Nonprofits face challenges due to government funding cuts

REAL ECONOMY BLOG | October 14, 2025

Authored by RSM US LLP

Government funding cuts disrupted nonprofits reliant on government support during the first half of 2025. An Urban Institute research report released last week found that one-third of nonprofits faced some form of government funding disruption. Specifically, 21% reported losing some government funding, 27% experienced a delay, pause or freeze, and 6% received a stop-work order.

Federal funding disruptions frequently have a cascading effect, influencing even those organizations that do not receive direct government support by altering the broader fundraising environment. Such interruptions often impede many nonprofits’ ability to secure state and local funding, as reductions at the federal level typically affect allocations to states and local jurisdictions.

While most nonprofits receive less than a third of their revenue from government sources, those affected by disruptions were more likely to receive a higher percentage of their revenue from government funding.

The following table presents data on the percentage of nonprofit organizations that reported government funding disruptions in the first four to six months of 2025, categorized by subsector and organization size. The education, health and social services subsectors reported higher rates of disruption, as did larger nonprofits.

Source: Urban Institute 2025 National Survey of Nonprofit Trends and Impacts

Source: Urban Institute 2025 National Survey of Nonprofit Trends and Impacts

Although the economy has shown resilience, ongoing uncertainty stemming from restrictive immigration policies, the recent U.S. government shutdown and other political developments may further affect the financial stability of many nonprofits. These organizations depend on various external factors—including financial, social and geopolitical influences—to maintain their operations.

The report confirms that nonprofit organizations are facing significant challenges due to disruptions in government funding, indicating a challenging period ahead.

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