Federal funding seemed to vanish overnight. Mass layoffs and desperate appeals from charities soon followed, beseeching donors to “pick up the slack.” Headlines blared dire warnings about nonprofits on the verge of a nervous breakdown: “Budget cuts deal charities double blow.”
The year was not 2025, but 1981.
In the name of balancing the federal budget, the Reagan administration unleashed sweeping budget cuts that defunded nonprofit programs and caused layoffs at organizations across the nation. Ultimately, Reagan’s economic policy triggered a seismic shift in how charities funded themselves through private philanthropy and earned revenue, shaping the fundraising world as we know it.
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Special Report
Nonprofits and the Trump Agenda
Now, as the Trump administration attempts to cut federal spending for countless organizations, the parallels are stark — but the playbook couldn’t be more different. Where Reagan encouraged private philanthropy as an alternative to government funding, experts say the Trump administration has offered no such vision or lifeline, leaving anxious nonprofits to navigate a perilous terrain.
“The rhetoric of this administration not only doesn’t have a philosophy about the role of the private sector, but it is just downright nasty,” said Leslie Lenkowsky, an emeritus professor of public affairs and philanthropic studies at Indiana University.
Trump, whose own foundation was dismantled in 2018 amid a “shocking pattern of illegality,” has used his social network Truth Social to call nonprofits “thugs and sleazebags” that spend all of their time and money on “getting Donald Trump.”
“You can’t do that if you’re going to expect organizations to get to work on important problems,” said Lenkowsky.
Federal Cuts, Private Philanthropy
Elected on a pledge to shrink the federal government, Reagan quickly ushered in $1.7 billion in cuts to the country’s food stamps program, starved the National Endowment for the Arts, slashed spending on school lunches, and tried to ax multiple federal agencies, including the Departments of Education and Energy.
His budget proposals aimed to reverse decades of growth in federal support for nonprofits that had flourished since Lyndon B. Johnson’s Great Society programs of the 1960s. An Urban Institute analysis at the time projected that Reagan’s cuts, plus a set of changes to the tax code, would reduce support for nonprofits by $33 billion — a 20 percent reduction — from 1981 to 1983.
“Part of the rhetoric from the administration was, ‘Don’t worry too much about these cuts, because private philanthropy will step in,’” said Alan Abramson, one of the study’s authors who is now director of the Center on Nonprofits, Philanthropy, and Social Enterprise at George Mason University. “What we found was that there was no way private giving was going to make up for those cuts, especially in the short term.”
From 1980 to 1983, the American Humane Association lost 17 percent of its budget. The Center for Community Change lost one-third. The Housing Assistance Council’s budget fell from $1.8 million — $1.79 million coming from federal funds — to $1.3 million with $900,000 in federal funds . The National Council of La Raza (now UnidosUS) saw its local affiliates shrink from 140 to 100 as its budget contracted from $5 million to $1.8 million. The Urban Institute’s budget dropped from $14 million to $10 million, with federal grants plummeting from $10.5 million to just $3.6 million.
Even as the Reagan administration slashed nonprofit funding, it urged these same organizations to fill the growing gaps left by government cuts to social services — a contradiction that left many service providers reeling.
By 1983, over a quarter of legal aid offices closed their doors — even as the number of people qualifying for their services increased by 14.5 percent — after the Reagan administration ushered in $80 million in cuts to the Legal Services Corporation. In 1984, Reagan refused to release $60 million to shelter the homeless, even as housing insecurity skyrocketed early in his term amid cuts to low-income housing subsidies.
A Boom in Fundraising
Amid that bleak backdrop, the Paul Taylor Dance Company, a nonprofit dance troupe in New York City, hired its first full-time fundraiser in 1982. Across the city, charities sent $15.6 million mailers asking for donations that November — a 9 percent increase from the year before — even as the Reagan administration hiked the traditionally discounted prices that nonprofits paid for postage.
“It’s a splash of terrifying cold water remembering what happened then,” said John Tomlinson, who is now executive director of the Paul Taylor Dance Company. He recalls many smaller arts organizations shuttering their doors after the Reagan cuts. Larger and midsize groups managed to survive, he said, by pivoting to new funding sources — including corporate sponsors like Philip Morris, which would place “a pack of cigarettes and an ashtray on every table” at fundraising galas — while doubling down on individual donors, foundation grants, and earned revenue.
Museums expanded their gift shops. Anti-poverty charities plastered their ads across television. Membership boomed at the Association of Fundraising Professionals, which began conferring certifications for the first time. Amid shrinking government funds, the fundraising world as we know it was born.
“It’s no coincidence that the growth in programs like the schools of philanthropy really kicks into gear in the ‘80s,” said Lenkowsky. “There was actually a pretty articulate philosophy here” on the part of the Reagan administration, which urged corporations and philanthropists to fill gaps in social spending, he said, and created a task force intended to promote voluntary contributions and examine “various rules and regulations that were restricting the ability of philanthropy and nonprofits” to raise funds.
Indeed, despite the initial alarm, many nonprofits managed to weather the Reagan-era funding storm, thanks to factors including the professionalization of fundraising, new tax incentives for giving, and broader economic growth. By the end of the decade, far from retreating, the number of nonprofits operating in the country actually doubled.
“The sector in so many words said, ‘Look, you’re screwing us on the spending side in terms of government funding of nonprofits. Why don’t you give us more of a break on the tax side in terms of supporting charitable giving?’” said Abramson, noting that it also helped that some of Reagan’s most audacious initial budget proposals never came to fruition.
“Congress did go along with a good number of the cuts in the first year or two, but then after that, the administration would keep proposing pretty big cuts, but Congress just wasn’t going along,” he said. “Things leveled off and then began to come back up.”
No Playbook, No Philosophy
Forty years later, the Trump administration has taken a sledgehammer to federal grants and social service programs, echoing some of the Reagan administration’s language — “make America great again,” “de-fund the left,” and “drain the swamp” — but grounded in what critics call a far more confusing and arbitrary approach with little regard for prior norms or the rule of law.
“For those of us who were trying to analyze what the cuts would amount to and their potential impact on nonprofits, we had something to go by” during the Reagan years, said Abramson. “Now people ask me, ‘What does this all mean?’ and I don’t know. It’s very hard to go beyond just anecdotes because there isn’t any clear playbook.”
Gary Bass, who founded the government transparency group OMB Watch during the Reagan era, sees Trump’s approach as unprecedented in its sweeping nature and authoritarian overtures. “While I may have strongly disagreed with Reagan, he followed the law,” backing down on proposals that his lawyers determined went beyond the scope of presidential power, Bass said. “This is a president now that is either ignoring law or testing the limits of the law.”
What’s more, while the Reagan administration actively encouraged philanthropic giving and emphasized nonprofits’ role in addressing social issues even as federal funding was cut, the Trump administration has taken a far more critical stance on the sector over all. On the social media platform X, senior adviser Elon Musk has painted a blanket portrait of government-funded nonprofits as a set of bogus, radical-left organizations dedicated to “making money off the homeless” and outsourcing the government’s shady or illegal dealings.
Musk is currently the richest person in the world. Even as his own foundation has faced penalties three years in a row for failure to distribute sufficient funds to charity, Musk has helped lead the charge for federal funding cuts to nonprofits.
“There are obviously some splits between Trump and more traditional conservatives who do think there’s a role for compassionate charity to help people who need help,” said Abramson. He also noted there might be room for nonprofits to lobby for more philanthropic incentives as they did during the Reagan administration — if they can find the right advocates in Congress.
“Trump has everybody so scared about defying him,” he said. “It’s hard to say whether anybody’s going to have the nerve to stand up to him and propose something different.”
Uncharted Waters
The extent of Trump’s proposed cuts and funding freezes is still being litigated — and if Reagan’s cuts offer any guidance, some may never come to pass. But they’ve already sent shockwaves through the nonprofit sector.
“We have been through many administrations. There have been cuts and rollbacks throughout the history of our resettlement program, but this is unprecedented,” said Kacee Shuler, director of donor engagement at Catholic Charities of Onondaga County, which was forced to lay off or furlough 50 staff members involved in refugee resettlement after the administration refused to reimburse over $1 million in federal funds.
While individual donors have rushed to fill some gaps, Shuler warns against expecting private philanthropy to replace government support. “Our donors are incredible. They’re very supportive. We’ve actually had a large increase in new donors over the last few weeks,” she said. “But a big misconception I’m seeing on social media is the idea that donors should fill every gap left by these funding cuts and freezes. Donors are not ATM machines.”
In the aftermath of the Reagan cuts, some foundations paid out larger shares of their endowments and formed initiatives to shore up nonprofit finances, including a $9 million stabilization fund led by the Ford Foundation to help arts groups achieve stronger financial footing. Today, even as Trump’s ever-changing approach to cuts has left nonprofits scrambling, many foundations — including ones that bolstered “the resistance” to Trump’s first term — have been relatively hesitant to respond amid fears of retribution from the administration.
Across the sector, some organizations are dusting off playbooks they wrote 40 years ago — diversifying revenue streams and doubling down on other sources of funding like earned revenue or individual giving.
Decades after hiring their first fundraiser, the Paul Taylor Dance Company rarely relies on government grants as a primary funding source. Yet even with a healthy individual giving network and a rapidly expanding education program, Tomlinson still gets whiplash thinking about the road ahead for the country’s arts organizations.
“It’s like, ‘Gosh, it’s all happening again,” he said. “It’s not the same thing, but we are going to be fighting the same battles.”
As nonprofits once again scramble to balance their budget spreadsheets, Bass worries that this moment may inflict institutional damage in ways that differ fundamentally from past funding crises.
“Trump represents a huge change in how we as voters and as Americans view our American democracy, and I think he has hit a tripwire that may have huge consequences,” he said. “If these things aren’t considered unprecedented, I would love to hear where there are precedents. It’s certainly not in my lifetime.”
