Tracking Appropriations and Continuing Resolutions

The federal government has operated under at least one continuing resolution in 47 of the past 48 fiscal years. Since FY 1977, Congress has completed all 12 appropriations bills on time exactly four times (FY 1977, 1989, 1995, 1997). In FY 2024, the government operated under continuing resolutions for over 5 months before final appropriations passed in March 2024. The point is: understanding the appropriations process reveals when spending uncertainty peaks, which sectors face budget risk, and why certain fiscal deadlines move markets.

Key Concepts: How Federal Spending Gets Authorized

Appropriations are the legal authority to spend federal funds. Congress must pass annual appropriations bills to fund discretionary programs (approximately $1.7 trillion in FY 2024, representing 24% of total federal spending).

The 12 appropriations bills fund different government functions:

Continuing resolutions (CRs) provide temporary funding when appropriations bills are not completed by the fiscal year start (October 1). CRs typically:

• Extend prior-year funding levels (flat or with small percentage adjustments)
• Run for weeks to months (averaging 120 days in recent fiscal years)
• Prohibit new program starts or significant spending changes
• May include "anomalies" adjusting specific programs

Government shutdowns occur when neither appropriations nor a CR is in place. Since 1976, there have been 22 funding gaps, with the longest lasting 35 days (December 2018 - January 2019).

The Appropriations Calendar

Why the calendar matters: Markets react to fiscal deadlines because appropriations determine:

• Defense contractor order flow and backlog
• Healthcare provider reimbursement rates
• Infrastructure project funding and construction activity
• Agency staffing levels and regulatory capacity

How Continuing Resolutions Work in Practice

The mechanics:

When Congress cannot complete appropriations by September 30, it passes a CR that:

1. Sets a duration: Usually 1-12 weeks (short CRs create repeated deadline pressure)
2. Specifies the funding rate: Typically the prior year's annualized level
3. May include anomalies: Adjustments for specific programs (increases for VA healthcare, decreases for expired programs)
4. Maintains current operations: Agencies cannot start new initiatives

Example: FY 2024 CR sequence

Total CR duration in FY 2024: 173 days (October 1 to March 22)

Impact on agencies under CRs:

Agencies cannot:

• Start new programs or contracts
• Increase spending above prior-year levels
• Hire staff above prior-year ceilings
• Execute multi-year procurement plans efficiently
• Award new grants for programs with increased funding

The point is: extended CRs create operational uncertainty that affects contractor revenues, agency effectiveness, and program execution timelines.

Mini Case: Defense Contractors and CR Uncertainty

Your situation: You hold positions in major defense contractors (Lockheed Martin, Raytheon, Northrop Grumman). The Defense appropriations bill (the largest at $886 billion) is subject to CR dynamics.

FY 2024 timeline:

• September 2023: Defense bill passed House Appropriations Committee but stalled in full House
• October-December 2023: Under CR, new contract awards delayed; Pentagon operating on prior-year authority
• December 2023: Pentagon announces slowdown in some procurement activities due to funding uncertainty
• March 2024: Final Defense bill passed with 3.2% increase over FY 2023

Market impact:

During the October-December 2023 CR period:

• S&P Aerospace & Defense Index underperformed S&P 500 by approximately 4%
• Defense contractor earnings calls cited uncertainty about new program starts
• Contract award announcements declined from typical pace

After final passage in March 2024:

• Defense stocks recovered as uncertainty resolved
• Backlog growth resumed with new contract awards
• Guidance raised for full-year revenues

The durable lesson: Defense and government services companies derive 30-70% of revenue from federal contracts. Extended CRs create earnings uncertainty that is resolved upon appropriations passage. The pattern is: underperformance during CR uncertainty, recovery upon resolution.

Government Shutdown Mechanics

When appropriations lapse entirely:

Immediate effects:

• 800,000-2 million federal employees furloughed or working without pay
• National parks, passport offices, and non-essential services close
• Federal contractors halt work on affected projects
• SBA loan processing stops
• New regulatory approvals pause

What continues operating:

• Military operations (essential functions)
• Social Security and Medicare payments (mandatory spending, not appropriations)
• Air traffic control and TSA (deemed essential)
• Federal law enforcement (essential)
• Interest payments on debt (mandatory)

Economic impact of historical shutdowns:

Market impact patterns:

• S&P 500 typically declines 0.5-2% during extended shutdowns
• Government contractor stocks underperform by 3-8%
• Treasury bill yields may spike for maturities crossing the shutdown period
• Impact reverses quickly upon resolution
• Longer shutdowns (>2 weeks) have larger effects

Tracking Appropriations: Data Sources

Risks and Limitations

Operational inefficiency from extended CRs:

CRs force agencies to operate month-to-month:

• Multi-year projects cannot proceed as planned
• Staff hiring freezes despite authorization gaps
• Contract modifications delayed pending final appropriations
• Research programs disrupted (NIH estimates $1-2 billion annual cost from CR uncertainty)

Budget distortions:

CRs typically maintain prior-year levels, which:

• Ignores inflation (purchasing power declines 3-4% annually at recent rates)
• Prevents new initiatives from launching
• May overfund programs scheduled for reduction
• May underfund programs scheduled for expansion

Cliff risk from short-term CRs:

Short-term CRs create repeated deadline pressure:

• Markets must price shutdown risk multiple times per year
• Political brinksmanship intensifies near each deadline
• Uncertainty premium embedded in government-exposed sectors
• Each deadline creates binary event risk

Common Pitfalls

Pitfall 1: Assuming shutdown means all spending stops

Mandatory spending (Social Security, Medicare, interest payments) continues regardless of appropriations status. Only discretionary spending (approximately 24% of the federal budget) is affected. Confusion on this point leads to overstated impact estimates.

Pitfall 2: Treating CR as equivalent to full appropriations

CRs maintain prior-year levels, which may be significantly different from final appropriations. A sector expecting a 10% funding increase remains at flat levels during the CR period, delaying the economic benefit.

Pitfall 3: Ignoring the omnibus pattern

Congress increasingly bundles all 12 bills into one omnibus package passed near calendar year-end or later. This creates a single binary event with concentrated risk rather than 12 separate bill passages.

Pitfall 4: Overreacting to shutdown threats

Most threatened shutdowns are averted. Since 2000, there have been 3 significant shutdowns (2013, 2018-2019, 2023 brief) despite dozens of deadline confrontations. Markets have learned to largely discount threats until deadlines are imminent and negotiations have clearly failed.

Investor Implications

Sectors with high appropriations sensitivity:

During CR periods:

• Expect earnings guidance uncertainty from government contractors
• Monitor contract award announcements for delays
• Watch for agency hiring freeze announcements
• Consider reducing overweight in government-exposed names

Upon appropriations passage:

• Defense and government services often rally on resolution of uncertainty
• Analyze year-over-year changes in specific program funding
• Track new program starts and contract award resumption
• Update sector models for actual funding levels

Checklist: Monitoring Appropriations Risk

Essential (evaluate these first)

• Know the current fiscal year status: Full appropriations, CR, or funding gap?
• Identify the next deadline (CR expiration or September 30 fiscal year end)
• Check which of the 12 bills have passed vs. remain pending
• Calculate your portfolio exposure to discretionary federal spending

High-impact refinements

• Track House and Senate committee markups for specific programs
• Monitor CBO cost estimates for proposed changes in funding levels
• Identify anomalies in current CR (programs with adjusted funding up or down)
• Subscribe to Congressional calendar alerts for key appropriations votes

For portfolio positioning

• Reduce overweight in government contractors during extended CR periods
• Consider options strategies around known deadline dates (CR expirations)
• Compare contractor management guidance to appropriations levels
• Monitor Treasury bill yields for short-term funding stress signals during shutdown threats

Your Next Step

Visit congress.gov and search "appropriations" filtered by the current Congress and fiscal year. Identify which bills have been signed into law (status: became law), which are pending (status: passed House or Senate), and what the current CR expiration date is (search for "continuing appropriations"). This 10-minute assessment establishes your baseline for tracking appropriations-driven market risk in government-exposed sectors.

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Related: Federal Budget Components and Mandatory Spending | Investor Playbooks for Fiscal Announcements | Treasury Issuance Schedules and Auctions