The Nonprofit Funding Freeze: Why We Must Invest in Fundraising to Weather the Storm
By Emily Barany & Katie Pearson
TL;DR:
Disruption in government grants has left nonprofits struggling for funds. Diversify your income, build strong donor relationships, and beef up your fundraising team. With inflation and layoffs, individual donors might give less, and funders are focusing on immediate needs issues instead of systemic changes. Stick to your existing funders, push for unrestricted funding, and make fundraising a top priority—it’s the key to getting through this.
The nonprofit sector is facing a financial crisis. Across the board, organizations are experiencing funding shortages—not just those relying on federal dollars, but nonprofits of all kinds. Private foundations are redirecting resources toward immediate, crisis-driven needs, leaving nonprofits who believed themselves safe from the freeze scrambling to fill the gaps.
This isn’t the first time we’ve seen this happen. History tells us that when government funding tightens, philanthropy steps up—but only when organizations invest in their ability to fundraise.
History Repeats Itself: Lessons from the 1980s
In 1981, President Ronald Reagan slashed the federal budget, significantly cutting funds for social programs and nonprofit organizations. The result? Chaos (of course), which led to a major transformation in the sector. Nonprofits that had previously relied on government funding had to pivot quickly, developing new fundraising strategies and professionalizing their development efforts.
It was out of this chaos that modern philanthropy, as we know it, was born. Nonprofits began investing in donor relations, major gift programs, and strategic fundraising campaigns. Organizations that adapted and built strong fundraising infrastructures survived—and many even thrived.
What’s Happening Now?
Today, we’re seeing a similar pattern. Private funders are shifting their priorities to urgent, quickly evolving and newly emerging crises, leaving many organizations with unexpected funding shortfalls. Nonprofits that provide essential services—housing, education, healthcare, arts, and community development—are all feeling the strain.
And to be crystal clear: We’re seeing fundraising disruptions even in nonprofits who do NOT receive government funding.
The Path Forward: Invest in Fundraising
If history has taught us anything, it’s that nonprofits cannot afford to wait for funding to return to normal. The organizations that will survive this crisis are the ones that invest in their fundraising capacity now.
- Diversify Revenue Streams: Relying on a single funding source has always been risky. Nonprofits need to explore new revenue streams, from individual donors to corporate partnerships and social enterprise models.
- Strengthen Donor Relationships: Now is the time to engage and cultivate donors. Organizations should focus on building long-term relationships rather than relying on one-time gifts. Meet with long-term donors, ask them to increase their monthly giving amount or pledge, or to make their annual gift twice this year.
- Invest in Fundraising Staff & Infrastructure: Fundraising is not an expense—it’s an investment. Hiring skilled fundraisers, upgrading donor management systems, and launching strategic campaigns can make all the difference.
- Educate Funders: Foundations and major donors need to understand that unrestricted funding and general operating support are more critical than ever. Advocacy for flexible, sustainable funding models is essential.
- Do NOT begin writing hail-Mary Funding Requests: Funders are being flooded with requests. As I said before, if you don’t already have a relationship with a funder or foundation, now is not the time to try to introduce yourself. Focus on deepening your existing relationships.
A Call to Action
The nonprofit sector has always been resilient, but resilience alone isn’t enough. We need action. Donors, foundations, and philanthropic leaders must recognize the urgent need to close these funding gaps. Nonprofits, in turn, must embrace fundraising as a core function, not a “nice to have” option.
Philanthropy has always risen from moments of crisis. Let’s ensure that, once again, we meet the challenge and come out stronger on the other side.
Now is the time to invest in fundraising. The future of the nonprofit sector depends on it.
Emily’s Crystal Ball Corner
- Average American households will delay or possibly decrease donations, because:
- Inflation — They anticipate paying more for less in the near term. These are your $50/month or $500/year donors
- Government Layoffs – While the number isn’t concrete, estimates are that tens-of-thousands, possibly more than 100,000, of our neighbors (and donors!) have been fired from the Federal Government. These are your $25-$50/month or $500/year donors
- Job Insecurity (real and perceived) – They aren’t as confident that they will have a job in 3-6 months. These are your $5-$25/month donors
- Stock Market Volatility – While the number of donors who donate actual stock is relatively low, many mid-level donors will sell stock to fund a transformational donation.
These are your prospects for capital campaigns, first-time stretch gifts and bequeaths - Disruptions for fixed-income Americans – They fear changes to Social Security and Medicare; they may already be seeing reductions or disruptions in their safety net (Meals on Wheels). These are your $20/year, very long-term donors who give during your End of Year Appeal
- Institutional funding and individual giving will increase for basic need stopgaps (think: protecting undocumented individuals TODAY) and decrease for forward-thinking systems change initiatives (think: redesigning the U.S. immigration system).
- Mega Donors Won’t Save us – We’re all 6 degrees of separation from a mega donor with global name recognition. If you don’t already have a relationship with a funder or foundation, now is not the time to try to introduce yourself. Focus on deepening your existing relationships.