In a sweeping move that sent shockwaves through the nonprofit sector, President Donald Trump issued a memo pausing federal funding for nonprofit organizations shortly after being sworn in as the 47th President. While the policy was temporarily halted by a court order, and ultimately rescinded by the White House, it served as a wake-up call to the nonprofit world: relying on federal dollars for your survival may not be a wise long-term business model.
Right now, I am serving as co-chair of the 2025 Rotary Club of Independence Mardi Gras Gala. Set to take place on March 1st, we hope to raise over a quarter of a million dollars for local nonprofit, The Music Arts Institute (MAI). This outstanding organization changes the lives of countless low-income and at-risk children by fostering their passion and talents for music and dance.
One of the things I am most proud of about both Rotary and MAI is that most of their funding comes from private donations and community support. Their financial resources are generated by people who believe in their mission and want to see them succeed—not by governmental departments in Washington, D.C. or Jefferson City.
Unfortunately, not all charitable organizations have this same funding model. For too long, many nonprofits have believed that hiring a skilled grant writer and building deep government connections is a more financially viable strategy than the traditional approach of convincing individuals and businesses to hand over their money voluntarily.
According to a 2022 report by the Urban Institute, approximately 30% of all nonprofit funding comes from government agencies. Amounting to over $300 billion distributed annually to more than 100,000 nonprofit organizations. The larger the organization, the more likely it is to depend on government dollars. In fact, according to the study, more than half of all nonprofits with annual budgets exceeding $5 million receive at least part of their revenue from government grants.
If you exclude America’s houses of worship, which generally do not qualify for most government grants, the proportion of nonprofits reliant on federal funding is significantly higher than one-third.
To be clear, I am not saying that tax dollars going to charitable organizations is inherently wasteful or wrong. In general, those working in the nonprofit sector are among the most sincere and compassionate people in the world. They are driven by their desire to make a difference, and their organizations, which are often on the front lines of combating these social challenges, know how best to do it.
However, government money often comes with strings attached. These bureaucratic restrictions can reduce or eliminate the flexibility and independence that nonprofits need to be most effective.
As the debate over government funding for nonprofits continues, I share the concerns many have about the potential impact of these cuts in the provision of crucial services for those in need. However, my hope is that by shifting the focus toward private donations, corporate partnerships, and innovation, nonprofits will be able to offset reductions in government assistance while also helping to rein in a federal deficit that has been out of control for decades.
While the transition may be challenging, it presents an opportunity for nonprofits to strengthen their independence, diversify their funding sources, and forge new pathways that could ultimately benefit both their organizations and the country.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)