At midnight on October 1st, the U.S. government shut down after Congress failed to pass a short-term funding bill. The shutdown is a culmination of contentious policy differences between Republicans and Democrats over federal spending measures, particularly on healthcare-related issues.
For better or worse, the nonprofit sector has been weathering disruption and uncertainty for months now, so when the federal government shuts down, the effects are felt immediately in Washington, but the consequences also ripple quickly throughout the sector.
For nonprofits, higher education institutions, and philanthropic foundations, a shutdown isn’t just a political event. It’s a disruption to funding, operations, and the communities they serve.
As board members, understanding these impacts is essential to guiding strategy, risk management, and resource allocation, especially since there is the possibility of a prolonged shutdown.
Nonprofits: Increased Demand, Decreased Support
Many nonprofits rely on federal grants and contracts. When those funds are delayed:
- Cash flow tightens and organizations may need to tap reserves or seek bridge financing.
- Demand surges as federal programs pause, forcing communities turn to nonprofits for food, housing, and emergency support.
- Staffing and operations are strained and therefore some may face furloughs or program cuts.
Governance Focus
Be prepared to support leadership in making tough financial decisions and communicating transparently with stakeholders. Review liquidity and reserves to make sure your organization is positioned to weather further disruption. Continue to support advocacy and coalition efforts.
Higher Education: Research and Compliance Delays
Universities may not lose funding immediately, but the longer a shutdown lasts, the more disruptive it becomes:
- Federal student aid continues, for now, but processing delays are possible.
- Research funding stalls and grants from federal agencies are delayed, stalling investment in research, innovation, and lab operations.
- Due to administrative and regulatory slowdowns, with most Department of Education staff furloughed, regulatory guidance and investigations—including civil rights investigations and compliance reviews—have been put on hold.
Governance Focus
Monitor how shutdowns affect research pipelines, compliance timelines, and student services. Additional monitoring of public policy will be important as higher education continues to be a focus of this administration. Continue to support advocacy and coalition efforts.
Foundations: The Pressure to Step In
Private and community foundations often become the de facto safety net when federal support disappears:
- Emergency grant requests increase from grantees facing funding gaps.
- Public-private partnerships may stall, especially those involving federal agencies.
- Market volatility may impact endowment performance and payout capacity.
Governance Focus
Be ready to reassess grantmaking priorities and consider short-term flexibility in response to urgent needs. Continue to support advocacy and coalition efforts.
A government shutdown may be out of your control, but how you respond is not. As board members, your guidance and foresight are critical to helping organizations navigate uncertainty and continue serving those who rely on you most.
Commonfund Institute will continue to monitor and provide updates and insight as these events unfold.
