How To Deal With Loss Of Federal Funding

In the current political climate, loss of federal funding has become an unfortunate reality for organizations across the country. Nonprofits almost never expect it, so when funding disappears, it’s always a shock.

That said, losing federal funding isn’t the end of the world – you just need a plan. 

Below you will find six steps that we recommend if you are ever in this situation. Follow these steps to minimize the effect of cut funding, and to set yourself up for success down the line. 

Six Steps To Follow After Loss Of Federal Funding

1) Start With The Truth

First things first: be transparent. With loss of federal funding, it can be tempting to delay communication. You are likely looking for answers or for alternatives.

This is understandable, but it’s not the right way to approach things. Silence breeds uncertainty. And the more uncertain your team is, the more likely that rumors start. People will inevitably talk amongst themselves – often with “worst case” assumptions.

You can avoid this by simply being direct. Share what you know, when you know it. Your team deserves this information. You should be clear about what has changed, what it (likely) means in the short term, and most importantly, what you’re doing to respond. 

2) Map The Actual Impact

Once you’ve broken the news, it’s time to get specific. Not all funding losses are created equal. Some can be devastating, of course – but you don’t know until you dive into the numbers.

Here are the questions you need to answer before you know the actual impact to expect:

• What exactly was cut? Was this loss of federal funding a full elimination or closer to a partial reduction? Will there simply be a temporary lull in funds, or does this represent an indefinite loss?
• What did that money support? Staff positions? Infrastructure? Community partners? Now is the time to be clear about what is no longer being funded.
• Which obligations remain? Likely, a loss of funding doesn’t happen overnight. There is probably still work to be done. Are there reporting requirements or certain close-out procedures that you need to worry about?

This is where your program and finance teams should work together for a shared understanding. This will help you gauge the immediate impact. It also makes it easier to prioritize your response.

3) Don’t Count On More Funding

Diversifying revenue streams is always wise. That said, going immediately into “grant-hunting mode” can be dangerous. You won’t necessarily recoup the loss quickly, and you need to take that into account. Our point? Chasing new money without a broader strategy can waste your time, burn out your team, and will likely create unrealistic expectations.

This is an opportunity to step back. What is your organization’s core mission and model? What needs to be preserved at all costs, and what can likely evolve? The truth is, loss of federal funds can be painful. That said, it’s also an opportunity to clarify what’s most essential. It’s important that you take a moment to look at the bigger picture – and that’s only possible if you assume that this funding is truly gone. 

4) Communicate With Partners And Stakeholders

At this point you’ve communicated with your team and have a clearer idea of the actual effects to expect. It’s now time to expand your communication about the situation. Many federal funding streams are part of broader coalitions or partnerships. If your loss of funding will impact others, they need to know as early as possible.

Be honest. Share what you know and what you expect to happen. Ask partners what they’ve heard; you might be able to help each other. Same thing for key community stakeholders. They may have ideas, and can play an important part in advocating for alternative solutions. 

No matter what, be sure to keep them in the loop. There are a number of ways you can do this. While in-person communication is preferable, your most important partners deserve a phone call at the minimum. Anybody else that will be impacted should also know sooner rather than later. Send out an email if necessary.

5) Rebuild The Right Way

Once the shock wears off, it’s time to think about the long-term. The loss of federal funding is difficult, but it is an opportunity to reimagine things. Not only how your organization is funded, but how it generally operates as well.

Ask yourself a few questions:

• Are there opportunities for separate public funding that are more aligned with your organization’s goals?
• Is there a way to change your program structure to make you more flexible and resilient in the future?
• How can you strengthen your case with private donors to make you less susceptible to funding cuts?

This is the perfect time to strategize. A leaner, better-aligned organization is usually a more effective one, as well.

6) Reaffirm Your Mission

As we said at the beginning, loss of federal funding is a shock. It can be easy to feel destabilized. And once you do, second-guessing your entire mission is inevitable.

Still, during difficult times, going back to your mission can help guide your decisions. What is the core purpose of your work? Who are the people that you serve? How do you plan to keep showing up as an organization, even with this loss of federal funding? Doubling down on your mission isn’t just good to keep the ball rolling. It’s also a chance to boost team morale. Losing funding is terrible, but it doesn’t have to be the end of your work – or your momentum.

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