Federal funding and local nonprofits

by Phil Hanson, CEO, Truman Heartland Community Foundation
 
There is a great deal of stress amongst the leaders of the local nonprofit sector due to the uncertainty with federal government funding. In this column, I will explore the reasons for that stress and the complex relationship between nonprofits and federal funding.
 
The White House Office of Management and Budget issued a memo on January 27, instructing all federal agencies to pause all open grants and loans. This action would have a devastating impact on nonprofits serving our Eastern Jackson County communities.
 
The memo prompted the staff and board leadership of many local nonprofits to hold emergency meetings and assess the potential crisis for their organizations. Fortunately, after lawsuits were filed in opposition, the memo was rescinded.
 
While the level of stress has decreased somewhat, there is still a significant amount of uncertainty for many nonprofits due to the complex relationships between nonprofits and federal funding. Let's explore a few aspects of that relationship.
 
First, in my opinion, one of the few things that everyone can agree on is that we are against waste, fraud, and abuse in government spending. It is also my opinion that the federal grants that support local nonprofits in providing services to some of the most vulnerable individuals in our communities are one of the most effective tools for combating waste, fraud, and abuse.
 
These organizations are led by individuals from our communities who understand best how to meet the needs within our communities. This is a much better system than someone in Washington, DC, designing these programs. These nonprofits can also generate other charitable local resources to address these needs.
 
The Nonprofit Sector is sometimes referred to as the “Third Sector,” with Private enterprise as the “First Sector” and Government as the “Second Sector.” Let us explore the complex relationship between the Second and Third Sectors.
 
A study was done by Candid, a nonprofit that provides data and insights on the social sector, of the 990 tax returns filed by nonprofits for 2023 (the most current data available). This study shows that 30% of the nonprofits filing 990s received government grants, and the total amount of these grants that year was $303 Billion.
 
Let’s put this $303 billion in perspective. In fiscal year 2024, Total Federal Government Spending is projected to be $6.8 trillion. Of that total, $303 billion awarded in government grants to nonprofits is just 4.5%.
 
Some might suggest that these services are best funded through charitable giving. According to Giving USA, total charitable giving in 2023 was $557 billion, with 75% coming from individuals or their estates. In 2023 it increased by 1.9%. To replace the $303 billion in federal funding that is being eliminated now, charitable giving would need to increase by a whopping 54%.
 
Therefore, the anxiety among nonprofits about federal funding is to be expected. Charitable giving simply cannot make up for government grants to nonprofits, even though our country leads the world in charitable giving.
 
As I mentioned earlier, in my opinion, grants to nonprofit organizations are one of the most effective tools for combating waste, fraud, and abuse. This is because they are managed and implemented at the local level. I hope we can all maintain this perspective as the changes in federal spending continue to evolve. Let’s not throw the proverbial “baby out with the bathwater.”