Source: Fortune
Summary
Nonprofits in the U.S. are facing a severe crisis following actions by the Trump administration and Congress starting in January 2025, including freezing federal funds and cutting grants. Demand for nonprofit services has increased due to cuts to social safety net programs. Phil and Elisha’s research team has been monitoring the situation, noting that foundation giving increased by only 3% in 2025, far below the 15.6% increase during the pandemic. Nonprofit leaders report high burnout and financial challenges, with some organizations closing or reducing services. Foundations, which control $1.8 trillion in assets, have been criticized for insufficient responses to the crisis.
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The numbers tell one story.
Nonprofits are struggling with funding cuts and rising demand.
Foundations have only modestly increased giving.
Many are sticking to minimum payout rates.
The crisis is deepening, but the response is slow.
The sector is in crisis, but the response is not matching the scale.
Nonprofits in Crisis
Nonprofits across the U.S. are in severe distress. Since January 2025, the Trump administration and Congress have targeted the sector with actions like freezing federal funds, terminating grants, and investigating nonprofits. These moves have coincided with increased demand for services due to cuts to social safety net programs. Nonprofits are now facing burnout, layoffs, and closures, with food banks rationing supplies and domestic violence shelters closing. The situation has created a crisis that is affecting communities nationwide.
The philanthropic response has been criticized as insufficient. Foundations, which control $1.8 trillion in assets, have only increased giving by 3% in 2025, far below the 15.6% increase during the pandemic. Despite the dire situation, many foundations are sticking to the IRS-mandated minimum payout rate of 5%, with only 8% of foundation CEOs rating their response as “very effective.” Some foundations cite risk aversion and concerns about preserving endowments as reasons for not increasing giving.
While some foundations have stepped up, such as Marguerite Casey, MacArthur, and Robert Wood Johnson, these are exceptions. Many foundations are hesitant to increase spending, citing a lack of impact opportunities or the belief that their funding cannot fully replace federal support. Some even suggest the crisis may weed out weaker nonprofits. However, the report argues that even highly effective organizations are struggling, and the consequences will become more apparent in the coming months.
The report calls for foundations to move more money to nonprofits, especially given the record levels of assets in foundation endowments. It emphasizes that the current crisis is not just affecting weak or ineffective organizations, but also those that are essential to communities, such as those providing housing, environmental protection, and cultural services. The message is clear: the time to act is now.
Despite the challenges, some foundations have taken bold steps. MacArthur, RWJF, and Skillman have increased giving and spoken out in defense of the sector. However, these are the exceptions rather than the rule. The report highlights the need for a more robust and coordinated response from the philanthropic community to address the growing crisis in the nonprofit sector.
