales is financed with loan guarantees from the Federal Housing Administration. The FHA is one of the agencies sure to be affected.
“Loans will get funded, but they may be delayed,” said Chris Little, president of the Sacramento Association of Realtors. Beyond that, he worries that the shutdown could scare some potential homebuyers away, putting a stall in what has been a fairly robust recovery.
“People are finally feeling good about what is going on,” Little said. “We had the pent-up demand. Now this could slow it down.”
Many federal agencies will continue operating without interruption; Social Security recipients will get their payments. But other agencies would close – if not immediately, then within a few days. It wasn’t immediately clear just how many offices would go dark.
“Certain government functions will continue to get paid and others won’t,” said Jeff Michael, an economist at the University of the Pacific. “There are some government activities around here where people will have to stay home.”
At some offices, “essential” employees have considerably more job security than non-essentials.
“I’m not one of the essentials,” said Katherine Henningsen, a secretary in the Bureau of Indian Affairs’ Sacramento office. “If we’re off, I hope it’s just for a couple of days. I can’t afford to be off.”
Henningsen is one of 11,900 civilian federal workers in the four-county metro area, where Uncle Sam is one of the largest employers.
Federal layoffs could translate into ripple effects in the private sector. Louie Aquino isn’t a federal employee but is a chef at the Cottage Cafe, a restaurant that serves hundreds of employees at the U.S. government complex on Cottage Way. If his customers stay home, he could get laid off.
“I’d have to find something,” said Aquino, father of a 2-year-old boy.
Some experts said a prolonged shutdown could bring the kind of economic effects that state worker furloughs had on Sacramento during the years of budget crises, when restaurants and retailers suffered.
“As we learned before with our restaurant friends downtown and in midtown, when something like this happens, the first thing people do is stop spending money,” said John Frisch, regional managing director of Cornish & Carey Commercial Newmark Knight Frank, a commercial real estate firm. “If you know that you have no paychecks coming on the 15th and the 30th of the month, you’re going to hold back.”
David Rodgers, general manager of John L. Sullivan Chevrolet and Roseville Toyota, said “there’s definitely an effect” on car sales when the federal government goes into a fiscal crisis. “Usually, there’s a pause until people see what direction things are going. So that’s what I’d expect, maybe a pause,” he said.
Or maybe not. Rodgers said the federal sequestration, which led to spending cuts, “had a zero effect on us. ...We were geared up for a slowdown, but the effect was about nil.”
Roger Niello, president of the Sacramento Metro Chamber of Commerce, said the biggest effects will come from employee furloughs and delays in payments to Sacramento organizations that get federal funding.
“I would say that (a shutdown) would not be disastrous, but it certainly would be felt in the Sacramento area,” he said.
The shutdown is being driven by conservative House Republicans who are demanding a one-year delay in the implementation of President Barack Obama’s health care overhaul. But Niello, a Republican who served in the state Assembly, said there’s plenty of blame to go around.
“Certainly there’s a heavy spotlight on the Republicans, but there doesn’t appear to be a lot of negotiation going on from the other side either,” he said.
Regardless of what happens, the centerpiece of the Affordable Care Act takes effect today with the start of web-based health insurance exchanges designed to bring coverage to millions. Covered California, the state’s health exchange, plans a gala opening at its customer-service center in Rancho Cordova.
“We are a 100 percent go for Tuesday’s launch,” said Dana Howard, the agency’s deputy director.
Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler. The Bee’s Anita Creamer and Phillip Reese contributed to this report.