Over the years, I’ve worked as a consultant on numerous federal grant projects from the US Department of Agriculture and elsewhere that focused on local economic development and were granted to nonprofits serving their communities.
But since the 2024 elections, the focus of my work—and that of the small New Mexico-based consulting firm, Prospera Partners, that I lead—has shifted to help nonprofits develop strategies to sustain themselves despite federal cuts in funding and to programs that once supported their work.
The stories included here come from a community of practice of New Mexico–based nonprofits launched in early 2025, and from recent clients. And although they are inspiring, the bottom line is that the withdrawal of federal funds is harming the sector.
What Survey Data Tell Us
Over the course of six months of sessions, cohort participants shared with us that they were struggling with the following issues:
- Losing valuable AmeriCorps workers
- Filling budget gaps resulting from the loss of federal grants
- Cutting staff and programs due to the loss of funding from federal agencies
- Finding that private donors were cutting back on giving because they are concerned about their investment portfolios or are overwhelmed by the amount of need
- Experiencing the weight of the loss and worry about mass unemployment in the government and nonprofit sectors
- Facing increasingly competitive funding from foundations, with more applications than ever before
These findings match those of larger national surveys. In recent survey results from the Center for Effective Philanthropy, 61 percent of nonprofits across the United States reported that “the current context poses moderate to significant risk” to continued operations.
For many nonprofits, federal grants fund important community services, economic development, and other social services.
The survey includes the philanthropic sector perspective, with 55 percent of foundation leader respondents reporting that the “current context has had a negative impact on their foundation’s progress toward goals,” and an 87 percent increase in demand for funding. While some foundations have increased their payouts, the philanthropic sector cannot fill the gaps left by the federal funding cuts.
The Urban Institute also recently published a report detailing the impacts of the federal funding cuts to the nonprofit sector.
Its findings include:
- A third of nonprofits reported experiencing at least one type of government funding disruption (loss of at least some funding; a delay, pause, or freeze in government funding; and/or a stop work order)
- 21 percent reported losing at least some government funding
- 27 percent reported experiencing a delay, pause, or freeze in government funding
- 6 percent reported receiving a stop work order
The federal funding cuts have led to significant impacts, including staff layoffs and programming changes, according to the report.
To Be or Not to Be Federally Funded?
Federal funding is not helpful for many nonprofits. Clearly, a federal grant award comes with costs of time and money. Federal grants are often arduous to manage, reporting can take hours, some require matching funds, and some are reimbursable.
Small nonprofits with tight budgets have a hard time managing the cash flow of federally funded projects and the reporting requirements. Organizations should only seek federal grants if they have the infrastructure and capacity to administer them and will sustain themselves beyond the grant project period.
But for many nonprofits, federal grants fund important community services, economic development, and other social services that otherwise would not be funded. Moreover, even if a nonprofit receives no federal funding, there are ripple-effect implications of program cuts as federal funding often flows to city and county governments to be distributed to local nonprofits.
Now, nonprofits are scrambling to fill their budgets in other ways. Fortunately, some have been able to devise creative approaches.
Three Nonprofit Responses to Federal Funding Cuts
Mechanism (formerly Urban Manufacturing Alliance) was in the process of revamping its own mission and how it serves the community of small manufacturers across the country when the new federal administration’s threats and funding cuts began. The group’s leadership shifted their attention to the impacts of the federal cuts to economic and community development projects and how they would affect them and their network directly.
Some of the participants in their programs had their economic development funds pulled, halting their participation in convenings and workshops. Mechanism refreshed their mission from national-level work to focus on communities, and implemented a new strategic plan to do more community-based programming across the country.
“Shifting our work to think about local production ecosystems feels like meeting the current moment,” Co-Executive Director Katy Stanton said to NPQ. “We are examining what this means for owners, workers, their communities, and supply chains.”
Stanton added that the group was focused on a key question: “What could manufacturing look like if community was at the center?”
A second group, which asked to be cited anonymously, is a 31-year-old arts organization serving a national constituency, which had its federal grant award terminated in April, a loss that halted a pilot project that would have kicked off a multiyear research and development program benefiting hundreds of organizational and individual constituents.
But with the federal funding cut, the organization re-strategized, moving their annual fundraiser event earlier than usual, and raising more than anticipated. The organization has also installed a more experienced fundraiser as its board chair to lead private sector fundraising efforts.
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A third nonprofit, New Mexico Thrives, is the state chapter of the National Council of Nonprofits. Despite its lean budget, the organization has been effective in helping nonprofits understand the local, regional, and federal impacts of the executive orders, offering timely newsletters, updates, workshops, and resources to its members.
As the founder and director of New Mexico Thrives, Tsiporah Nephesh, explained to NPQ, “When the New Mexico Legislature created the Federal Funding Stabilization Subcommittee to assess the impact of federal policies and funding cuts on New Mexico, New Mexico Thrives reached out to the subcommittee to ensure that they heard from nonprofits.”
The growing demand facing community service organizations…has increased pressure on these groups to raise more money for more programs and services.
Nephesh added that New Mexico Thrive “worked with colleagues at the Community Action Agency of Southern New Mexico and the Community Foundation of Southern New Mexico to coordinate…presentations with three panels of nonprofits. The nonprofit leaders provided information about their roles in our communities to help the subcommittee members understand the impact of federal policies and funding cuts on nonprofits’ ability to serve community members.”
Supporting Immigrants
The growing demand facing community service organizations because of executive orders from the administration of President Donald Trump has increased pressure on these groups to raise more money for more programs and services.
A Santa Fe–based interfaith coalition quickly formed in April 2025 to better support immigrant service organizations. To date, it has raised nearly $50,000 to provide funds for immigrants’ legal fees, online application fees, work permits, and assistance with paying rent and housing fees.
The coalition also provides creative solutions for those needing safe ways to navigate the community when US Immigration and Customs Enforcement (ICE) raids are a threat. For instance, they’ve deployed volunteers to accompany immigrant community members to the grocery store or other errands to protect their safety.
The coalition operates with a grassroots model with just enough structure to do what it needs to do to support the service organizations and serve the community. With a simple strategy and swift action, they are now considering supporting more Spanish-speaking organizations and other areas of community need with their funds.
During the early days of the COVID-19 crisis, foundations moved quickly to deploy funds….We need that level of support today.
Looking Forward
Many nonprofits are in a transition period and face more demand to provide social services, to raise more money, and to take care of their staff.
Philanthropy should step up and pay out more than ever, and support nonprofits in creative ways they have not explored before. During the early days of the COVID-19 crisis, foundations moved quickly to deploy funds to keep nonprofits operating and people safe, fed, housed, and employed.
We need that level of support today—and nonprofits should not be shy about sharing their immediate needs with their funders.
In our own community of practice conversations, participants repeatedly discussed how difficult it is to be honest with a funder for fear of not receiving funding. But as nonprofits gain confidence through trying new ways of being and doing things, they can help lead the philanthropic sector into a new era.
As Nephesh puts it, “Without more funding and more volunteers, it will not be possible for nonprofits to avert a crisis that has been decades in the making. Opportunities are created as the old systems collapse. Nonprofits can provide insight on how to build new and better systems.”
For More on This Topic:
Pivoting from Reliance on Federal Funds to Mission-Aligned Private Donors
What Does It Mean for Philanthropy to Be a Community Partner Anyway?
Foundations and Movements: Manuel Pastor in Conversation with Carmen Rojas
