Federal Funding Pause and Nonprofits: Understanding and Planning for the Future
The recent Executive Orders, and a now-rescinded federal funding pause have introduced a period of uncertainty for the nonprofit sector. The Office of Management and Budget (OMB) announced a freeze on nearly all federal grants and loans. While the immediate funding freeze is no longer in effect, its brief existence, coupled with the ongoing implications of the Executive Orders, necessitates careful consideration and proactive planning by nonprofit organizations. Though specific impacts may remain unclear until funders issue formal guidance, organizations should immediately begin by reviewing the Guidelines for Federal Agencies. This review will allow organizations to assess potential program impacts by cross-referencing with the document's listed program numbers. Furthermore, ongoing monitoring of updates from relevant associations is crucial for staying informed.
Understanding the Situation
The OMB memo, alongside recent executive orders, raised concerns for organizations receiving federal funding, including nonprofits, educational institutions, and state/local governments. The pause affected "federal financial assistance," encompassing grants, cooperative agreements, loans, and other forms of support (as defined by 2CFR 200.1).
Potential Impacts
The now-rescinded federal funding pause had several potential impacts on organizations:
Eligibility Review: Federal agencies were mandated to review all financial assistance and determine which recipients might be ineligible based on executive orders. These agencies were required to submit lists of potentially ineligible recipients to the OMB by February 10. The funding pause was to remain in effect until the OMB completed its review and provided further guidance.
Payment Disruptions: Pending federal grant payments were likely to be delayed or even halted.
Grant Application Freeze: The review process for new grant applications was suspended, affecting agencies such as the National Science Foundation.
Limited Exceptions: The OMB had the discretion to grant exceptions on a case-by-case basis. Agencies were also permitted to continue certain administrative actions as legally mandated.
Specific Exemptions: Medicare and Social Security benefits were explicitly excluded from the funding pause.
Recommended Actions for Organizations
During the now-rescinded funding pause, organizations, especially those with tight budgets, were advised to focus on financial resilience. This involved several key steps:
Exploring Alternative Funding: Organizations were encouraged to identify and develop funding sources not affected by the pause.
Communicating with Banks: Open discussions with banking partners about cash management strategies and available credit lines were crucial.
Projecting Cash Flow: Modeling daily cash flow under various scenarios, including payment delays or stoppages, was essential.
Planning for Contingencies: Developing contingency plans to address potential funding cuts, including adjustments to programs, staffing, and operational costs, was a priority.
Legal Considerations:
Legal challenges to the funding pause were anticipated, potentially affecting its implementation and impact. While the temporary federal funding pause has been lifted, the experience highlighted the financial vulnerabilities many nonprofits face.
How NCheng LLP Can Help:
We understand these times can be challenging. We are committed to monitoring the situation and remaining current on all developments. NCheng LLP is here to offer support and expertise as you navigate funding complexities. Connect with us.