As the Federal Government Cuts Funding, Nonprofits Are Turning to Cities

Why It Matters

Federal funding cuts threaten service delivery and staffing, forcing nonprofits to reinvent financing strategies and deepen political engagement at the municipal level.

Key Takeaways

• One‑third of nonprofits faced federal funding cuts in 2025.
• 84% expect further reductions, prompting a shift to local advocacy.
• Half of revenue for ~35,000 nonprofits relied on federal grants.
• Nonprofits are filing lawsuits and forming city partnerships to replace lost funds.

Pulse Analysis

The federal budget squeeze of 2025 has rippled through the nonprofit ecosystem, with the Nonprofit Finance Fund reporting that 34% of charities already felt a shortfall from federal sources. For many, especially the 35,000 groups that depend on government grants for at least 50% of their operating budget, the loss is not easily offset by private foundations. This fiscal shock is reshaping financial planning, prompting leaders to diversify revenue streams and re‑evaluate program priorities.

As the funding gap widens, nonprofits are increasingly courting local governments for support. Surveys show that 84% of sector leaders expect additional cuts, spurring a surge in lobbying activities at city halls and state capitols. Organizations are forming coalitions, engaging in policy dialogues, and even resorting to litigation—highlighted by the National Council of Nonprofits’ recent lawsuits against federal actions that jeopardize SNAP benefits. These tactics reflect a strategic pivot toward municipal partnerships, where funding can be more nimble and aligned with community needs.

The broader implications extend beyond budgets. Nonprofits constitute the third‑largest private employer in the United States, contributing roughly 5%‑7% of GDP. Yet only 31% currently engage in advocacy at the federal or state level, a gap that the current crisis is forcing to close. Strengthening advocacy capacity at the local level could safeguard jobs, sustain essential services, and preserve the sector’s economic impact. Stakeholders that adapt quickly—by leveraging city resources, building legal defenses, and expanding lobbying efforts—are likely to emerge more resilient in a post‑federal‑funding landscape.