Federal Grant Volatility: An Inside Look at the Real Impact for Nonprofits

To say that the months since President Donald Trump assumed office for the second time have been tumultuous for nonprofits would be an understatement.

With the funding freeze that nonprofits are litigating in federal court, an executive memo reinforcing the administration’s America-first agenda and the Supreme Court’s involvement in Trump’s attempt to freeze United States Agency for International Development (USAID) funds, nonprofits’ concerns about the state of their federal funding opportunities — both current and future — are not unfounded.

An executive director of a history-focused nonprofit had this conversation with colleagues. To them, the changes in revenue streams seems similar to what happened during the pandemic. 

“In that case, the government support — whether you got it from your state or local or federal — that was the constant,” the executive director, who spoke with NonProfit PRO on the condition of anonymity because the organization’s federal funding status for 2026 is still unconfirmed, said. “Things that supported small businesses, like [Paycheck Protection Program], really helped sustain operations. We just don't know what six months is going to look like, which makes it hard to plan for anyone — private businesses and nonprofits and public agencies.”

Related story: How Nonprofits Can Protect Financial Stability Amid Federal Funding Changes

Current State of Federal Funding

The Midwest-based nonprofit has not seen a change in individual giving since January, and its other avenues of funding have remained unaffected for the time being. For instance, the organization has not yet tapped into its federal funding from fiscal year 2024, which is provided on a reimbursable basis. 

“Many federal grants are on a reimbursable basis, which means if you have a $30,000 grant, they don't just write you a check for $30,000 like a private funder might and you spend that money down,” the executive director said. “You have to spend $30,000 first, and then you send them the documentation that says, ‘I spent this $30,000 and here's all the proof that I spent this $30,000.’ After that's reviewed, then you receive reimbursement for that $30,000.”

However, the executive director said, other nonprofits that have already dug into this type of federal funding for the current fiscal year may be facing challenges.

“This is not the case with us, but this is the case with some nonprofits, where, since Oct. 1, they had incurred expenses that they were expecting to be reimbursed, but there might be further delays — which means they have to have more cash on hand to continue operating,” the executive director said. “Or the people who are processing their reimbursement may no longer be in those jobs, or the program is in dispute as to whether or not it will be reimbursed.”

While the nonprofit is not facing current funding challenges, there are concerns about the future role of federal funding, which makes up about 35% of the organization’s revenue.

“We have not seen a significant change yet,” the executive director said. “We have other federal grants. For example, we have been a previous recipient of a humanities grant, and those were all terminated [the week of March 31], and we were notified that any applications would not even be advanced.”

Relying on Other Forms of Revenue

Outside of federal funding, about 35% of the organization’s income is earned; about 20% is from corporate entities and other grants; and the rest comes from individual donors and small grants under $5,000.

Corporate Support

In terms of corporate funding, the executive director said that the nonprofit has already received commitments for 2025, which has enabled the organization to continue its programming as usual. However, it’s possible that its corporate partners may not renew their financial support for 2026, as they may face their own federally imposed challenges.

“We don't have evidence yet that they would dial back their philanthropic support through their foundations because of uncertainty,” the executive director said. “I hope that many foundations, corporate community foundations — anyone who has a philanthropic, community-minded capacity — would look at this and actually increase what they're doing rather than pulling back, and look at the organizations that are being successful, that are delivering results in everything from human services to humanities, and actually increase what they're doing because there are a lot of organizations that are facing a lot of uncertainty on multiple fronts.”

Individual Giving

Since individual giving has remained steady and there is no immediate concern for funding, the nonprofit hasn’t made any drastic changes to its fundraising efforts.

One thing that has shifted in its donor communications, however, is that the nonprofit isn’t downplaying the role federal funding plays in its revenue.

“We are stressing a vulnerability — that 35% [of funding from federal sources] would be difficult to make up in individual donations when individual donations are a smaller part of our diversified income stream,” the executive director said. “ If you look at the way we’re diversified, we actually have pretty good diversification in our income. I do know some organizations that are 90% federal, and they're having very different conversations right now. They're looking at ‘how long can we continue to operate,’ and ‘if we receive no more federal funding, when would our operations cease?’ Or ‘when do we need to start dialing back?’”

Planning for the Future With Federal Funding In Mind

On April 10, the House of Representatives narrowly passed the fiscal budget for 2025 and the budgetary levels for 2026 to 2034, which the Senate had already passed in February. Now, since the budgets for each year outline drastic cuts in some areas, Congress must decide where cuts must be made. 

For instance, the total amount of funding — which includes grants made by government agencies — for community and regional development is being cut by 77.7% year-over-year, to $20.1 billion in 2026. Meanwhile, the estimated level of expenditures is being dropped by 18.2% to almost $64.3 billion in 2026. Where Congress will decide to make specific concessions within community and regional development remains to be seen as of press time.

To be clear, this is just one example of how the budget is shifting, and nonprofits that receive federal grants may get them from different line items within the budget, such as education, training, employment, and social services; and health. Because of this, how changes to spending outlined in the budget will directly influence nonprofits who receive federal funding depends on where that funding is coming from.

“The long-term implications are not clear,” the executive director said. “What will Congress do with the fiscal ’26 budget? I think that will tell us a lot more about what the long term will look like and how we need to adjust our strategies.”

In looking toward the future, it’s difficult to anticipate what other changes may impact nonprofits’ federal funding opportunities. Reflecting on the similarly unpredictable time of the COVID-19 pandemic, the executive director recommended nonprofits put plans in place for any potential outcome.

“When it's hard to forecast, trying to see what happens if you pull away X and you pull away Y from your funding stream — what does that look like for your organization?” the executive director said. “The bottom line on that is scenario planning and looking at a variety of different [things]. Maybe there are different ways to be able to deliver services for the public good within your organization that might look a little bit different. It is certainly a challenge right now to forecast or even think about six months or a year from now.”