Dyana Mason and Mirae Kim: Federal fund freeze threatens nation's social safety network

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About the writers: Dyana Mason serves as a professor of planning, public policy and management at the University of Oregon in Eugene. Mirae Kim serves as a professor of nonprofit studies at George Mason University in Fairfax, Virginia, near Washington, D.C. Their report comes from The Conversation, an online repository of lay versions of academic research findings, found at theconversation.com/us.

Nonprofits partner with the government to deliver social services, such as child care for low-income families, housing for people experiencing homelessness, and job training and placement. These partnerships can form with local or state governments, as well as with the federal government, with this collaboration mostly taking place through grants and contracts.

Government funding makes up about 33% of the annual revenue flowing into the nonprofit sector, according to the Urban Institute. But the share of government funding can be far larger for some kinds of social service nonprofits.

The institute, a think tank, found that nearly 40% of all nonprofits in the United States applied for federal grants in 2021, 2022 and 2023. It found about 10% applied for federal contracts.

Many other nonprofits applied for local and state grants during that three-year period. Those grants are often themselves funded by the federal government, through awards it makes to state and local government agencies.

Although it’s hard to track with absolute precision, due to those complex arrangements, government revenue is the second-largest source of income for nonprofits after the money these organizations and institutions earn through commercial activities.

Also called “fee-for-service,” this revenue includes the money nonprofit hospitals get when patients and insurers pay medical bills, nonprofit theaters receive when they sell tickets to performances, and nonprofit private schools obtain when parents pay tuition.

Some social service nonprofits charge fees too, typically on a sliding scale. That is, their clients with relatively higher incomes pay more, and those with extremely low incomes pay very little or nothing at all.

We have no doubt that a long freeze on federal grants and contracts would be devastating for nonprofits and the communities they serve.

For example, Meals on Wheels, a program that delivers hot meals to more than 2 million homebound seniors, and helps them maintain social connections, gets 37% of its funding from the federal government.

Oregon’s Clackamas Women’s Services, a domestic and sexual violence organization based near Portland, is one of the many local organizations that have expressed concern about what to expect. The group says it could lose half its annual budget if federal funding were eliminated.

Without federal funding, organizations like these — many of which already have waitlists — would have to cut back on the services they provide. Understandably, nonprofits are confused and concerned about the stability of federal funding.

For the past several decades, attempts to scale back the size of the government have led to government agencies essentially hiring nonprofits to do much of their work.

Through contracts and grants, nonprofits assist people who are recovering from fires, hurricanes and other disasters; provide services for veterans and active-duty members of the military; and help people with mental health conditions, including substance use problems, just to name a few.

This arrangement typically provides nonprofits with a reliable and predictable source of funds that they can use to serve their communities. But it can also leave them vulnerable to policy changes — especially when new administrations take over, as the second Trump administration’s actions illustrate.

Research we conducted about what happened to nonprofits during the COVID-19 pandemic showed that volatility in the economy has serious effects on the ability of nonprofits to do their work.

For example, social service nonprofits struggled in March and April 2020 due to falling revenue at a time of increasing demand. Many of these organizations had to scale back their services, or, in some cases, cancel them altogether.

We followed up with another survey in November and December 2020.

By then, we found, 61% of the groups had received forgivable federal loans through the government’s Paycheck Protection Program. Nearly half the nonprofits told us that they had, in addition, received other forms of emergency funding from the federal government, including Economic Injury Disaster Loans and emergency food distributions.

This federal assistance made it possible for thousands of nonprofits to keep their staff employed and continue to provide important services as the economy recovered. And it’s hard to replace.

Nonprofits can, of course, appeal to their donors to help bridge the gap. But donations from individuals, foundations, corporations and bequests only amount to no more than 15% of the funds flowing into the nonprofit sector.

The outcome of freezing, eliminating or scaling back federal funding for nonprofits would mean that those in need would get fewer services. We would also expect mass layoffs, which could harm the U.S. economy.

Nonprofits employ more than 12 million people in the United States. That’s more workers than sectors as construction, transportation and finance employ.

Should millions of them suddenly become unemployed, demand would grow further for social services from providers already unable to meet lower levels of demand due to funding cuts.

Congress appropriates money to provide for the services the public needs and demands. These moves have led to great fear and uncertainty among organizations that serve people in need, both in the United States and abroad.

Although it’s not unusual for funding priorities to change from one administration to the next, Donald Trump’s executive orders on international aid and nonprofit grants and contracts underpinning the safety net are unprecedented.