Adapting to Changing Federal Grant Priorities
Are you worried about how changing federal grant priorities could impact your nonprofit?
Every new administration in Washington DC brings new priorities. In 1996, for example, Congress cut funding to the National Endowment for the Arts by more than 40 percent!
The government that was elected in November 2024 has promised changes of the kind we haven’t seen for generations, causing questions and concerns for many nonprofit leaders.
While nobody has a crystal ball that will reveal exactly which promises will get fulfilled or how things will turn out, you can take steps to strengthen your organization and mission to mitigate any negative impacts.
In the back office, strength, resilience, and adaptability can help you weather this or any other potential storm. While we might not avoid storm damage, good preparation can minimize it.
Strength: Efficient tools and systems
Good tools allow your staff to do quality work in the least amount of time. Investments in good computers, internet connections, and software, for example, can frequently pay for themselves within months (if not faster) through improved productivity and morale. Similarly, good donor management software and cloud-based software can affordably multiply staff impact.
When you strengthen your nonprofit this way, your staff will accomplish more without working harder. This will help mitigate the impact of any reduction in funding.
The time your staff gets back can go back into delivering the mission and/or better work-life balance (which will create its own positive ripple effects by reducing burnout).
Note: Efficiency should always be about getting more done with the same amount of effort (not about making people work longer hours or with more stress).
Resilience: Reserve funds
How long could your nonprofit operate on just reserve funds (unrestricted money in the bank)? A week? A month? Longer?
Although you ideally build a reserve fund over multiple years, even steps you take today could buy time for your organization to adapt or adjust should the need arise.
Adaptability: Cash flow projection
Do you do a cash flow projection?
Do you update it regularly? At least monthly?
A cash flow projection allows you to anticipate potential funding shortfalls before they become a problem. Armed with this information, you can take appropriate steps in a timely manner.
For example, if you know in February that you’ll have a temporary cash shortfall of $100,000 in October, you still have time to seek a new funder or to launch a fundraising campaign. Or you would have the option to make relatively small expense cuts now to prevent the shortfall.
When you know of cash shortfalls well in advance, you also have plenty of time to open a Line of Credit at the bank (banks typically provide more generous lines of credit when you have more cash on hand, so waiting until the last minute could actually be too late).
Adaptability: Contingency budget scenarios
We make the best plans before an emergency begins rather than when we’re in it. By building contingency budget scenarios now, you can make thoughtful decisions that are most likely to serve the organization and the mission well.
Scenario A, for example, could explore the possibility that you learn in April that your federal grant will get cut by 50%, effective October 1. Would you perhaps intentionally not fill vacancies so you would have fewer layoffs in October? Or would you move the purchase of a new vehicle from March to June when you have greater certainty about next year’s funding?
Scenario B could explore a 100% loss of grant funding. Would you close the program? Close the organization’s doors? How much notice would you give to impacted staff that they’re losing their jobs? To prevent a mass exodus over the summer, would you offer retention bonuses to staff who worked through September 30?
Pro Tip 1: Many federal grants follow the federal fiscal year of October to September and award decisions for the following fiscal year often get made in the spring. If that aligns with your situation, then you should have time to build and explore several contingency budget scenarios.
Pro Tip 2: This is a good time to check in with your federal grant manager now and reinforce your (hopefully) friendly relationship with them. Might they have any insights to share about changing priorities? Can they confirm that funding that has already been approved remains committed? When do they think they’ll know about decisions regarding funding for the next fiscal year?
Tracking the impact of Executive Orders
The Council of Nonprofits has begun tracking and summarizing executive orders that impact nonprofits (here). Check their website regularly for additional new and insights on how changing federal priorities might impact your organization.
The White House Pausing All Federal Grants (January 27, 2025)
Late on January 27, the White House paused all Federal Grants, impacting thousands of nonprofits. Although the memo specifically targets “ financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal,” the pause appears to apply to all kinds of grants.
While some question the legality of this move, it seems certain to, at a minimum, disrupt all types of nonprofits and not just those programs targeted in the memo. And although a judge blocked the freeze by the end of the day on January 28, final resolution of this could take weeks or months.
What can your nonprofit do in the meantime?
Engage an attorney or communications professional to help you craft a formal public statement about the pause.
Contact your US Representative and US Senator, asking them to intervene and keep funding flowing.
Ask your supporters to contact their US Representative and US Senator.
If your nonprofits grants are not related to any of the targeted areas, then you may want to make specific mention of that in your formal statement.
If your nonprofit grants are related to the targeted areas, then you and your board have some big decisions to make. You’ll want to consider not just this pause but also that the new administration has a strong track record of opposing the targeted areas.
Will you fight and resist?
Will you adapt your programs and activities so that they no longer fall within the targeted areas?
Note: I’m not advocating one approach over the other. Staff leadership and the board are the best people to determine which strategy best aligns with your organization’s mission and goals.
At a minimum, the 1/27/2025 pause underlines the importance of:
Expecting and planning for more disruption in the coming months. Even if funding gets restored promptly, related actions like US AID officials getting put on leave will disrupt the ability of federal agencies to do what had been routine work.
Developing contingency budgets with all due haste. That includes one where your federal grants do not continue beyond the current federal budget year (Sept 30) and another budget that assumes that your federal grants could stop at any moment.
Other ideas
Collaboration or merger. Might your nonprofit have any sister organizations with similar missions? What if you increased collaboration between your organizations or even explored a merger to reduce overhead expenses and duplication of efforts?
Diversify funding streams. Developing a new source of revenue requires a lot of work, but in the face of potential cuts, might your organization already have experience generating alternative funding (like private grants or donations) that it could grow in the coming months?
Board involvement. Remember to engage your board. They need to know about risks to the organization and they can play a role in mitigating those risks. Can they, for example, help open doors for you? Or identify new donors?
Gather more input. This is an emerging situation with news happening nearly daily. And you’ll want to gather input from people with a variety of specialties to inform the actions that you and your nonprofit take. And, because each nonprofit is unique, if you want a guarantee that you’re applying what you gather in best possible way for your unique situation, be sure to engage a consultant to work with you directly.
Final Questions
While these sorts of tactics can serve your organization well in good years, they can perhaps make the biggest difference when you face significant risk and uncertainty.
Which of these tactics will serve your organization the best during the coming months?
Do you have someone on your staff or board who can carry them out, or will you need to find a consultant?
Should you discuss your ideas with your leadership team first or the board?
What next steps will you take to ensure that your nonprofit handles the pending changes in the best possible way?
Other Resources
Nonprofit Risk and Resilience - Self Assessment
Big List of Related Resources compiled by Lynn Arsenault McGinnity of LMA Consulting.
12 Urgent Financial Action Steps for Nonprofits by Nonprofit Financial Commons
Data on Federal Grants to Nonprofits by state and county by the Urban Institute