Surviving Federal Cuts: Strategies for Nonprofits to Thrive and Retain Staff

Across the nonprofit sector, federal funding cuts have left organizations scrambling to sustain services, staff, and community impact. With individual giving also in decline, many mission-driven leaders are facing difficult choices about how to stretch increasingly limited resources. According to the Giving USA 2023 Annual Report, individual giving dropped by 6.4% in inflation-adjusted dollars, one of the steepest declines on record. While overall philanthropic giving held relatively steady thanks to large bequests and foundation grants, nonprofits that rely heavily on federal funds and grassroots donors are feeling the squeeze.

At the same time, operating costs have surged. Inflation, competitive labor markets, and growing community needs have driven up expenses for organizations that are already financially vulnerable. The National Council of Nonprofits reports that more than 60% of nonprofits are experiencing increased demand for services, yet fewer than 30% feel they have the resources to meet that demand. The funding gap is widening, and without a strategic pivot, many organizations risk compromising not only their programs but also their people.

But the data also shows that there are pathways to resilience. While government funding has declined in some sectors, foundation giving continues to grow.

According to Candid (formerly Foundation Center and GuideStar), foundation giving reached 105.2 billion dollars in 2022, with particular increases in grants related to racial equity, health access, and environmental justice. Foundations are also showing greater flexibility, offering general operating support and multi-year commitments. These trends began during the COVID-19 pandemic and have continued even after the peak of the crisis.

To access these funds, nonprofits must make strategic shifts in how they position their work, communicate their impact, and structure their internal operations. One successful approach involves realigning programs to fit within cross-sector funding priorities. For example, a youth development organization that previously relied on Department of Education grants may be eligible for foundation funding focused on mental health, workforce development, or racial equity. This does not require abandoning the core mission. Instead, it calls for reframing existing outcomes in ways that resonate with a broader set of funders.

Collaborative grantmaking is also on the rise. More than 1,000 philanthropic institutions have joined pooled funding initiatives, according to the Philanthropy for Active Civic Engagement (PACE) report. These models allow smaller nonprofits to access larger grant opportunities by partnering with others in their ecosystem. These collaborations often reduce administrative burden and increase access to technical support, offering a high-leverage opportunity for under-resourced organizations.

Internally, retaining staff during funding shortfalls requires a combination of transparency, adaptive planning, and values-based leadership. Research published in the Nonprofit and Voluntary Sector Quarterly indicates that employees are significantly more likely to remain with an organization during crises when leadership communicates openly, involves staff in decision-making, and maintains consistency with organizational values. The 2021 Nonprofit Workforce Survey by the National Council of Nonprofits found that mission alignment and a sense of belonging were two of the strongest predictors of retention, even more influential than compensation alone.

Organizations that engage in conscious leadership practices—leading with empathy, shared purpose, and strategic clarity—tend to outperform their peers during economic downturns. Conscious leadership does not ignore financial realities. It contextualizes them within a broader commitment to people and purpose. Rather than resorting to reactive layoffs, some nonprofits are exploring creative alternatives such as shared staffing models, reduced workweeks, and cross-training to maintain core operations while keeping teams intact.

Now is not the time for mission drift, but it is the time for mission resilience. The path forward may involve new funders, strategic partnerships, and internal culture shifts, but it can still be grounded in the values that define the work. The most successful pivots are not only financial. They are philosophical, cultural, and structural. When led with intention, these pivots preserve both impact and integrity.

If your organization is navigating change and looking to strengthen its leadership capacity in challenging times, visit www.eddypaulthomas.com to explore conscious leadership strategies built for moments like these.

References

• Giving USA Foundation. (2023). Giving USA 2023 Annual Report on Philanthropy.

• National Council of Nonprofits. (2023). Nonprofit Workforce Survey.

• Candid. (2023). Key Facts on U.S. Foundations. https://candid.org

• PACE (Philanthropy for Active Civic Engagement). (2023). The State of Collaborative Philanthropy.

• Brown, W. A., & Yoshioka, C. F. (2003). Mission Attachment and Satisfaction as Factors in Employee Retention. Nonprofit Management and Leadership.

• Nonprofit and Voluntary Sector Quarterly. Various studies on nonprofit resilience and staff retention.