There have been many articles and blogs written about what happens to military personnel, both current and retired Federal government employees, and Social Security recipients during a government shutdown. And some information has even been written about the impact on defense and other federal government contractors. However, very little information has been disseminated regarding the DoD organization that actually makes payments, the Defense Finance and Accounting Service or DFAS.
The Defense Secretary created DFAS in 1991 to standardize, consolidate, and improve accounting and financial functions throughout the DoD. The intent was to reduce the cost of the Department's finance and accounting operations while strengthening its financial management. One of its primary functions is to pay all DoD military and civilian personnel, retirees and annuitants, as well as major DoD contractors and vendors.
We know that DFAS will continue paying the military because of current legislation and retirees will continue to be paid because those payments are distributed from a trust fund that is not dependent upon continuing resolutions. But how do contractors continue to get paid or rather what allows DFAS employees to continue working when other DoD civilians don’t? Because DFAS operates off of fees paid by the military units for which it provides payroll and accounting services. DFAS is considered a revolving funds organization and its budget is not set by Congress. A revolving fund is a fund or account that remains available to finance an organization's continuing operations without any fiscal year limitation, because the organization replenishes the fund by repaying money used from the account. In the case of DFAS they receive annual funding from the military services and those funds are replenished as they are used as long as the funds are available to the services. As long as DFAS has a “cash balance”, it can continue to operate.
Therefore, for a while DFAS’s several thousand civilians are not susceptible to furloughs due to the government shutdown. However, this “cash balance” is not limitless and is dependent upon annual funding levels from the various services. Since the FY 14 budget has not been passed then funds from that period are not available to pay DFAS employees. Current projections estimate that DFAS could tap its reserves to continue paying employees for about a week. After that one can only surmise that even certain DFAS employees will be furloughed. The only ones to remain will most likely be those supporting military payrolls.