Potential Impacts of a Federal Funding Freeze on Not-for-Profits

The anxiety experienced by the not-for-profit community over the past week has been overwhelming. The importance of this community in carrying out programs on behalf of the federal government is significant. It is essential for the community to work together during these times, support each other and understand the impacts of the executive orders and limitations on funding.

Federal funding for not-for-profits remains in flux as the Trump administration rolls back its proposed federal grant directive in the wake of a judge’s orders. Let’s review the recent chain of events and see why these developments still matter for organizations that rely on government funding.

Recent Developments

• Jan. 27, 2025: The Office of Management and Budget (OMB) introduced Memorandum M25-13, proposing a major shift in federal spending strategy by calling for a temporary halt to federally funded activities.
• Jan. 28, 2025: A federal judge temporarily blocked the freeze, creating uncertainty about when or if it would take effect.
• Jan. 29, 2025: The White House rescinded the directive, but the freeze itself is still in place, adding confusion to the mix.

Although the memorandum is no longer active, it’s vital that affected organizations understand its potential implications, given the potential for further action by the administration. The memorandum called for stricter oversight of federal funds, focusing on aligning grant programs to new policy priorities. If it had gone into effect, it might have delayed or reduced funding for not-for-profits, universities and other organizations relying on federal support.

Below is a summary of the directive’s key points and why the discussion surrounding it remains relevant for not-for-profits moving forward. In these turbulent times, we encourage you to be patient; our team will continue working with you to navigate any future shifts in federal funding.

Temporary Freeze on Funding

Even though the directive has been withdrawn, it initially signaled that certain grants, loans and cooperative agreements could be halted. Not-for-profits focused on areas singled out by the administration — such as environmental projects or diversity, equity and inclusion — might have faced heightened scrutiny. We saw agencies suspending their payment portals given these directives, and agencies were notifying their grantees (like NSF) that pending payments would be canceled. Organizations will have to look for ways to manage cash flows and identify potentially additional resources to cover costs during this pause.

Potential Changes to Grant Programs

The memorandum also required a comprehensive review of federal grant programs. Organizations whose missions didn’t align with updated priorities could have seen grant opportunities scaled back or canceled if the freeze had gone forward.

Heightened Oversight and Possible Cancellations

Under M25-13, senior political appointees would have overseen grant allocations to ensure alignment with the administration’s agenda. This could have led to tighter oversight and additional requirements for organizations receiving federal funds.

Ongoing Uncertainty

Although the directive is no longer in effect, funding decisions can still shift if new policies are introduced. Staying prepared and adaptable remains important for organizations that rely on federal grants.

How CBIZ Can Help

We are closely monitoring the situation, gathering insights from what we learn through our clients, advocates, the funding agency directives and attorneys. We will share updates as they become clear. While many details are still evolving, please know we are here for you during this challenging time.

Please connect with us for guidance or support or even to connect you with others in the not-for-profit community.

Together, we will navigate this situation—because we are stronger together.