Over the last four years American nonprofits have benefited from unprecedented amounts of federal funding.
The impact of the Covid pandemic on our lives, our society, and our charities and nonprofits, was unimaginable. Nonprofits had to find ways to address community needs in new and different ways.
The federal government responded to this challenge by quickly passing several large funding programs. The Paycheck Protection Program through the Small Business Administration (CARES Act) in March 2020, was the first such funding made available to nonprofits. Charities and nonprofits received unrestricted funding that enabled them to continue to provide services, even as their normal operations were disrupted. Also included in the CARES Act was funding for employee salary reimbursement under the Employee Retention Tax Credit program. Individual states directed other federal funds to nonprofits for a variety of specific projects within their jurisdiction.
Additional funding came in the form of the Infrastructure Investment and Jobs Act and, within two years, almost $4 trillion of funding had flowed into the economy. Many nonprofits received funding at unprecedented levels.
Will there be additional large scale federal funding in the future? While trying to predict the political direction in Washington DC is impossible, the answer is probably not. Most political pundits, as well as economists, agree that additional massive funding legislation will not continue to be created. Congressional “earmarks,” which were banned in 2011 and brought back in 2022, continue today but with a few more restrictions than in the past. There is growing debate in Congress whether this program should also continue.
The result of this massive federal funding was that charities and nonprofits retained significant amounts of cash while their operations were still struggling to return to pre-Covid levels. Some nonprofits have used their unspent funds to offset operational losses; however, that practice can only be done for so long.
With many charities and nonprofits still operating below pre-pandemic levels, the challenge is real. What will they do when the remaining federal funds run out? If the funds were used to offset program deficits, there are limited options: either offset the loss of federal funds with philanthropy, or greatly reduce the financial loss by ending the program or significantly cutting back.
While this can feel daunting, the only way to meet this challenge is head on. As a board and staff, work together to:
- Develop a strong, focused case for support to increase funding for all critically needed programs.
- Analyze of the sustainability of programs examining direct revenue and direct expense to identify potential expense savings or potential increases in revenue.
- Develop an operations and finance plan to ensure the organization quickly returns to a sustainable budget level and produces an operating margin sufficient to fund the organization into the future.
- Look for government funding sources that are continuing, like the 21st Century Grant, to offset costs of existing programs. Then redirect those freed up dollars to other needs.
As you move towards the fourth quarter and (for some of you) start to think about next year’s budget, let us know if we can help you finish strong!
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As we approach the final quarter, it's the perfect time to energize your team and refine your strategies. Let’s focus on finishing strong—aligning efforts, maximizing impact, and setting the stage for next year’s success. |