Federal Funding: Navigating Today’s Challenges

Federal funding used to feel relatively predictable. Follow the rules, meet your deliverables, stay compliant, and your grant or contract typically continued. But if your organization receives federal dollars today, you know the ground is shifting—and fast.

Over the past year, nonprofits have faced an unprecedented wave of grant cancellations, policy reversals, new certifications, and agency-level reinterpretations of long-standing laws. Add more than 200 executive orders, dozens of presidential memoranda, and nearly 500 lawsuits challenging federal actions, and it’s no wonder nonprofit leaders feel like they’re walking into a legal fog.

This post breaks down what’s happening, why it’s so confusing, and, most importantly, what your organization needs to do right now to stay ahead of the disruption.

The Disruption is Real: What the Data Shows

Two major reports released in 2024–2025 paint a stark picture:

Urban Institute 2025 National Survey

Survey of 133,000 charitable nonprofits found:

1. 1 in 3 experienced federal funding disruptions including stop-work orders, freezes, delays, or outright cancellations.
2. Many faced downstream consequences: program cuts, layoffs, hiring freezes, and emergency fundraising efforts.

GrantExec Report

1. Identified 690+ cancelled federal programs.
2. Total losses: $19 billion.
3. Most extreme impact: USAID, which has effectively shut down in its prior form.

If you felt like funding opportunities disappeared overnight, you’re not imagining it.

Why the Impact Feels Sudden (and Unpredictable)

Executive orders don’t directly bind nonprofits. Instead, they bind agencies. Agencies then translate those orders into:

• new terms in grants and contracts
• new certifications
• additional eligibility checks
• revised Notices of Funding Opportunity (NOFOs)
• modifications and amendments to existing awards
• flow-down requirements for subrecipients

This means you may never see the executive order that triggered the change, you just see the change.

Agencies are also issuing guidance, memos, and enforcement priorities faster than most nonprofits can track. Many of these are already being challenged in court, paused, reinstated, amended, or replaced.

In short: you are watching policy, law, and litigation collide in real time.

The Most Significant Shifts Nonprofits Are Feeling

1. Termination for Convenience Is Now a Real Risk

Historically, grants were only terminated for noncompliance. Today, agencies are not only empowered—but encouraged—to terminate awards when they no longer align with agency or administration priorities.

A new executive order instructs agencies to include termination-for-convenience clauses in all grants, and to revise the Uniform Guidance accordingly.

This is new territory for many nonprofits. If your organization has never prepared a Termination Settlement Proposal (TSP) before, now is the time to learn.

2. DEI Certifications and Investigations Are Expanding

A January executive order revoked the longstanding Johnson-era affirmative action obligations for federal contractors, and replaced them with a new requirement:

You may be asked to certify that your organization does not operate DEI programs that violate federal anti-discrimination law.

There are three problems with this:

1. No definition of outlawed “DEI.”
2. Certification language varies widely by agency.
3. Certifications are “material”, meaning False Claims Act liability applies.

The Department of Education has already launched investigations tied to DEI compliance, and some actions have been temporarily blocked by courts. The uncertainty alone creates risk.

3. Immigration-Related Restrictions Are Tightening

Under Executive Order 14218 and related agency rules, nonprofits may now need to verify immigration status before providing certain federally funded benefits, including:

1. workforce training
2. adult education
3. certain HHS mental health/substance abuse services
4. disaster recovery services (HUD)

Faith-based and humanitarian organizations face added tension when verification obligations conflict with mission principles.

4. Broadened “Domestic Terrorism / Political Violence” Definitions

A September presidential memorandum directs DOJ, Treasury, and the IRS to monitor and investigate nonprofits for any activity “directly or indirectly” connected to political violence, defined more broadly than ever to include:

• doxxing
• swatting
• organized civil disorder
• intimidation connected to political outcomes

This creates real exposure for advocacy-driven nonprofits, environmental groups engaging in protest activity, and organizations with vocal member bases.

What Nonprofits Should Do Now

1. Read your grant and contract terms carefully.

This is not the year to skim the boilerplate. Look especially for:

• termination-for-convenience language
• new DEI-related certifications
• immigration eligibility requirements
• flow-down terms you must impose on partners

2. Strengthen internal compliance systems.

This includes:

• staff training
• eligibility documentation
• recordkeeping
• internal review of certifications before signing
• improved financial management controls

3. Maintain meticulous documentation.

If you face a termination or investigation, your file becomes your best defense.

4. Prepare a plan for sudden termination.

This includes knowing how to file a Termination Settlement Proposal and what costs can be recovered.

5. Don’t navigate this alone.

Federal contract and grant law is technical. Engage experienced counsel before you sign or certify anything new.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.