NAFA member Holland & Knight shares their summary of the possible lapse in appropriations under the government shutdown advisory.
Much of the federal government is funded by 12 annual appropriations bills. The federal fiscal year (FY) for 2026 begins on Oct. 1, 2025, and, if appropriations bills have not been enacted into law before that date or a temporary funding measure – known as a continuing resolution (CR) – has not been enacted, a gap (or lapse) in appropriations will occur.
Timeline
On Sept. 19, 2025, by a vote of 217-212, the U.S. House of Representatives passed a Republican-sponsored CR (H.R.5371) to keep the government open through Nov. 21, 2025, generally extending funding at current levels with enhanced security funding for government officials and extension of some expiring authorizations related to veterans' benefits and healthcare. They included the Medicare-dependent hospital and low-volume adjustment programs, telehealth and hospital-at-home flexibilities, as well as the Cybersecurity Information Sharing Act. The bill also would have delayed Medicaid Disproportionate Share Hospital cuts that are set to become effective Oct. 1, 2025. Later the same day, however, the U.S. Senate rejected H.R.5371 by a 44-48 cloture vote.
The Senate also rejected a Democrat-sponsored CR (S.2882) on Sept. 19, 2025, to fund the government at current levels through Oct 31, 2025, by a 47-45 cloture vote. Though the Democratic version included an extension of the same public health provisions as the CR (H.R5371), it also included a permanent extension of the enhanced premium tax credits (EPTCs) that are set to expire on Dec. 31, 2025. The bill would also repeal the healthcare provisions in the One Big Beautiful Bill Act (OBBB), Pub. L. 119-21. On Sept. 18, 2025, the Congressional Budget Office (CBO) released an analysis1 estimating that a permanent extension of the EPTCs would cost roughly $350 billion between 2026 and 2035 and expand health insurance coverage to an additional 3.8 million people by 2035. In addition, repealing provisions of the OBBB that restrict marketplace eligibility and enrollment – such as those targeting certain immigrants and low-income individuals – would add about $272 billion in costs and increase coverage by 2.9 million people in 2035.
Next steps are unclear as lawmakers departed for the Rosh Hashanah recess, and the House is not scheduled to return until after FY 2026 begins. President Donald Trump is now scheduled to meet with House and Senate Republican and Democratic leadership on Monday, September 29, after previously cancelling a proposed meeting with the Democratic leaders last week.
On Sept. 24, 2025, it was reported that the Office of Management and Budget (OMB) has directed agencies to consider extensive employee layoffs in unfunded programs that are not administration priorities if the government shuts down on Oct. 1, 2025. An OMB memo directs agencies "to use this opportunity to consider Reduction in Force (RIF) notices for all employees in programs, projects, or activities (PPAs) that satisfy all three of the following conditions: (1) discretionary funding lapses on October 1, 2025; (2) another source of funding, such as OBBB, is not currently available; and (3) the PPA is not consistent with the President's priorities." The memo asserts "Federal programs whose funding would lapse and which are otherwise unfunded … are no longer statutorily required to be carried out."
The memo was first reported by Politico, citing an OMB source as saying the following programs "will continue regardless of a shutdown": Social Security, Medicare, veterans benefits, military operations, law enforcement, U.S. Immigration and Customs Enforcement (ICE), U.S. Customs and Border Protection (CBP) and air traffic control. Notably, each of these programs has funding from the OBBB or other mandatory or advanced appropriations that may be spent during a shutdown or involves activities easily deemed by OMB to be necessary for the safety of human life or the protection of property under the Antideficiency Act.2
This article was originally published by Holland & Knight on September 30, 2025.