Federal Government Shutdown: Appropriations Stalemate, Operational Slowdowns and Grant Cancellation

While certain “excepted” activities continue under the Antideficiency Act, many discretionary functions are halted. This alert summarizes the status of congressional negotiations, operational impacts across agencies and recent developments affecting federally funded programs.

Congressional Status
The federal fiscal year runs from October 1 through September 30, during which Congress must enact appropriations bills to fund federal agencies and programs. When those measures—or a temporary funding extension, known as Continuing Resolution (CR)—are not in place by the start of the fiscal year, appropriations lapse and nonessential operations must cease.

That lapse occurred when funding under the FY 2025 measures expired on September 30, 2025, and Congress failed to agree on either full-year appropriations or a short-term CR. Because spending legislation requires only a simple majority in the House but 60 votes to advance in the Senate, bipartisan cooperation—at least in the Senate—is essential to keep the government open.

To date, none of the 12 FY 2026 appropriations bills have cleared both chambers. The House has advanced most measures through committee and brought several—including Defense and Energy & Water—to floor consideration. The votes at the committee level and on the House floor have largely been on party lines. In contrast, Senate appropriators are generally working on a bipartisan basis and most of their work has not advanced past the committee stage. Differences over topline spending, programmatic funding priorities and proposed rescissions will ultimately require negotiation between the chambers to resolve.

Republican leaders in Congress have also attempted, unsuccessfully, to pass a CR to provide temporary funding. A CR maintains government operations at prior-year spending levels for a defined period while lawmakers complete the full appropriations process. The House passed a CR extending FY 2025 funding through November 22, 2025, but the measure has repeatedly failed in the Senate.

The principal point of contention is whether to continue enhanced Affordable Care Act (ACA) premium tax credits, which currently offset monthly health-insurance costs for millions of lower- and middle-income households. These expanded credits expire at the end of the calendar year. Senate Democrats—with the strong support of House Democrats—have withheld their votes on a short-term CR unless it includes an agreement to extend the subsidies, warning that without action premiums will rise when ACA open enrollment begins November 1. Republican leaders maintain that the issue should be addressed later in the year—potentially as part of an omnibus funding package—rather than in a “clean” stopgap measure.

This disagreement—coupled with broader disputes about overall spending limits and proposed reductions to clean-energy and infrastructure funding—remains at the center of the current stalemate. Further, the Administration’s reported willingness to make unilateral funding decisions through so-called “pocket rescissions” or other forms of impoundment of congressionally approved funds has further complicated negotiations, raising separation-of-powers and oversight concerns among some lawmakers.

Operational Impacts
While operational impacts vary by agency, the shutdown has forced many federal agencies to suspend or sharply curtail nonessential work. Routine administrative, regulatory and grant-management functions—such as permitting reviews, new grant awards, compliance oversight and policy initiatives—are largely paused until funding is restored.

Essential activities tied to safety, national security and the protection of life or property continue, but overall agency capacity is reduced. All active-duty military, border enforcement, transportation security officers and air traffic controllers, and critical FEMA staff remain on duty.

Grant Cancellations and Funding Suspensions
Beyond the operational slowdowns forced by the shutdown, the Administration has pursued a separate path of canceling or suspending federal awards—measures that are not compelled by the shutdown itself.

On October 1, the Department of Energy (DOE) announced that it would terminate 321 awards across 223 clean-energy and infrastructure projects, totaling approximately $7.56 billion. The terminated projects span a range of program offices, including Clean Energy Demonstrations, Energy Efficiency & Renewable Energy, Grid Deployment, Manufacturing & Energy Supply Chains, ARPA-E and Fossil Energy.

Among the affected initiatives are hydrogen hub programs, grid modernization efforts, direct air capture demonstrations and other clean tech grants. Reports indicate that the DOE is considering an additional round of cancellations beyond this first tranche.

Recipients impacted by these terminations have been instructed to immediately suspend project activity, cancel outstanding obligations where feasible and refrain from incurring new costs. The DOE has given affected parties 30 days to appeal the decisions.

The uncertainty generated by these actions places states, localities, utilities and private-sector stakeholders in a difficult position—many had already begun project implementation and secured cost sharing. The disconnect between announced federal support and on-the-ground execution complicates investment decisions and increases contractual and financial risk for affected parties.

Broader Implications
The full scope of the shutdown’s impact will depend largely on its duration. A short disruption would likely cause only temporary administrative delays and challenges, while a prolonged shutdown could have more lasting operational and economic effects.

Extended funding lapses can slow or halt procurement, grant disbursements and regulatory reviews, creating downstream uncertainty for businesses, research institutions, and state and local governments that rely on federal engagement. The resulting backlog—combined with potential staff attrition or deferred decision-making—can extend recovery timelines even after funding resumes.

The Congressional Budget Office has previously estimated that each week of a shutdown can shave measurable points off quarterly GDP growth, with the private sector absorbing many of the indirect costs through deferred payments, paused projects and delayed regulatory actions. For now, most observers agree that the longer the shutdown continues, the more difficult and uneven the restart of normal federal operations will be.

Pillsbury’s Government Law & Strategies Team
Pillsbury’s Government Law & Strategies team is monitoring the ongoing federal government shutdown and related funding actions. We are advising clients across sectors on how the shutdown and recent grant cancellations may affect operations, contracts and regulatory obligations. The team is also assisting federal grant recipients in assessing potential exposure, preparing appeals of DOE terminations and planning to preserve funding eligibility once appropriations resume. For further information, please contact a member of Pillsbury’s Government Law & Strategies team.