September 17, 2019
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Expert: Prolonged shutdown could have ‘profound’ effect on Maine businesses

PORTLAND, Maine — Because the federal government intersects with Maine’s private and public sector in myriad ways, trying to understand how the shutdown, which began Tuesday, will affect Maine’s wider economy is difficult at this early stage, according to experts interviewed for this story.

But it will have an impact, which will be compounded the longer the shutdown drags on, according to Charles Colgan, a professor of public policy and management at the University of Southern Maine’s Muskie School of Public Service.

“The effect is lots of little pieces of sand thrown into multiple gears,” Colgan told the Bangor Daily News on Tuesday.

There are certainly elements of the shutdown that will have immediate economic impacts, such as the furlough of federal employees and the closure of Acadia National Park.

However, the major factor that will determine the extent of the shutdown’s impact will be how long it lasts, according to Tim Woodcock, an attorney at Eaton Peabody in Bangor who focuses on public policy and litigation.

“If you were to try to generalize [the effect], the easiest thing to do would be to say, ‘Well, if it’s a real brief shutdown, the impact will not be great and not even fully noticeable, except by inconvenient experiences,” Woodcock, who’s also a former Bangor mayor, told the BDN on Tuesday. “But the implications for any kind of significant prolonged shutdown would be profound.”

A prolonged shutdown has the potential to seriously harm the state’s economy by delaying payments to Maine companies that do business with the federal government, impeding the Small Business Administration’s ability to help underwrite loans to small businesses and stalling research and development at the university system.

“There are so many variables, and different [federal] agencies handle this differently,” Melody Weeks, director of the Maine Procurement Technical Assistance Center, which assists Maine businesses to secure government contracts, told the BDN on Tuesday. ”It’s very complicated, very confusing. The financial impact could be huge, but there’s not an answer at this time.”

The federal government, one of the largest consumer of goods in the world, has contracts with businesses in Maine that do just about everything, Weeks said, from providing janitorial services to manufacturing apparel. During the federal government’s 2011 fiscal year, $5.1 billion in federal contracts flowed to Maine contractors (the vast majority of which, about $4.6 billion, was awarded by the U.S. Navy), according to the Center for Effective Government.

In general, if a business received a contract prior to Oct. 1, 2013, it should be fine if the shutdown doesn’t last too long, Weeks said. However, if the federal shutdown lasts a long time, those payments may be delayed as there will be no one to service them. In that case, it’s the companies low on cash that could have problems, she said.

Scott Bourget, chief financial officer for Maine Machine Products, a precision manufacturer that acts as a subcontractor on government jobs mostly in the defense industry, said the shutdown isn’t expected to have an effect on the company, which employs 120 in South Paris.

“There’s no telling what can happen, but at this point we have no reason to believe that it will affect us one way or another,” Bourget told the BDN on Tuesday.

Larger federal contractors such as Bath Iron Works, a subsidiary of General Dynamics Corp., will not be affected. BIW is working on contracts approved and funded during previous fiscal years, and is not expected to feel any immediate pain from the shutdown, shipyard spokesman Jim DeMartini told the Bangor Daily News on Tuesday morning. BIW builds destroyers for the U.S. Navy and employs approximately 5,700 people.

A call to the spokesman for General Dynamics’ facility in Saco was not returned Tuesday morning.

The most immediate effect of the shutdown are the furlough of federal government employees in Maine, the total number of which is unclear because each agency is different. Nationally, 800,000 are expected to be told to stay home from work, while more than a million more may be delayed in getting paid, according to the Washington Post.

For example, it’s believed the 200 federal civilian employees who work in Bath at the federal Supervisor of Shipbuilding, Conversion and Repair office, which manages the design and construction of the destroyers built at Bath Iron Works, have been furloughed. Kristin Mason, a spokeswoman for the office, could not be reached on Tuesday. Her message said employees, including herself, had been furloughed “due to a lapse of federal funding.”

As many as 2,800 civilian workers at Portsmouth Naval Shipyard in Kittery received furlough notices Tuesday.

However, in Limestone, the shutdown will have no immediate effect on the federal Defense Finance and Accounting Service office, which has more than 540 employees and does not rely on federally appropriated funds.

“At the moment all employees are reporting to work and will continue to work,” according to Thomas Larock, deputy director of corporate communications for DFAS. “We have cash reserves that will allow us to operate for at least the immediate future. But depending on how long [the shutdown] continues we may have to look at those cash reserves and make some adjustments.”

On the macro level, the furlough of federal employees has the potential to wipe out the gains the national and Maine economies have posted the last few years, Colgan said. If the 800,000 furloughed employees, plus the million more who won’t immediately receive paychecks, remain off the job for more than two weeks, they could effectively be considered unemployed based on the fact they aren’t collecting paychecks, Colgan points out.

Colgan uses a multiplier effect of 1.5 to simulate the wider impact on jobs that reduction in payroll money entering the economy could have.

“Now you’re looking at 2.7 million effectively unemployed people, which equals the last three years of employment growth,” Colgan said. “This will hit us just as we’re finally getting back on track. That’s my big worry.”

As for small-business lending, Yellow Breen, chief strategic officer at Bangor Savings Bank, said the shutdown will have little immediate effect on the bank’s ability to provide loans backed by the SBA. The bank was able on Monday to expedite five SBA-backed loans that had all their paperwork in order and was able to get them approved. About half a dozen more will remain in limbo until the shutdown ends, he said.

Given that it takes several weeks for a potential SBA-backed loan to work its way through the system, it would require a shutdown lasting weeks until a real impact is felt by the bank or its customers, Breen said.

If that happens, Breen said the bank would look at alternatives, such as the Finance Authority of Maine, to help back riskier commercial loans.

BDN Reporters Seth Koenig and Julia Bayly contributed to this report.

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