As the Trump administration and its Department of Government Efficiency continues its freeze on domestic federal grants in defiance of a court order, a new report from the Urban Institute lays out just what’s at stake for the country’s nonprofits — and makes plain the enormous challenge facing funders seeking to counter the coming era of nonprofit budget shortfalls.
Government Grants and Contracts for Nonprofits in 2023, released February 10, updates findings from the Institute’s October 2024 report analyzing government grants and contracts with nonprofits from 2019–2023.
The report, part of the institute’s decade-long effort to better understand nonprofit services, structures and funding, paints a portrait of a sector heavily dependent on government grants and contracts. Collectively, 34% of nonprofits nationwide drew between a quarter and three-quarters of their funding from government sources — federal, state and/or local grants and contracts — in 2023. Another fraction — 11% of the country’s nonprofits — received more than three-quarters of their revenues from government sources.
A freeze on federal funding for nonprofits would have a devastating impact on the sector, nonprofits’ ability to provide services, and their role as a major national employer. This, of course, is part of the new administration’s goal; back in April, Trump himself called nonprofits “thugs” and “sleazebags” in a social media post.
While the most common government revenue source was local grants, the percentage of nonprofits that received federal grants is not low: 27% of all U.S. nonprofits received federal grants in 2023. As well, a significant portion of state and local grants and contracts are (or were) funded by the federal government; those revenue sources are now also at risk.
Health and human services nonprofits were particularly intertwined with the federal government, with 28% of health organizations and 31% of human services ones receiving federal government grants or contracts. These two sectors have also been quite dependent on funding from all government sources: 46% percent of health-focused nonprofits and 40% of human services organizations depended on government sources for more than a quarter of their income.
Ironically, the halt of federal government grants may well hit hardest in some of the states that President Donald Trump won in November. Forty percent of Alabama’s nonprofits, for example, depend on government sources for more than a quarter of their revenues; that figure rises to 57% in Louisiana.
“This order is a potential five-alarm fire for nonprofit organizations and the people and communities they serve,” said National Council of Nonprofits President and CEO Diane Yentel in a statement released late last month in response to the executive order halting federal grants and loans. “From pausing research on cures for childhood cancer to halting food assistance, safety from domestic violence, and closing suicide hotlines, the impact of even a short pause in funding could be devastating and cost lives. This order could decimate thousands of organizations and leave neighbors without the services they need.”
The impact on services is just the beginning. The nonprofit sector also was home to nearly 13 million jobs, or just under 10% of the country’s private-sector workforce, as of August 2024. Between the administration’s attempt to force the resignations of an estimated 2 million federal workers and layoffs that have already begun, unemployment in the U.S. could well skyrocket if the nonprofit sector is also forced to shed millions of jobs.
Can private funders make up the shortfall? It would be easy to add up the $1.5 trillion in estimated assets held by private foundations and the $250 billion in charitable assets held by donor-advised funds, compare the total to the federal government’s $6.6 trillion worth of spending in 2023 alone, and conclude there’s no chance in a world of massive government funding cuts.
But take a closer look. In 2023, total federal discretionary spending was $1.4 trillion. And only a fraction of that amount was being moved to nonprofits in the form of grants. According to a February 6 analysis by Candid, the government was providing more than 100,000 nonprofits with $303 billion a year — a number that had risen under COVID-era government grant programs and has already been heading back to earth.
It would be a huge challenge for private funders to make up the shortfall left behind by the halt in federal grants. According to Candid’s February 6 analysis, private foundations would have to nearly triple their grantmaking beyond the estimated $107 billion a year they currently move to nonprofits. That level of giving is admittedly unrealistic, probably particularly so to the many large, private foundations that have so far failed to pay out even the meager 5% of their assets required by law. Of course, when we broaden the lens to charitable giving from all sources, including foundations as well as individuals, corporations and bequests, the picture is slightly less dire: Giving USA’s latest report found that donors moved $557.16 billion in 2023.
Still, making up the deficit would require overall giving to nearly double, especially since that total includes gifts to foundations and DAFs. But what’s the alternative? Losing large swaths of the nonprofit sector now, along with the expected spike in unemployment coming from the public sector, will leave millions scrambling for sheer survival and undo decades of community and institutional relationships. It’s no exaggeration to say that much of what philanthropic grantmakers have spent decades patiently building is now at risk of being swept away.
We know that funders are able to move quickly when the urge strikes. In 2020, many funders became creative in response to the COVID-19 pandemic, though not all of those commitments translated into actual grants. Some foundations also responded creatively to the Black Lives Matter movement, surging support to criminal justice nonprofits.
Today, funders also have a choice. Philanthropic organizations can continue attempting to stay above the fray, moving ponderously toward their eventual, and probably swift, irrelevance. Or they can unleash the potential power held in their endowments to try to stabilize the situation for nonprofits to provide some breathing room in hopes of a change in the political winds. It’s frighteningly clear, though, that the window of opportunity to make that choice is a narrow one.
There’s really only one question funders need to answer: If not now, when?
