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CLSA Wire

How the Partial Government Shutdown Impacted the Life Sciences Sector

By Jenny Nieto 
Jan. 30, 2019

On Jan. 25, 2019, the longest partial government shutdown in history came to an end, when President Trump announced he and bipartisan congressional leaders had reached an agreement to temporarily fund and re-open the federal government through mid-February while they continue working out a larger immigration and border security compromise.

During the shutdown that stretched beyond one month, California Life Sciences Association (CLSA) actively engaged our membership to understand how the shutdown impacted the operations of agencies critical for life sciences innovation in California life sciences sector.

Partial Government Shutdown’s Impact on Life Sciences Industry

In early December, Congress passed, and the President signed into law, three key spending bills to fund government departments and agencies in fiscal year 2019. However, President Donald Trump threatened to veto any further spending bills that did not include additional border security measures, particularly a $5 billion to build a wall along the U.S. border with Mexico. The lapse in funding resulted in most federal government agencies shuttering operations for 35 days while Congressional leaders and the President negotiated.

Below is a summary of how the partial shutdown affected the operations of agencies critical for life sciences innovation. If your organization experienced a particular challenge due to the shutdown, please contact Jenny Nieto, Vice President of Federal Government Relations and Alliance Development in our Washington, DC office (jnieto@califesciences.org or 202-743-7559).

  • National Institutes of Health (NIH) and Centers for Disease Control and Prevention (CDC): Because NIH and CDC are funded through the Labor, Health and Human Services, and Education Appropriations bill, which was included in a Consolidated Appropriations measure passed by Congress and signed into law late in 2018, both agencies are funded through fiscal year 2019 (which ends on Sept. 30, 2019). Both NIH and CDC operated fairly normally during the shutdown.
  • Food & Drug Administration (FDA):  Although FDA is part of the U.S. Department of Health & Human Services (HHS), its funding comes through the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations bill, which has not been passed for fiscal year 2019.  When the shutdown began on Dec. 22, 2018, the FDA furloughed (placed on leave without pay) 41% (7,053) of its employees. FDA Commissioner Scott Gottlieb indicated that FDA could still conduct: (1) activities necessary to address imminent threats to the safety of human life, and (2) activities funded by carryover funds, notably but not exclusively, user fees.  In practice, this meant FDA continued work critical to public health and safety, like responding to emergencies stemming from the flu and food borne illnesses, and also continued recalls of any foods, drugs and medical devices that pose a high risk to human health. The majority of those people who remained working and paid during the shutdown were supported by funding the agency receives through user fees – monies paid to the FDA by industry to support critical regulatory review activities. FDA said that “those companies that have filed and paid the product user fee at the time of a regulatory filing and prior to the shutdown, can expect FDA to continue the agency’s review.” However, FDA could not accept any new user fees or product applications until a fiscal year 2019 spending bill is passed. If the shutdown continued, additional employees would have likely been  furloughed as user fee funds were exhausted and projects were completed. Additional information about the FDA’s contingency plan during the shutdown can be accessed here.
  • Securities & Exchange Commission (SEC): Approximately 94% of the SEC’s approximately 4,400 employees were furloughed during the shutdown. The SEC had discontinued approval of initial public offerings (IPOs), and also suspended all non-emergency rulemaking and approvals of filings and registrations by registrants and registered entities during the shutdown. Additional information about the SEC’s contingency plan during the shutdown can be accessed here.
  • Department of Treasury: The majority of Treasury staff were also furloughed during the shutdown. The Committee on Foreign Investment in the U.S. (CFIUS), which is led by Treasury, was only working in a slimmed down capacity to address national security exigencies. Review of transactions submitted pursuant to the CFIUS Pilot Program were suspended and no additional guidance was relealed for the duration of the shutdown. Further, while the review period will be extended by the length of the shutdown, the backlog of transactions awaiting the CFIUS staff review may cause additional delays and other challenges for transaction parties even after the shutdown ended. Additional information related to the Treasury Department’s contingency plan is available here.
  • Department of Commerce: Approximately 86% of the staff of the Commerce Department were furloughed.  During the shutdown, the Bureau of Industry and Security (BIS), which is responsible for drafting the definition of “emerging technologies” subject to export controls and higher CFIUS scrutiny, was operating only for essential duties related to the protection of human life and property. Consideration of public comments to the Administration’s Advanced Notice of Proposed Rulemaking on “emerging technologies” or issuance of any additional guidance could not proceed until appropriations were restored. Detailed information on the Commerce Department’s shutdown arrangements can be accessed here.
  • Internal Revenue Service (IRS): When the funding lapse began in December 2018, approximately 28,000 IRS employees or 88% of the agency’s staff were furloughed. According to the agency, at that time, “most IRS operations [were] closed.” In late January, approximately 46,052 employees were transitioned to “excepted” status (working without pay) to help with the start of the tax filing season and other key areas, but media reports indicate that about one half of those employees did not report to work. Additional information on the IRS’s shutdown contingency plan is available here.

As the trade association representing California’s life sciences community, CLSA continues to monitor the situation and communicate with our members. While we are pleased that the government is re-opened, we are hopeful congressional leadership and President Trump can reach a long-term, mutually satisfactory agreement that will provide more certainty for federal agencies of importance to life sciences innovation. A fully operational government is critically important for California’s ongoing life sciences leadership – a sector that employs over 311,000 and creates products that enhance and save millions of lives. Questions? Please contact Jenny Nieto, Vice President of Federal Government Relations and Alliance Development in our Washington, DC Office (jnieto@califesciences.org or 202-743-7559).