Nonprofit organizations throughout the United States are confronting a funding landscape that has shifted more rapidly than many anticipated. The challenges are emerging from several directions simultaneously. According to the National Council of Nonprofits, 73% of surveyed nonprofits say demand for their services has increased. Meanwhile, 66% express concerns about their financial stability, while 30% report having reduced their workforce. The need for services continues to grow even as organizations become less equipped to meet it.
Reporting by AP News via Barchart illustrates the extent of the disruption. The Urban Institute determined that nonprofits received $267 billion in government grants across all levels of government in 2021. At least 18% of nonprofits in every sector report receiving government grants. Federal agencies have begun seeking the recovery of billions of dollars previously awarded to nonprofit organizations, forcing those that structured their budgets around this funding to confront substantial financial losses.
A second challenge is less immediately apparent Giving USA identifies individual contributions as the foundation of philanthropy, representing close to two-thirds of total charitable giving. Yet donor participation is continuing to weaken. The number of households contributing to charitable causes is declining, even though the overall dollar value of giving has remained relatively stable at the highest level.
Both challenges are affecting the same organizations. Nonprofits whose operations depend heavily on government grants are facing a funding source that has become less reliable than at any point in recent decades. Those that rely on individual contributions are contending with a donor population that is decreasing in size.
This is the environment in which Wendy Leatherberry operates. An independent consultant with 25 years of experience in fundraising, development, and grant strategy, Leatherberry has worked with organizations managing budgets of less than one million dollars as well as those exceeding twelve million. Her expertise includes grant seeking, grant prospecting, communications, and advocacy.
Her perspective is straightforward: nonprofit organizations have traditionally viewed their public identity as a secondary concern. That is no longer an option.
“Many organizations didn’t have to think about their brand because the people who needed to know already knew,” Leatherberry says. “They had a relationship with a funder. The grant came through. The work got done. The public never had to be part of the equation. That is not the environment anymore.”
The shift is fundamental rather than temporary. Candid reports that the median foundation payout rate has stayed at 5% for five consecutive years. This limit restricts the potential for grant funding to grow enough to compensate for federal funding reductions or declining donor participation. Organizations can no longer expect the same funding sources to provide the same amounts of support.
According to Leatherberry, addressing the challenge requires a broader funding strategy. Grants continue to play an important role, but they cannot represent the entire financial foundation. Organizations that depended on only one or two income streams, or a single government contract, are now experiencing the consequences of relying too heavily on a narrow funding base.
“Having diverse funding sources is always in an organization’s best interest,” Leatherberry says. “Sometimes it is not necessary. When it is not necessary, it does not get done. Right now it is necessary. So now is the time.”
She offers the example of a local youth center with which she works. The organization delivers a significant portion of its services within a school district. However, many people in the surrounding community do not realize that it operates as an independent nonprofit. Residents often believe the social worker they have encountered is employed by the district. The organization had not previously prioritized public awareness because its funding did not depend on it. That misunderstanding has now become a potential weakness.
The communications challenge is not simply a matter of adopting marketing terminology. It concerns whether the public understands that an organization exists, recognizes the services it provides, and appreciates the consequences of its closure. The National Council of Nonprofits outlines the effects already emerging in communities. Food pantries face funding losses as families continue to experience hunger. Mental health grants are reduced while crisis calls persist.
The consequences are felt first by employees. A nonprofit layoff is more than an internal financial adjustment. The missing paycheck belongs to a counselor, housing coordinator, or researcher. When a program is eliminated, its services disappear, but the demand for them remains.
Leatherberry characterizes the current situation as a breach of trust as much as a financial crisis. Organizations that have satisfied every federal benchmark and passed every quality review are now left uncertain about whether their next funding installment will arrive. Some are seeking legal solutions, but most cannot afford to wait for the outcome of a court process without reducing their staff.
In Leatherberry’s view, organizations that successfully adjust will do more than endure the current challenges. They will emerge with a wider funding base, a more defined public identity, and greater flexibility to pursue initiatives that a single funder could not have supported.
Those that fail to make the necessary changes may not have the opportunity to discover what comes next.
The question facing the nonprofit sector is no longer simply whether grant funding will return. It is whether the organizations that rely on it will remain in operation when it does.
