Now in its fifth week, the U.S. federal government shutdown has become the longest in U.S. history. The partial shutdown began on December 22, 2018, following a stalemate between Congress and President Donald Trump over funding for a wall at the Mexican border. Many government services and agencies have been halted: NASA, the Smithsonian museums, the National Gallery of Art, the National Park Service. Others, like the postal service, social security, the Pentagon and the FBI, remain open due to the critical nature of the services they provide. To date, more than 800,000 federal employees have been furloughed or are working without pay, resulting in more than US$200 million in unpaid wages every workday. By tomorrow, federal district courts will have run out of funds.
North of the border, the situation is not as dire, although Canada is feeling the ripple effect of the budget impasse. For one, Canadian businesses contracting directly with the U.S. government are likely searching for ways to cope with, and in some cases survive, the shutdown. Travellers heading south may experience delays as many Transportation Security Administration workers have been calling in sick, refusing to work without pay. And as a result of partial closures at the U.S. Department of Agriculture (USDA) and the Food and Drug Administration (FDA), Canadian restaurants and grocery stores may be under pressure to find alternative sources of produce in cases where routine assessment or clearance by the USDA or the FDA is required for food imports into Canada.
Not the least of the negative ramifications of the shutdown this side of the border has been the impact on Canada’s capital markets.
Since December 27, 2018, the U.S. Securities and Exchange Commission (SEC) has been operating with very limited staff. Departments that perform key functions, such as monitoring the markets and responding to emergencies, continue to operate pursuant to the agency’s Operations Plan Under a Lapse in Appropriations and Government Shutdown. The SEC’s Division of Enforcement, for instance, continues to monitor the Tips, Complaints and Referrals system for reports alleging misconduct or harm to investors. Applications for restraining orders and investigations into fraud remain in play. The SEC’s electronic filing system, EDGAR, also remains open, allowing filers to obtain access codes and make certain filings.
A number of the SEC’s major functions have been temporarily discontinued, however. Non-emergency interpretative advice is currently unavailable, so inquiries relating to cross-border mergers, for example, are being put on hold. Processing of new and pending applications for exemptive relief and non-emergency assistance to Canadian authorities under any bilateral or multilateral arrangements have been suspended. And although the SEC continues to receive registration statements, offering statements and other documents, declaring registration statements effective and approving offerings have been halted, leading to a growing backlog of applications by registrants and issuers in the United States and Canada alike. Long-anticipated IPOs will need to wait for the standoff to end.
It is unclear how long the shutdown will last. Analysts estimate, though, that if the fallout continues for an extended period of time, the American economy (and consequently the Canadian economy) could face significant setbacks. For the sake of all those affected by the shutdown, including Canadian businesses and individuals, it is hoped that the standstill will come to an end sooner rather than later.