Presented by Maximus
In this week’s episode of Fed Gov Today with Francis Rose, former IRS Commissioner and Office of Management and Budget Controller Danny Werfel offers a deep, practical look at how federal financial managers handle one of the toughest challenges in government—operating during a shutdown. As the federal government enters its third week without appropriations, Werfel draws on his extensive experience to explain what agencies can and can’t do when the money stops flowing.
Werfel begins by clarifying that once appropriations lapse, agencies are severely limited in their spending authority. “There’s not a lot you can do,” he explains. “Once appropriations lapse, you’re really constrained from what we call creating new budget authority.” In other words, agencies cannot initiate new contracts or grants, no matter how urgent the need. The government essentially enters a holding pattern, able only to spend from funds that have already been appropriated or authorized for prior years or specific purposes.
Still, Werfel outlines several exceptions that allow some flexibility. Agencies may rely on “prior-year money,” “multi-year money,” or “no-year money”—funds that carry over from previous fiscal years or remain available indefinitely for specific projects. They can also use fee-funded activities and franchise funds, which operate on self-generated revenues rather than annual congressional appropriations. These mechanisms allow certain essential operations, such as cybersecurity or public safety, to continue even while most other activities are suspended.
A key tool during shutdowns is reprogramming, or the transfer of funds from one account to another. Werfel notes that while reprogramming can provide short-term relief, it is not a free-for-all. “There needs to be a legal basis and authority that exists for the programming,” he says. In other words, agencies can only reprogram funds if a statute allows it, and even then, the money must be used for the same purpose it was originally intended. Using funds meant for technology upgrades to pay employee salaries, for example, would violate the Anti-Deficiency Act, a cornerstone of federal fiscal law that prevents agencies from spending money they do not have or for purposes not authorized by Congress.
Werfel emphasizes that this distinction between authorization and appropriation is crucial. “All federal money is both authorized and appropriated,” he explains. Authorization laws determine the purpose, duration, and parameters for spending, while appropriations actually provide the funds. During a shutdown, both constraints become far more rigid, and agencies must navigate a “no-fly zone” where most spending is prohibited.
The shutdown environment, Werfel continues, is fluid and evolving. Each agency maintains a shutdown plan that determines which operations remain active and which must close. These plans are not static. “What might not be a risk on day one of the shutdown might become a risk on day 20,” he notes. As risks shift—say, from financial processing delays to cybersecurity threats—agencies must reassess which functions qualify as essential and adjust staffing accordingly.
Drawing on his time leading the IRS during the 2013 shutdown, Werfel recalls how critical risk management and flexibility became over time. “We had about two-thirds of the agency furloughed,” he says, “but we had to preserve against cyber threats and continue processing remittances.” As the shutdown wore on, his team reevaluated priorities daily, sometimes bringing employees back as new risks emerged.
He also describes the complex coordination required across government during a shutdown. OMB, the agency he once helped lead, plays a key role in determining what actions are permissible, reviewing reprogramming requests, and ensuring agencies stay within legal limits. “At OMB, when we were running shutdowns, we allowed reprogramming—but not creative reprogramming,” Werfel says. That means no bending of the rules or stretching definitions to justify spending outside of legal authority.
While Werfel acknowledges that every shutdown is disruptive, he stresses the importance of learning from each one. After a funding lapse ends, the Government Accountability Office (GAO) reviews agency decisions and practices to determine whether laws were followed and what can be improved next time. These post-shutdown evaluations, Werfel says, help clarify gray areas and guide future financial management.
For Werfel, the biggest takeaway is that shutdowns are messy and should always be avoided. They create uncertainty across agencies, hurt public trust, and disrupt vital government operations. “It’s not the way you would design the railroad to be run,” he says with a touch of humor. Still, he notes that each shutdown forces agencies to become more adaptable and more transparent about their fiscal operations.
In closing, Werfel offers a balanced perspective—acknowledging both the frustration and the necessity of discipline that shutdowns bring. They expose the limits of government’s financial flexibility but also highlight the importance of accountability and preparedness. His insights serve as a reminder that while political gridlock may trigger a shutdown, effective management, sound legal understanding, and thoughtful planning are what keep government running, even when the money stops.