We will follow this story as it develops.
Tuesday was a day of chaos for a wide range of nonprofits — preschools, food banks, disaster relief and public health organizations — that rely on federal grants and loans to keep their doors open.
The sector woke to the news that President Trump had issued a memo through the Office of Management and Budget pausing federal agency grants, loans, and other assistance programs totaling more than $3 trillion.
In the OMB memo, Matthew Vaeth, the agency’s acting director, directed federal agency heads to investigate whether their grants aligned with the new administration’s mission to get taxpayers relief in the face of inflation, create a safer country, and “ending ‘wokeness’ and the weaponization of government.”
Reaction from the nonprofit sector was swift.
By midday, a coalition of nonprofits petitioned a federal judge to block the OBM directive. The lawsuit was filed by Democracy Forward, a group consisting of the National Council of Nonprofits; the American Public Health Association; the Main Street Alliance, a small business network; and SAGE, an LGBT advocacy group. The lawsuit argues that the OBM order violated the First Amendment and the Administrative Procedure Act, a law that governs the executive branch’s rule-making authorities.
This directive “will have a devastating impact on hundreds of thousands of grant recipients who depend on the inflow of grant money (money already obligated and already awarded) to fulfill their missions, pay their employees, pay their rent — and, indeed, improve the day-to-day lives of the many people they work so hard to serve,” the Democracy Forward filing reads.
By Tuesday afternoon, Judge Loren AliKhan, a federal judge in the District of Columbia, decided to block the freeze with an “administrative stay.” She said she would hold a hearing to consider a more permanent decision on February 3.
Separately, attorneys general from 22 states and the District of Columbia filed a second lawsuit Tuesday evening that also sought to thwart Trump’s effort to freeze funding. It is unclear what the next few days will hold for the thousands of nonprofits caught in financial and existential limbo due to the OBM directive.
In the OMB memo, Vaeth directed federal agency heads to investigate whether their grants aligned with the new administration’s mission to get taxpayers relief in the face of inflation, create a safer country, and end “‘wokeness’ and the weaponization of government.”
Wrote Vaeth: “The use of Federal resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.”
While the memo makes reference to several progressive priorities, the pause on funding — which includes new grants and grants already awarded — appeared to be across the board, with the exception of direct payments to individuals, including Social Security and Medicare.
On Tuesday afternoon, the administration updated its guidance, saying the freeze will not affect all federal programs and will be limited to work linked to a slew of executive orders signed by Trump over the past week on immigration, foreign aid, climate and energy, DEI initiatives, gender identity, and abortion.
The memo has sent nonprofits into a rush to find out if their funding will be cut, diverting staff time and resources to communicate with their beneficiaries what that means, said Beth Gazley, professor at Indiana University’s Paul H. O’Neill School of Public and Environmental Affairs.
By casting the memo as a call to root out programs that support progressive goals, the administration is throwing red meat to its base, Gazley said. But it is a stretch, she suggested, to consider LIHEAP, a low-income heating program, or Head Start, the early education and poverty relief program, adherents to Green New Deal or woke philosophy.
“The uncertainty and vague messaging is deliberate and meant to destabilize their political enemies on the left,” she said.
Federal grants have long been essential to the financial health of many nonprofits. According to a survey by the Urban Institute, 27 percent of nonprofits received support from federal agencies in 2022, the most recent data available. To see how much run-of-the-mill nonprofits, including service organizations, depend on the government, the survey excluded hospital systems and universities.
“Government revenue has been a pretty consistent source of revenue for nonprofit organizations,” said Laura Tomasko, the Urban Institute’s senior policy program manager, who noted that a survey from 2011 that included larger institutions provided similar results.
Nonprofit leaders said the seriousness of the freeze could not be overstated. Diane Yentel, president of the National Council of Nonprofits, called it a potential “five-alarm fire.”
“This order could decimate thousands of organizations and leave neighbors without the services they need,” she said in a statement.
First Focus on Children predicted that the order could take roughly $329 billion from funding for children, depending on the length of the pause. “It would be hard to overstate the potential impact of this directive on America’s children,” said Michelle Dallafior, the nonprofit’s senior vice president for budget and taxes.
Cat Slack, a nonprofit consultant, said the order to freeze funds lacked clarity and seemed to come out of nowhere.
“It was ham-handed,” said Slack, whose clients include Kidango, the North Texas Food Bank, and the United Way of Rhode Island.
Particularly vexing, according to Slack, is that during the Biden administration, low-income communities and communities of color that had not seen a great deal of federal investment began to see more attention, particularly from federal agencies that put a premium on equity considerations.
The flow of federal cash and more targeted philanthropic support helped nonprofits build connections among community members, who long felt ignored, Slack said. But now nonprofits may be forced to disengage, “eroding the trust that they worked so hard to build,” she said.
Scott Moore, Kidango’s chief executive, said about 25 percent, or $25 million, of the early childhood education group’s revenue comes from government support.
The charity has enough in reserves to last “a handful” of months, but Moore is worried about how long the pause could last. While more in philanthropy would help, Moore warned that foundation and individual giving could not supplant federal support.
Particularly irksome is the fact that the order pauses funds that have already been promised, Moore said.
Alluding to the way the U.S. Constitution upholds the term “full faith and credit of the United States government,” Moore said it’s dismaying to encounter a situation in which a government policy switch means that federal authorities “no longer meet their contractual obligations.”
