In CEP’s latest research report, “The State of Nonprofits 2026,” one of its three major findings is that “despite ongoing financial challenges, many nonprofits are making strategic adaptations to their work in order to survive.” That is absolutely right — but is putting it mildly.
In fact, this period poses a historic “passing gear” challenge for philanthropy.
While philanthropy cannot (and, in most cases, should not) attempt to replace established federal investments, it can play a substantial and historic social venture capital role in the renewal of nonprofit approaches and the strengthening of their civic bases. In fact, this role (if you choose to accept it) is in the best tradition of philanthropy as “society’s passing gear.”
That handy metaphor was coined by philanthropist Paul Ylvisaker to describe the capacity of foundations to act as social venture capital in situations where government and the market are stalled in breaking new ground. In this moment, critical philanthropic investments can be made in a way that is timely and respectful of the unusual task ahead for nonprofits.
What Nonprofit Finance Specialists See
The overall funding and policy environment for many nonprofit organizations is in a state of upheaval and will be profoundly unsettled for the near future. For many long-standing fields of work, this turbulence is born both of revenue loss and what business literature would call “regulatory hostility.” Together they represent an existential threat to individual nonprofits, the momentum of social movements, the health of communities, and small “d” democracy itself. At the same time, this upheaval threatens to devalue past investments made by philanthropy in all of these capacities.
That is why Nonprofit GPS, a network of nonprofit financial specialists, are making the following recommendations for grantmaking in the current landscape of retrenchment.
1. Invite plans and proposals from your grantees and other nonprofits for remaking their business models to fit a new revenue and operating landscape.
It takes multiple years and intensive focus to properly test and implement new revenue streams and program mixes while continuing to operate in challenging environments. For this reason, these investments should be made in the form of multiyear, unrestricted grants rather than single-year commitments. Funding of this nature minimizes barriers and maximizes the flexibility of grant monies intended to sustain the impact of the fields or practices in which you invest.
2. Build the capacity of field level intermediaries to document successful models in the field, track trends, and facilitate collective action.
Field-based infrastructure groups are essential to facilitate the timely spread of promising new business models and organize the collective advocacy and litigation opportunities required to mitigate the negative impact of a “hostile” policy environment. The sharing of successes and failures is valuable for experimenting with and building updated business models for like organizations.
Field intermediaries and associations also provide policy-related information and tools needed to advocate within the operating environment rather than simply defaulting to an approach of adaptation, surrender, and compliance.
3. Prioritize transparency to ensure that time and energy is not wasted.
By its nature, the philanthropic grantmaking system is complicated, unpredictable, secretive, and highly variable. These factors do not tend to induce trust, but rather slow down interactions and the timeliness of responses. Clear communications are needed to provide greater clarity about how a foundation will respond to the current situation, the amount of funds available, the decision-making process, and the timeframe for deployment of funds.
4. Seriously consider increasing grant payout budgets over the next three to five years to preserve prior investments and advance fields of interest.
This suggestion is a necessary precursor to the first two recommendations. The activity required to pivot the business model of organizations to meet a still-emerging future operating environment will require investments that are at once dedicated to that purpose and structured as flexibly as possible.
Nonprofit GPS is a collaborative project of Nonprofit Financial Commons and BDO’s Nonprofit and Grantmaker Advisory team that is designed to address the effects of the current federal retrenchment on the financial health of U.S. nonprofit organizations. The project’s structure of deep engagement with thousands of nonprofit financial leaders leverages a continuous stream of information from nonprofits of all types and sizes. It is from this vantage point, a year into the project, that we are making these recommendations to the nation’s philanthropic institutions.
Our team of seasoned financial professionals, who are observing the trends closely, anticipate a period of serious sectoral recalibration. This recalibration presents both significant risks and opportunities to not only individual nonprofits but to entire fields of practice — and to civil society as a whole.
In a nutshell, we have observed the following:
- The revenue environment is in turmoil following a series of massive federal cuts, freezes, and regulatory actions that have affected not only the direct recipients of those funds but — in successive ripples — other organizations in the interconnected nonprofit ecosystem. Government funding is the single largest pool of revenue fueling the sector; any significant changes to its deployment will necessarily have far-reaching effects. In this case, those effects are amplified in some fields by the fact that other monies deployed towards complementary ends are also being redirected. This is reinforced in Figure 5 of CEP’s report where the level of difficulty in securing foundation funds is listed as higher than for federal grants.
- These government funding shifts have left many nonprofits unsure of their traditional revenue prospects at a time when the demands on these organizations climb ever higher due to other actions and cuts made by the federal administration.
- In response, nonprofits are moving quickly to take stock of the changes they must make internally and inter-organizationally to best carry out their missions in an evolving and significantly altered operating environment. These changes are underway and include the profound reorganization of core programmatic, operational, and financial arrangements — the combination of which is the business model of the organization.
The need for recalibration of the nation’s nonprofits is not restricted to any single or even a few specific fields. The ripple effects of such a large federal withdrawal of dollars from the nonprofit ecosystem creates its own uncertainties on top of those directly visited upon targeted fields.
Nonprofit leaders are working to recalibrate their organizations to work optimally in their future operating environments. However, making solid judgements in such moments requires a gradual, experimental approach and a “runway” of unrestricted capital.
Significant amounts of unrestricted capital, for all but the few who may have significant reserves or endowment, can only be made readily available by philanthropy.
Jon Pratt is a senior research fellow for the Minnesota Council of Nonprofits, Nonprofit Financial Commons.
Ruth McCambridge is the director of content at the Nonprofit Financial Commons, which partners with BDO Nonprofit and Grantmaker Advisory on the Nonprofit GPS project.
