Most of us in the social sector have been following the steady drumbeat of executive actions from the Trump Administration impacting nonprofit organizations and philanthropies on one level or another. At Altruous, we’ve been following things pretty closely, and recently published an article laying out the timeline in detail. Despite seeing the sequence of events in detail, the actual impact of federal actions has felt somewhat more nebulous. Leaders in our space have frequently been expressing stress, frustration, and concern about how their organizations will be affected, yet very few point to actual data revealing its tangible effects. 

Thanks to a new report from The Urban Institute, with funding from the Barr Foundation, called How Government Funding Disruptions Affected Nonprofits in Early 2025, we can begin to understand the data behind the vibes, and start building strategies to take the actions this transformational moment demands.

TL:DR; Real, tangible impacts are already being felt that are resulting in a reduction in services during a time when other government actions are creating increased demand for them - ⅓ of all nonprofit organizations have already been directly impacted. Further, these actions have caused a chilling effect, making impact leaders increasingly more risk-averse, and disrupting plans for future programming. 

Disruption by the Numbers

According to the report, disruptions in government funding during the first half of 2025 have fallen into 3 main categories: 

1. Loss of funding (cancelled agreements & clawbacks)

   • 33% of nonprofits experienced at least one type of government funding disruption 

   • 21% of nonprofits lost government funding entirely 

2. Funding delays, pauses, and freezes

   • 27% of nonprofits experienced delays, pauses, or freezes 

   • 29% of disrupted nonprofits reduced their workforce

3. Stop-work orders

   • 6% received stop work orders that forced the immediate suspension of critical services

   • 14% reduction in organizations planning to make additional hires

Remarkably, 12% of all organizations surveyed report scaling back their programs, with organizations experiencing all three types of disruptions forced to do so at a rate of 48%.

Education, health, and human services nonprofits have so far borne the brunt of the disruptions, with larger organizations (those with budgets over $10 million) experiencing disruption rates exceeding 50%. Largely, these represent community clinics closing their doors, senior centers reducing meals, and youth programs shuttering after-school services.

The Ripple Effect: When Federal Cuts Become Local Catastrophes

Unfortunately, federal cuts tend to have ripple effects that may not be immediately apparent. With nearly ⅓ of state government revenue, and 1/10th of local government revenue flows directly from federal sources. With larger organizations no longer able to rely on government funding, they’ll increasingly look to replace those funds with grants from private foundations, increasing demand for an already competitive pool of resources. 

This creates a vicious cycle: just as nonprofits face unprecedented demand (68% anticipate increased need for their services), they're fighting over a shrinking pie of available resources, making it harder for small organizations to compete. 

As one nonprofit leader put it: "The challenge for us and other small nonprofits who did not rely on federal grants is now we are in competition with larger nonprofits that did rely on them and lost funding for DAFs, private foundations, etc."

We suspect the situation will soon come to a breaking point, where the old way of doing things will prove insufficient, and impact-generating organizations and their funders will need to adapt quickly if they hope to continue servicing their clients and driving the systems change needed to permanently address the challenges their communities are facing. 

Four Hard Truths for Strategic Philanthropists

1. Government funding instability is now a permanent feature, not a bug. For more than a decade now, impact leaders across the country have sought ways to diversify their revenue streams, in the fear that government funding sources will become less stable. At this point, we have to assume that the era of assuming stable government (and foundation) partnerships is over. Family foundations and major donors committed to real impact must recalibrate their strategies to account for political volatility as a constant rather than an exception.

2. The funding crisis demands radical collaboration, not competition. When one-third of the sector faces existential threats while demand soars, traditional competitive grant-making models risk becoming harmful. Philanthropists must move toward trust-based, collaborative funding approaches, backed by strong measurement & evaluation data, that strengthen the entire ecosystem rather than picking winners and losers.

3. Small and mid-sized nonprofits need protection from displacement. As large organizations scramble for private funding to replace government dollars, smaller nonprofits risk being crowded out entirely, and along with them, the novel innovative solutions they represent. Strategic philanthropists should consider dedicated funding streams for organizations under $1 million in annual expenses—the very groups that maintain deep community roots but lack the capacity to compete with sophisticated development operations. 

4. Fund resilience infrastructure, not just programs. When 68% of nonprofits anticipate increased demand while simultaneously cutting staff and services, the traditional program-focused funding model becomes obsolete. Organizations need operating reserves, not project grants. This includes funding for innovation, fundraising, branding, professional development, and other critical needs not seen as appealing to many funders.

The Path Forward: High-Integrity Philanthropy in Times of Crisis

The Urban Institute's data confirms what we've been observing at Altruous: the traditional playbook for philanthropy is broken. When government funding — which comprises 28% of all revenue for the average nonprofit — becomes weaponized and unpredictable, private philanthropy cannot simply fill the gaps. The math doesn't work, and more importantly, the approach doesn't work. The nonprofits in cause areas you support are already making impossible decisions—laying off staff while demand for their programs surges, cutting programs while communities suffer. 

If you're a family foundation or major donor still operating with a "business as usual" mentality, or one that deals with open calls, scrutinizes the percentage of overhead going to programs, uses Google or ChatGPT to guide your research, forcing organizations in need of capital to jump through hoops to apply for funding, it’s time to get off the sidelines. It’s time to fundamentally reimagine your philanthropic strategy, and think hard about what you should require from grantees, and how you might create mutually beneficial relationships that are efficient, and eliminate unnecessary hurdles.

Impact-generating organizations need funding partners who understand that this isn't a temporary disruption, but a fundamental restructuring of the American social safety net. They need funders that will act with urgency, trust, and supportive accountability, in order to prevent irreversible damage to the communities they claim to serve. They need funders that willingly eliminate friction in the grantmaking process, so their teams can focus on delivering impact rather than navigating unnecessary bureaucracy.

Now is the time for action, and a new way of thinking about your philanthropy.

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At Altruous, we're building the tools and frameworks to help philanthropists navigate this complexity with integrity and impact. More than just a research tool, our platform proactively recommends high-impact programs that align with your mission areas, and creates efficiencies across the decisionmaking and reporting processes. If you’d like to learn more about the platform, or just brainstorm ways we can help bolster the sector, click here to schedule a conversation with our team.

Click here to download the Urban Institute’s full How Government Funding Disruptions Affected Nonprofits in Early 2025 report.