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In the first months of 2025, America’s safety net began to fray. From food banks to community health programs, thousands of nonprofits found their government funding delayed, frozen or stripped away. 

The Urban Institute’s October report “How Government Funding Disruptions Affected Nonprofits in Early 2025” reveals how the country’s moral infrastructure is buckling under the weight of political choices and bureaucratic neglect.

The report found that one in three nonprofits experienced some form of government funding disruption between January and June: 21% lost at least some government funding; 27% saw funds delayed or frozen; and 6% received stop-work orders that halted programs entirely. These numbers, the researchers wrote, reveal a “cascading effect” across the nation’s nonprofit landscape.

Federal agencies began canceling grants and pulling back committed funds at the start of the year. 

“Organizations delivering job training, mental health services, independent living assistance, disaster relief, and emergency shelter, among other services, were forced to suspend programs and lay off staff,” the report stated.

The pain stretched far beyond Washington’s directives. 

One nonprofit leader explained that “state and local government have stopped providing multiyear contracts as they assess what changes at the federal level will take place. This impacts our ability to forecast and plan budgets.” 

Another nonprofit  director expressed concerns about funds promised to organizations before the program cuts. 

“There is concern that remaining federal grant funds will not be honored, even though we are in contract to provide the services,” the leader noted. “Also, if federal funding our state agency receives is cut, we will no longer receive operating support.”

Data Reveals Widespread Impact

The data show how deep the shock runs. 

Large organizations with annual expenses above $10 million were the most affected, with 56% reporting at least one disruption. 

For smaller nonprofits operating on less than $100,000, 18% reported funding loss or delay. 

Across the sector, disrupted nonprofits relied on government sources for 42 of their total revenue, compared with 28% among all nonprofits. For those hit hardest—groups experiencing three types of disruptions, government dollars made up 57% of their budgets.

Even those not directly funded by government contracts felt the blow. 

“The broader pullback in federal funding is having a significant indirect effect,” one small nonprofit said. “As federal dollars diminish, both foundations and individual donors are shifting more of their resources to larger organizations… This dynamic is creating a growing level of financial uncertainty for small nonprofits more broadly.” 

Another small nonprofit emphasized the danger beyond just losing money.

“It’s not just government funding that’s been impacted,” the organization noted, “it’s the broader environment this administration has created for organizations serving communities it deems inappropriate or controversial.”

The effects reached deep into communities. Fifteen percent of all nonprofits reduced their staff in the first four to six months of the year, nearly double the number from 2024. 

Among those affected by government funding disruptions, 29% reported staff reductions. For organizations facing three levels of disruption, that figure climbed to 51%. Hiring plans also collapsed, falling from 52% at the end of 2024 to just 38% by mid-2025.

One organization wrote: “Funding uncertainties make it extremely difficult to plan short term and certainly for the long term. We are trying to hold off on laying off or cutting hours, but not sure how much longer we can wait without some certainty going forward.”

The loss of funding also meant less programs and fewer people served. 

Twenty-three percent of disrupted nonprofits reduced their programs compared with 12% of all nonprofits. Twenty-one percent cut back on the number of people served. Nearly half—48%—of those that suffered three types of disruptions reduced their programs, while 38% reduced the number of individuals reached.

“We are preparing to decrease our spending on food items to prevent us from having to make cuts in staffing,” one nonprofit explained. “We are almost at our maximum number of meal recipients and have a capped number at 75 with our one cook.” 

Another nonprofit organization offered a warning for the future.

 “Expect major impacts on the state budget from federal cuts, which will directly affect state-funded programs we provide. We cannot make up for projected changes with fundraising.”

Two-thirds of nonprofit leaders said they expect demand for their services to increase in the next 12 months. They foresee a storm of need they cannot meet. 

“Every action the government takes has a direct impact in the community,” one leader said. “With all the funding cuts how can we help families to cover their basic needs?”