What’s at stake?
President-Elect Donald J. Trump and members of the Republican party have outlined their priorities for eliminating or shrinking existing federal agencies that currently provide critical funding for programs and services. For example, Trump has publicly voiced his intention to eliminate the Department of Education and reduce funding for agencies such as the Environmental Protection Agency (EPA) and Food and Drug Administration (FDA).
How will these potential changes affect nonprofit organizations? Grants Plus assessed a decade’s worth of giving by both federal agencies and philanthropic funders to better understand the impact such cuts may have on the grant seeking landscape and nonprofit sector.
What does the data tell us?
To understand the extent to which cuts in federal agencies may impact the grant landscape, we assessed data and landscape trends in philanthropic and federal spending.
Data from recent years demonstrates the important role federal funding plays in organizations’ revenue – and the gap that will need to be made up should funding be slashed.
The Urban Institute’s Nonprofit Trends and Impacts report found that post-government funding makes up almost one-third of total revenues at nonprofit organizations. To provide a subsector example from education, in FY2023, the Department of Education provided $53.66 billion in grants. A significant portion of these funds went to subagencies that directly impact education of our nation’s youngest children, high school students, and individuals with disabilities.
The Office of Elementary and Secondary Education provided $28.94 billion in grants, and The Office of Special Education and Rehabilitation Services provided $18.90 billion in grants.
Should Department of Education funding opportunities be reduced or eliminated, it could be a devastating blow for individuals that benefit from services such as special education programs, Out-of-School Time learning, family engagement, reading support, and career training. While it’s possible a portion of funds could still reach these communities through block grants, programs that the education community has come to rely on face a real threat of termination.
Meanwhile, according to the 2024 edition of Giving USA: The Annual Report on Philanthropy, philanthropic giving to education from non-government sources – such as individuals, corporations, and foundations – totaled $87.69 billion in 2023. Of this, approximately $29 billion was allocated to K-12 and other education agencies and initiatives like the kind the Office of Elementary and Secondary Education and the Office of Special Education and Rehabilitation Services support. This means that philanthropic giving from non-government sources would need to potentially increase by 65%to fill the funding gap should those offices cease making grants. But is this likely?
Will philanthropy fill the gap? What does history tell us?
Trends captured in the last ten years of Giving USA data indicate that factors such as stock market performance, Gross Domestic Product (GDP), world events, and personal disposable income significantly impact giving. However, philanthropic giving has tended to operate independent from the availability of federal funding.
Therefore, if government funding levels do decline under the incoming administration, there’s no guarantee that private philanthropy will fill the gap. In fact, the philanthropic sector would need to reverse decades-long trends in philanthropic giving to emerge as an antidote to reduced government funding. The average annualized rate of change in total giving in inflation-adjusted dollars since 1983 is 2.7 percent, making the inflation-adjusted rate of change between 2022 and 2023 lower than average. This means that especially recently, philanthropic giving is not keeping up with growing costs for nonprofits. In addition to reversing trends in overall giving, other trends that may need to change include:
Individual giving: Further, Giving USA data reveals that giving by individuals has declined by more than 10% over the past decade. Nonprofits now rely more heavily on giving by foundations, including donor advised funds, and corporations.
Giving as percentage of GDP: Giving as a percentage of GDP has been at least 2% for all years since 2012, reaching its peak of 2.3% in 2021. This demonstrates that while there has been growth in dollar amounts, giving as a portion of the economy has remained stagnant. In order for philanthropic giving to substitute for federal funds, giving as a percentage of GDP must grow to unprecedented levels.
Corporate Giving: Corporate giving as a percentage of corporate pre-tax profits reached its peak in 1986 at 2%. Since then, giving by corporations has decreased by half, with 2023 corporate giving as a percentage of pre-tax profits at only 1%.
Foundation Giving: While giving by foundations as a portion of total giving has grown in recent years, this increase is artificially inflated by the inclusion of rapidly expanding donor advised funds (DAF). According to data from the National Philanthropic Trust’s 2024 DAF Report, while DAF charitable assets amount to roughly 17% of those in private foundations ($251.52 billion v. $1.48 trillion), the value of DAF grantmaking ($54.77 billion) in 2023 amounts to almost half of the value of total grants and expenditures from private foundations ($114.11 billion).
What can you do?
The single most important action your organization can take is to communicate with your elected officials to share the important impact federal grant funding has on the individuals you serve. Share specific, personal examples of how these funds make a difference and balance these impact stories with data to demonstrate the need for continued federal support. Calculate the gap that reduced or eliminated federal funding will create in your budget and operations, and how that will affect the elected official’s constituents.
At the same time, engage your current and potential philanthropic supporters – especially since competition for individual and foundation support might grow fiercer. Thank your funders for their commitment and ask them to step up in this time of uncertainty. Make the case for support by sharing the need you fill. Highlight the critical programs and services you provide that could be reduced or eliminated without federal funding and describe the impact on your local community.
Related reading: Should Your Nonprofit Pursue Another Government Grant?
The federal government is currently operating under a continuing resolution that extends 2024 funding levels through December 20th. While there is hope that the lame-duck Congress will fund fiscal year 2025 at similar levels to fiscal year 2024, planning for fiscal year 2026 (October 1, 2025-September 30, 2026) is expected to begin immediately upon the 119th Congress’s inauguration in January. The nonprofit sector must act with urgency to protect programs and services that invest in the education, basic needs, health, and safety of our local communities.
