The nonprofit world has been on a rollercoaster since a new federal Administration took office on January 20, and the uncertainty around federal funding only increased in the past week. In this post, Your Part-Time Controller’s Federal Awards team reviews the salient points of what happened and makes recommendations that all nonprofits should follow—including ways to stay informed, as this situation develops.

 

WHAT NONPROFITS SHOULD KNOW:

 

  • Immediately after his January 20 inauguration, President Trump issued a series of Executive Orders (EOs), some affecting or potentially affecting nonprofits. The EOs paused payments on some grants authorized under the Inflation Reduction Act, ended certain overseas investments, terminated federally sponsored DEIA programs, and more. You can read the full text of the EOs on the White House website. For a nonprofit-specific perspective, refer to the convenient tracking summary prepared by the National Council of Nonprofits (web and PDF versions), which is being updated frequently.
  • Late on January 27, OMB issued a memorandum (M-25-13) to all federal agencies directing them to pause all grants and loans effective January 28, at 5 pm.
  • White House press secretary Karoline Leavitt held a press conference on January 28 to clarify the funding freeze. She said the pause will not apply to programs benefiting individuals, including Social Security, Medicare, and food stamps. Instead, she said it will be used to weed out spending on DEIA, “woke” gender issues and the Green New Deal.
  • A group of state attorneys general (22 as of this writing) filed a lawsuit on January 28 to keep the funds flowing to states, cities and nonprofits. A federal judge has signaled the lawsuit has sufficient merit to be heard.
  • A coalition called Democracy Forward (consisting of the National Council of Nonprofits; the American Public Health Association; the Main Street Alliance, a small business network; and SAGE, an LGBT advocacy group) filed its own lawsuit on January 28. A separate federal judge issued a stay in response to this lawsuit, halting the OMB directive minutes before it was to go into effect. The stay expires at 5 pm EST on February 3.
  • On January 29, OMB issued a new memorandum (M-25-14) that rescinded the prior memorandum and directed any questions to the general counsels for each federal agency. In a social media post that same day, White House press secretary Karoline Leavitt clarified that the rescission applies only to the federal funding pause announced by OMB, not to the Executive Orders issued by President Trump.
  • Most nonprofits reported long wait times in their attempts to file payment requests with federal agencies January 28 and 29, as federal systems and staff were overwhelmed. Many attempts were successful, some were not. At one point on January 29, all 50 states reported their Medicaid portals were down, though these were theoretically exempt from the funding pause.
  • On January 31, members of the “Department of Government Efficiency” (which is not an actual government department) were granted access to federal payment systems at the Department of the Treasury and there have been reports of certain blocked payments.
  • The website and payment portals for USAID have been down since January 31 as well, reportedly also due to actions taken by the “Department of Government Efficiency.”
  • Further litigation can be expected on both sides of the funding pause. Challenges to some of the Executive Orders have also been announced. In the meantime, further Executive Orders should be expected, some of which may have an impact on nonprofits.

 

WHAT NONPROFITS SHOULD DO:

 

  • First, take a deep breath. If the breakneck pace of Executive Orders and challenges to them seems dizzying to you, you are not alone. Several national and state-level organizations (see below) can provide information, advocacy tips and other resources.
  • If you have an active federal grant, reach out to your program officer at the funding agency. While program officers cannot override Executive Orders or OMB directives, it doesn’t hurt to seek advice and request that you be kept in the loop. (Be patient if you don’t hear back immediately! Many federal websites are buckling under the demand, and federal workers are overwhelmed as well.) Avoid making any unnecessary disbursements to contractors or sub-recipients until you’ve received clarity on your specific grant.
  • If you have received a stop-work order or a suspension notice for a federal grant, you may want to seek legal counsel before terminating or renegotiating any contracts or subcontracts. Similarly, you may benefit from legal advice in your efforts to seek reimbursement for payments already made for programs, vendors or staff. Retain all notices and consider alerting your auditors to them. In the meantime, continue to document the steps you have taken to meet the terms of the grant in question, as well as any non-compliance caused by federal websites and portals being unavailable.
  • If you aren’t the direct recipient of a federal grant, you should still determine whether federal funds are the ultimate source for any state or local grants you may have, or for grants passing through other nonprofits. Seek guidance from the direct recipients in such cases. It’s also possible that paused grants may affect the capacity of your staff, your stakeholders, your contractors and more.
  • Be patient and persistent with payment requests; the federal payment systems (and staff!) are overwhelmed. YPTC has heard from dozens of clients who succeeded in filing payment requests with a variety of different agencies despite the chaos. Most reported having had to make multiple login attempts, rely on phone authentication instead of email, etc. Many of these clients have since been able to verify deposits, others are still waiting.
  • Times of uncertainty like these are excellent reminders of the importance of scenario planning. Revise your cashflow projections for the next several months to reflect both optimistic and pessimistic scenarios. If the outcomes of any of these scenarios impact your ability to operate, speak now with your bank about a line of credit or other options to bridge the potential cashflow gap. This is also a good time to develop a plan to diversify your organization’s revenues. For example, there are many grant opportunities for nonprofits available through foundations and it may be possible to augment federal funding in this way.
  • The National Council of Nonprofits is soliciting information about the specific impact of the Executive Orders on nonprofits, and will use the aggregated data in their ongoing advocacy efforts. (Contributors have the option not to make their stories public.)
  • Has your nonprofit (including your staff members and your stakeholders) been impacted by recent changes to federal programs? Staff members (and board members!) should reach out to their elected representatives in Congress and the Senate to share their stories and express their opinions. Legislators who are deluged with input from their constituents will find it difficult not to take action.

Can Your Part-Time Controller, LLC be of assistance? For over three decades, YPTC has helped nonprofit clients build better accounting departments—so they can build a better world. YPTC also offers wraparound services helping nonprofits find, apply for, manage and report on government grants of every kind. To learn more, contact us.