The voices of Urban Institute's researchers and staff
April 7, 2017

How vulnerable are nonprofits under Trump’s skinny budget?

When President Trump unveiled his preliminary budget proposal two weeks ago, nonprofit leaders were some of the loudest registering alarm.

California’s nonprofit community…would be devastated by the cuts,” declared the California Association of Nonprofits. Or as one lobbyist for charities recently told the New York Times, “This isn’t a political threat, it’s life and death.”

Not only did the administration announce its intent to get rid of the Corporation for National and Community Service (which houses the AmeriCorps civil society and volunteering program), but the budget also would slash funding to, or abolish, agencies, initiatives, and programs that provide significant financial support to nonprofits across the country, including the Legal Services Corporation, Choice Neighborhoods, and Community Development Block Grants.

Nobody likes to lose funding, but was such apprehension justified? How vulnerable are the nation’s nonprofits in the face of the likely decrease in financial support from a Trump administration?

How much do nonprofits rely on federal funds?

Federal spending has direct and indirect effects on nonprofits. By funding (or cutting funding to) areas in which nonprofits operate, the budget shapes demand for their services. Yet the federal government is also a vital source of direct revenue for many nonprofits, through grants or through contracts or fees for goods and services, so budget cuts can increase demand for nonprofit services while cutting the resources to supply that demand.

According to the most recent edition of the Nonprofit Almanac, in 2013, total funding from government (including local, state, and federal sources) accounted for nearly one-third of public charities’ revenue, with grants making up 8 percent and fees amounting to 24.5 percent. But the disaggregated data tell a fuller story, highlighting which sectors most rely on government funding and should be most concerned about reductions.

Human service public charities, for instance, claim the highest proportion of funds from government—21 percent from grants and nearly 26 percent from fees for goods and services, or 47 percent—followed by health, at 37.4 percent (2.7 percent from government grants and 34.7 percent from fees, which includes Medicare and Medicaid payments).

Compare these totals with those from reporting nonprofits within the arts, culture, and humanities subsector, which received just 10 percent of their revenue from government grants and 1 percent from fees for goods and services from government. (They received the largest share of their revenue—nearly 44 percent—from private contributions.)

Have we seen potential cuts like these before?

The anxieties surrounding budget cuts are not new within the nonprofit sector, although they are particularly acute today. The recession of 2002–03 and the Great Recession of 2008 prompted moves toward budgetary austerity that led to significant decreases in governmental funding of nonprofits.

According to a 2010 Urban Institute survey of nonprofits, when compared with the year before, “56 percent of organizations reported less revenue from state agencies, 49 percent lost local government funding, and 31 percent lost federal dollars.”

The challenge posed to nonprofits by budgetary stringency extends back to the budget slashing of the Reagan administration, which followed a boom period of federal funding of nonprofits in the 1960s and 1970s.

As nonprofit scholar Lester Salamon estimated, if one excluded governmental spending on health care (which was boosted by Medicare and Medicaid payments), federal support to nonprofits dropped 27 percent during Reagan’s first term. Nonprofits that focused mainly on the poor and that often had the highest reliance on government support for their revenue (and had little chance of making up cuts through increases in fee income) experienced the sharpest revenue reductions.

In some respects, much of the nonprofit sector has still not recovered. According to Nonprofits and Government: Collaboration and Conflict, although federal support of nonprofit organizations grew 187 percent between fiscal year 1980 and fiscal year 2015 after adjusting for inflation, much of that growth represented surging Medicare and Medicaid payments.

When examining federal spending outside health, the financial support given to nonprofits over that period looks considerably less substantial. Many subsectors (e.g., international assistance, community and regional development, social service programs, and education, training, and employment) experienced “cumulative losses or only modest gains during the 35 years.”

Many of these same subsectors face likely budget cuts in a Trump administration, so we can appreciate the alarm nonprofit leaders expressed when confronted with Trump’s “skinny budget.” They have, after all, been here before.

Barack Obama delivers remarks at an AmeriCorps Pledge ceremony on the South Lawn of the White House to mark the 20th anniversary of the national service program. Photo by Christy Bowe/Corbis via Getty Images.

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