Key Takeaways
A new report reveals an existential crisis for U.S. nonprofits, as 73 percent of organizations report rising demand for their services while facing a sharp contraction in government funding.
A new report from the Center for Effective Philanthropy details a deepening crisis for U.S. nonprofits, with 73 percent facing increased demand while 39 percent are now operating at a deficit, up from 22 percent a year ago. The report surveyed 380 nonprofit leaders and documents the severe financial strain placed on organizations providing key social services.
"This means people and communities suffer," Phil Buchanan, president of the Center for Effective Philanthropy, said, calling the situation an "existential crisis" for a sector that affects every American's life.
The report links the crisis to a federal funding freeze and the termination of billions in grants under the Trump administration since January 2025. This has left two-thirds of nonprofit leaders worried about their organization's financial stability, with 46 percent postponing raises and 34 percent reducing services. In response, White House spokesman Kush Desai said that “President Trump pledged to slash the waste, fraud, and abuse in federal spending.”
The funding crunch creates a perfect storm as it coincides with increased economic hardship for many Americans, driving greater need for food, housing, and healthcare support that nonprofits have fewer resources to provide. This dynamic threatens to increase social instability as essential support systems are hollowed out just as they are needed most.
The administration's approach to nonprofits is consistent with a broader pattern of policy aimed at reducing federal oversight and shifting responsibilities to state and local authorities. A Trump-appointed panel recently recommended a review of the Federal Emergency Management Agency's staffing levels to reduce "bureaucratic bloat" and transfer core responsibilities to states. Similarly, the Bureau of Land Management formally cancelled its 2024 "Public Land Rule," ending a requirement to weigh conservation equally with development and extraction on public lands.
These policy shifts reflect a consistent philosophy of federal withdrawal. For nonprofits, the impact has been direct, stemming from executive orders targeting funding for groups involved in diversity, equity, and inclusion initiatives, environmental issues, and criminal justice reform.
In response to the government's pullback, some private foundations are increasing their contributions. The MacArthur Foundation, for instance, increased its grant value by an unexpected $190 million last year, pushing its payout rate to about 7.1 percent, well above the federally mandated 5 percent. It is one of about 45 foundations that have signed a pledge to increase giving.
"Foundations need to do more and ask less of our grantees," John Palfrey, president of the MacArthur Foundation, said in an interview.
However, this philanthropic effort may not be enough to fill the void. Nearly 60 percent of nonprofit leaders surveyed by CEP reported more difficulty securing foundation grants, and over 40 percent said existing funders have cut back. The result is a sector under immense pressure, with 44 percent of organizations drawing from reserves and a spike in leader burnout to 46 percent, up from 29 percent a year earlier.
The situation for Planned Parenthood in Texas provides a stark case study. After state and federal funding was withdrawn, the nonprofit has been forced to close facilities and reduce staff, even as it faces continued demand for non-abortion healthcare services like STI testing, cancer screenings, and gender-affirming care. The organization now operates primarily on private donations, illustrating the new, more challenging funding environment many nonprofits now navigate.
This article is for informational purposes only and does not constitute investment advice.
