The Impact of the Sequestration and Government Shutdown on Nonprofits

Government ShutdownThe first round of sequester cuts began on March 1, 2013 as part of a provision in the Budget Control Act of 2011 (also known as the debt-ceiling compromise). They were enacted mainly due to a lack of compromise between Republican and Democrat parties on the fiscal budget.

The sequestration, which arbitrarily cuts government funding across the board, has had damning effects on both nonprofits and the communities they serve. Exacerbated by the recent government shutdown, many nonprofits are without the funds needed to respond to growing service demands.  

Budgeting for fiscal year 2014 would reevaluate the sequester cuts. However, in the wake of the government shutdown, these talks remain stagnant. While the government reopened, no decision was made on the mandatory spending cuts, keeping them in place until at least Jan. 15, 2014. 

Immediate Impact on Nonprofits

Even before the sequestration hit, many government entities were failing to pay nonprofits in a timely manner as established by their agreed-upon contracts. According to a National Council of Nonprofits article, 68% of nonprofits with government contracts reported problems with performing services due to breached contracts.

The sequestration could worsen the situation. For example, according to a USA Today article, it is estimated that states may lose $4.2 billion with federal funding cuts in 2014. Yet, “because states have already enacted their fiscal year 2014 budgets, a second round of sequestration would force them to make changes on the fly.” While the ball is still in the court, this could mean cutting back on grant money previously offered.

When the government fails to pay, nonprofits need to look elsewhere in order to fill budget gaps. Time and energy are shifted from carrying out services to finding funds.

Government cuts have limited the number of government grants available, and reduced or shortened others. As an example, FEMA cut state and local grant funding by more than $100 million this past March. With competition for funding fierce, nonprofits that can tie activities to performance have a clear advantage.

Nonprofits with direct government funding must plan budgets accordingly due to uncertainty of payments and cuts. This affects their abilities to carry out planned services, and forces organizations to again focus energies on fundraising.

Indirect Impact on Nonprofits

The burden of the sequestration does not fall solely on the nonprofits that receive direct funding from the government. The brunt is felt by all nonprofits that need to step in for the government in areas they can no longer fulfill.

Nonprofits have increasingly been looked upon to fill gaps created by government defunding, causing an uptick in service demands. As explained in Associations Now: “When government stops, payments aren’t delayed only to nonprofits. Programs that provide food stamps, housing vouchers, and veterans services will also grind to a halt, which creates a vicious cycle for nonprofits.“

This, in turn, forces nonprofits to have a better understanding holistically of where funds are used throughout their organizations and how they are being allocated. It also forces organizations to become more efficient at raising funds and managing operations. Nonprofits are feeling the pressure more than ever to step in where government no longer can/will. 

How has the sequestration and recent government shutdown affected you?

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