Ever since the Office of Management and Budget (OMB) attempted to freeze trillions of dollars in federal funding back in January, the 30% of nonprofits that receive federal grant funds (plus many others than receive federal funding indirectly or whose serve people and communities that participate in a myriad of federal programs) have seen a wide array of challenges. Over the course of the year, the Trump Administration and various federal agencies have terminated a variety of federal grant programs and individual grants, have forced many federally-funded nonprofits to make significant changes to their programs, policies, and operations, and have threatened to not renew many other grants.
According to an October 2025 report from the Urban Institute, 33% of nonprofits reported experiencing some type of funding disruption in the first 4-6 months of 2025, including 21% that lost at least some government funding, 27% reporting a delay, pause, or freeze in government funding, and 6% reporting receiving a stop work order.
Major federal actions affecting nonprofits' grants include:
- On February 26, President Trump issued EO 14222, which gives the Department of Government Efficiency (DOGE) broad authority to work with federal agencies to terminate or modify a wide range of federal grants to nonprofits. The Executive Order directs agency heads to work with DOGE to review every federal grant and to terminate or modify those that are inconsistent with the Trump Administration’s priorities.
- On April 15, President Trump issued EO 14275 directing the Federal Acquisition Regulatory Council and the heads of federal agencies to make significant changes to the Federal Acquisition Regulation (FAR). FAR provides a wide variety of legal protections for nonprofits with federal grants, contracts, and cooperative agreements and sets forth a variety of rules that apply to nonprofits with federal funding. The Executive Order calls for revisions to FAR to ensure that it “contains only provisions that are required by statute or that are otherwise necessary to support simplicity and usability, strengthen the efficacy of the procurement system, or protect economic or national security interests.”
- In June, the U.S. Department of Justice (DOJ) issued a memo with guidance on the types of policies and practices that are deemed “unlawful discrimination” for recipients of federal funds, including nonprofits with federal grants or contracts. Among other things, the memo asserts that diversity, equity, and inclusion (DEI) policies and practices are unlawful discrimination and asserts that “unlawful proxy discrimination” is unlawful discrimination, explaining that “facially neutral criteria . . . that function as proxies for protected characteristics violate federal law if designed or applied with the intention of advantaging or disadvantaging individuals based on protected characteristics.” The memo gives several examples of “proxy discrimination” in hiring and promotion decisions and determinations about program recipients for nonprofits receiving federal funding. Examples of “proxy discrimination” include the use of criteria like “cultural competence,” “lived experience,” “overcoming obstacles” narratives, and targeting programs and services to specific geographic areas based on their racial or ethnic composition. The memo implies that federal agencies could freeze or discontinue grant funding for nonprofits that are engaged in practices or policies that DOJ deems discriminatory, either directly or through proxy criteria.
- On August 7, President Trump issued EO 14332 making several significant changes to the process by which federal agencies award, oversee, and terminate federal grants, including grants to nonprofits. Several of these changes could have significant implications for nonprofits that currently have federal grants and for those applying for federal grants in the future. The Executive Order directs that each agency have a political appointee responsible for oversight of its grant process with broad authority to ensure that grants are consistent with Trump Administration priorities. It also prohibits federal grants from being awarded to nonprofits that: (a) use racial preferences, including “proxies for race” in employment or program participation decision; (b) don’t acknowledge “the sex binary in humans or the notion that sex is a chosen or mutable characteristic”; and (c) serve undocumented immigrants. The Executive Order gives priority to nonprofits with lower indirect cost rates in competitive grant application processes and requires OMB to revise its Uniform Guidance to require all federal grant agreements to include provisions allowing for “termination for convenience” by federal agencies. In addition, it requires OMB to revise its Uniform Guidance to “appropriately limit the use of discretionary grant funds for costs related to facilities and administration.” Potentially, this could mean that OMB may soon make changes to last year’s major improvement of the Uniform Guidance that included a de minimis 15% indirect cost rate on federal grants, for which the Center and many other nonprofits have successfully advocated for nearly a decade.
- In late August, President Trump sent a memorandum to the Attorney General directing DOJ “in consultation with the heads of executive departments and agencies, to investigate whether Federal grant funds are being used to illegally support lobbying activities (See, 31 U.S.C. 1352) and to take appropriate enforcement action.” The memorandum appears to misinterpret the relevant federal statute, which does not actually prohibit nonprofits (or businesses) that receive federal grants, contracts, or cooperative agreements from lobbying. The memorandum directs the Attorney General to report to the President on the results of investigations into lobbying activities by federal grant recipients in 180 days. It is unclear what, if any, enforcement actions federal agencies may attempt to take against nonprofits that receive federal grants and are engaged in lobbying activities.
- An August U.S. Supreme Court ruling makes it more difficult for nonprofits that have had their federal grants terminated to have those grants reinstated by federal courts. The controlling opinion in the National Institutes of Health v. American Public Health Association case means that, to have terminated grants reinstated, nonprofits will now have to win separate lawsuits in two federal courts.
- In early September, a federal trial court in Massachusetts invalidated more than $2 billion in federal grant terminations and frozen federal funds to Harvard University. Among other things, the court found that the government’s grant terminations were illegal retaliation for speech protected under the First Amendment, placed unconstitutional conditions on Harvard’s receipt of federal funds, and used unconstitutional coercion to force the university to suppress free speech rights. The court ruling in the Harvard case suggests that it is not legally permissible for federal agencies to freeze funding for, and terminate grants to, nonprofits simply because organizations will not acquiesce to the Trump Administration’s policy priorities.
- In late September, a federal judge in California issued an injunction preventing several federal agencies from requiring certain grantees to certify that they are not engaged in DEI practices and activities. The court found that these grant conditions violated the federal Administrative Procedures Act by imposing requirements on federal grantees that were not authorized by Congress. The injunction only applies to grants from the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Transportation (DOT), and the U.S. Department of Health and Human Services (HHS) to the plaintiffs in the case, which include several cities and nonprofits in California. The U.S. Supreme Court’s ruling in Trump v. CASA from June effectively prevented the court in this case from issuing a broader injunction that applied to all nonprofits that have had similar anti-DEI grant conditions imposed on them by HUD, DOT, and HHS. However, the judge’s ruling suggests that North Carolina nonprofits that have been required to comply with similar grant conditions from these or other federal agencies may be able to have these grant conditions invalidated if they were to initiate their own lawsuits against their granting agencies.
- Because Congress and the White House could not agree on appropriations legislation for the new federal fiscal year, the federal government was shut down between October 1 and November 13. Most notably for nonprofits, funding for the Supplemental Nutrition Assistance Program (SNAP) ran out on October 31, meaning that SNAP funding was suspended on November 1. Congress agree to end the shutdown with a continuing resolution to fund the federal government through January 30, 2026. As part of that continuing resolution, Congress provided SNAP funding for the full fiscal year (through September 30, 2026), meaning that another government shutdown in the first nine months of 2026 will not affect SNAP funding.
