The Trump administration issued a memo last week pausing all federal funding, which sent the nonprofit world into a frenzy as organizations that rely on that money tried to figure out how to carry out their mission. While the memo was halted by a lawsuit and then rescinded, the administration has vowed to cut federal funding to a variety of programs — such as those involving diversity and reproductive rights — and generally trim government funding.
“The rescinding of the memo has potentially given some organizations false hope this is over,” says Cherian Koshy, a longtime fundraiser who is vice president of the company Kindsight. “But the reality is, it’s not over — not by a long shot.”
The administration’s willingness to cut funding, Koshy and other experts say, is a sign that nonprofits need to take this moment as a wake-up call and rethink their plan for financing their operations — including reserve policies, fundraising strategies, and business models. They also will need to lean into advocacy and take care of their staff as new issues keep cropping up.
“We have to be realistic about the future and understand that funding may not look like it looks today,” says Lauren Steiner, CEO of Grants Plus, a consulting firm that helps nonprofits secure grant funding.
Evaluate Where You Stand and Make Plans
In the wake of the funding freeze memo, it’s crucial to gather the board, executive staff, and fundraising teams together to think through a few issues, says Sarah Krasin, principal and managing director at CCS Fundraising, a consulting firm.
“We’re in a new environment. So how can we equip our boards to be ready, not to react but to really thoughtfully plan for what we know is a changed environment,” she says. She recommends boards and executive teams work together to do things like scenario planning and cash-flow analysis.
When thinking through the organization’s financial future, it’s important to “identify those services which must be sustained at all costs,” where the organization’s funding comes from, and what services could be lost if funding is reduced, says Steiner. “Then look at where alternative funding can realistically be found.” That includes individual donors, foundation and corporate grants, and other funding models.
Karen Houghton, CEO of Infinite Giving, a firm that helps nonprofits manage finances, says in these conversations, also talk about reserve funds and make a plan to shore those up, even if they’re small, or start one if you haven’t already.
Use this moment to thoughtfully plan out how you can build a reserve fund.
“Use this moment to thoughtfully plan out how you can build a reserve fund,” Houghton says. Fundraising can play a part in this effort. She’s seen clients go to a major donor, tell them about the need for reserves, and persuade them to give a gift for that purpose. She’s also had clients who, when they exceed fundraising goals, allocate any extra to the reserve fund. Building up reserves allows “you to continue serving your community,” she says, even if the administration again calls for a halt in funding.
Leaders and fundraisers should also make sure the organization’s case for support is strong — and revise it, if it’s not, Krasin advises. Groups should be “crisp on telling the story of how cash flow and budgets drive the programs that their organization advances,” she says. “This is an opportune time to revisit some of the language you may be using.”
Communicate With Supporters
When both the case for support and what’s at stake if funding is lost are clear, fundraisers should communicate with current and potential supporters about how shifts in federal funding could impact the organization’s work. Koshy, who is also an Association of Fundraising Professionals global board member, says to be careful not to appear desperate when asking for help.
“When you tell people, ‘We won’t survive without individual fundraising,’ that can make it seem like this is a sinking ship,” he warns. “It creates a lot of risk in the messaging. Organizations need to address this in a very nuanced way. Say, ‘Hey, this work is important, and we’re going to continue to do it. And your support means more than ever.’ Be sure that we’re not suggesting desperation fundraising.”
It’s also crucial to talk to major donors and foundations that support the group, Steiner says. “Pick up the phone to key funders,” she says. “Be candid about the situations that you’re facing. You should be framing your asks around the immediate impact if this were to happen. Bringing those funders into the reality of the situation is key.”
We need to be calling and asking for the things that we need.
During the Covid pandemic, many foundations relaxed restrictions on grants, allowing nonprofits to use funding for whatever needs arose during the health emergency, Steiner says. Be proactive in asking funders for that type of help if your organization is likely to lose federal funding.
“Don’t wait for them to announce that they’ve got new priorities or less restrictions,” Steiner says. “If you do that, you’re already behind. We need to be calling and asking for the things that we need, like increased flexibility, telling them about the impact of funding, and asking for discretionary dollars.”
Rethink Funding
MSI Reproductive Choices, a nonprofit that provides reproductive health care, lost federal funding in the previous Trump administration. The organization realized that was likely to happen again, so leaders scenario planned on what to do if they lost funding. MSI’s Beth Schlachter recommends nonprofits look for creative ways to fund their programs.
“We’re trying to look at different models that generate income within the system,” says Schlachter, who is senior director of U.S. external relations. “We have maternity clinics that are meant to serve the middle class and that have a higher quality than the hospitals that are available so that women who want to have babies in a lovely environment can go and then pay for those services. We use the profit we make from that to fund our programs and serve the most underprivileged.”
MSI also began to court more individual donors, but Schlachter explains that is a slow process, so the organization can’t count on that funding stream yet. “It’s generating a lot of really promising leads and some successes,” she says. “But it takes about a decade to build a machine that is really predictable and reliable.”
With more charities feeling uncertain about federal funding, more will attempt to diversify their fundraising efforts by seeking foundation and corporate grants — which means there will be more competition for those dollars, several people told the Chronicle. Grants that typically renew might not if requests increase, and over all funders will receive more requests.
Schlachter says one grant maker has already told her the foundation is unsure what its funding priorities will be, as leaders wait to see which programs are most impacted by administration changes in federal funding.
Organizations should consider partnering to boost their chances of winning grants, says Steiner. “Be open to other things, like co-investment models, collaboration,” she says. “If you’re sustaining critical services in a community, who can you collaborate with and maybe go to the funders together?”
Schlachter adds that when partnering, nonprofits should not discount organizations that they know fall outside of the current administration’s priorities as potential partners. Schlachter worries some nonprofits may refuse to partner with organizations that are doing work the administration doesn’t like and refuses to fund, for fear of being lumped in with those groups and losing their own funding. She contends self-distancing from such nonprofits does the administration’s “dirty work for them.”
Coordinate Advocacy Efforts
One reason the threat of halting federal funding created so much chaos in the sector was that many nonprofits receive far more from the federal government than from individuals, foundations, and businesses combined. So simply trying to win a foundation grant or attracting a few more individual donors is not going to be enough for organizations that rely heavily on federal money.
“I’m frustrated by all the people saying diversify your funding streams,” Koshy says. “That’s maybe true for some organizations who have a federal grant. But there are entire organizations and industries where that’s not a viable option at all. Federal reimbursement is their way of doing business, and diversifying or pivoting is truly not going to happen. They’re going to shut down if there is no federal funding for them.”
Krasin agrees, adding that private philanthropy and public funding have always worked hand-in-hand historically, and that is a good model.
“As we are working hard on making sure the philanthropic sector is responding, we can’t ignore the rest of the picture,” she says. “We need to be advocating in a very significant way right now.”
Both Koshy and Krasin said nonprofits should encourage supporters to talk to their elected officials. “With a priority of advocacy in this moment, say, ‘Call your congressperson and remind them of the value of what we do and why you are a donor to X, Y, Z organization,’” Koshy says.
He emphasizes that fundraising teams and advocacy departments need to coordinate their efforts.
“We don’t want an advocacy team to be sending out mass emails on the same day that someone’s sending out fundraising emails,” Koshy says. “There has to be some internal coordination so that we’re not inundating existing donors or prospective donors with all kinds of stuff contributing to the perception of donor fatigue.”
Take Care of Your Staff
Finally, leaders should be mindful in this moment to take care of their staff as jarring moves like the funding freeze memo occur.
“This is a Pandora’s box that hasn’t been opened before,” Koshy says. “The fact that the box was opened in this way causes trauma among staff. That has to be acknowledged. We don’t want to dismiss it.”
Krasin agrees, adding that people feel under attack, so it’s important for leaders to talk with staff members and listen to what employees are telling them about how they feel.
“Like in other times of crisis, remember to communicate internally to people, particularly people who are communicating with your donors and other external stakeholders,” she says.
If leaders don’t, the uncertainty and stress could exacerbate issues the sector has struggled with for some time, like burnout and low morale. “We just keep getting hit,” Koshy says. “I would not be surprised to see this lead to even more resignations and shifts out of the sector. I don’t want to see that by any means, but I would not be surprised.”
