Nonprofit Sector Faces Financial Crisis Amid Federal Funding Cuts and Rising Demand

The U.S. nonprofit sector—encompassing organizations from food banks and homeless shelters to immigrant aid groups—is confronting a severe financial crisis following federal funding cuts, advocates report.

Why it matters: Millions of vulnerable Americans depend on these nonprofits for essential services, yet demand has surged over the past year amid higher inflation and reductions to federal programs like SNAP (food stamps).

Driving the News

Data on the sector’s financial health is limited, but a new survey released on Tuesday provides critical insights.

Key Findings

• 66% of nonprofits surveyed in February by the Center for Effective Philanthropy (CEP) expressed concerns about their financial stability.
• The percentage of organizations reporting a deficit (more expenses than revenue) rose to 39% in 2023, up from 22% in 2022.
• 74% of nonprofit CEOs reported increased demand for their services.

The survey sampled 380 nonprofits that receive at least some foundation funding annually, excluding universities and hospitals.

Government Grants: The Lifeline for Nonprofits

Government grants to nonprofits total at least $240 billion annually—more than double the combined total of all foundation giving, according to a 2023 report by the Urban Institute. The report also found that in 2023, no congressional district in the U.S. had a typical grant-receiving nonprofit that could cover its expenses without government funding.

Competition for Funding Intensifies

As federal support declines, nonprofits are increasingly competing for donations and alternative funding sources. Even organizations that do not rely on government grants are feeling the financial strain.

Voices from the Sector

"Nonprofits and programs affected include those that weren't viewed as particularly partisan," said Phil Buchanan, president of the CEP. He cited the Department of Justice’s decision to withdraw bipartisan-supported funding for a Massachusetts gang intervention program that reduced prison recidivism as a stark example.

"The Trump administration's treatment of nonprofits is 'a complete departure in modern American history from other Republican or Democratic presidential administrations,'" Buchanan added.

White House Response

"While federal funding for left-wing ideological pet projects has been cut, federal funding that went to nonprofits for other purposes—such as caring for unaccompanied minors who illegally crossed the border—is no longer needed due to the President securing our border," said White House Spokesman Kush Desai in a statement to Axios. "Nonprofit charities can continue to solicit and receive funding from private donors."

Editor’s Note: This story was corrected to clarify that the nonprofits surveyed received some foundation funding, not $5 million.