Executive Summary
This report presents a comprehensive analysis of the challenges and opportunities facing Tennessee’s nonprofit sector in the early months of 2025, based on a survey of 99 organizations from across the state of Tennessee. Key findings reveal a sector grappling with uncertainty due to political and societal shifts, facing potential funding cuts amidst increased demand for services. While many organizations have proactively engaged in strategic planning, concerns remain regarding funding stability, staff morale, and the ability to effectively serve communities. Ultimately, the report underscores the need for continued monitoring, analysis, and strategic intervention to ensure the resilience and effectiveness of Tennessee’s vital nonprofit sector.
Introduction: A Landscape of Reliance and Vulnerability
The nonprofit sector in Tennessee stands as an essential pillar of community well-being, providing critical services and support across the state. However, this vital sector is currently navigating a period of unprecedented uncertainty, facing a confluence of challenges that threaten its ability to effectively serve Tennessee’s most vulnerable populations. This extended report delves into the findings of a survey conducted among 99 nonprofit organizations, offering a comprehensive analysis of the sector’s current state, the impacts of recent political and societal shifts, and the critical role philanthropy must play in ensuring its continued resilience. Themes and trends were consistent across all communities/regions in Tennessee.
The scale of the sector’s reliance on government funding is significant. In Tennessee, nonprofits received a total of $3.8 billion in government grants, demonstrating the deep integration of public support into the sector’s operational framework. This reliance, however, creates a landscape of both opportunity and vulnerability. Notably, nonprofits in Davidson, Shelby, and Knox counties, along with those in the 7th, 9th, and 3rd Congressional districts, received the most substantial government funding. These areas, while benefiting from significant public investment, also face the potential for disproportionate impact should funding streams be disrupted.
Conversely, the survey data reveals areas of heightened vulnerability. Nonprofits in Benton, Sequatchie, and Pickett counties, as well as those in the 4th, 6th, and 1st Congressional districts, would face the most significant gaps if government grants were lost. These regions, often characterized by limited resources and heightened need, are particularly susceptible to the ripple effects of funding reductions. Furthermore, nonprofits in Benton, Campbell, and Cannon counties, along with those in the 8th, 1st, and 9th Congressional districts, exhibit the highest share of nonprofits at risk of failing to cover their expenses in the absence of government grants. This concentration of risk underscores the fragility of the sector’s financial stability in certain regions of the state.
This report seeks to illuminate the challenges faced by these diverse organizations, revealing the intricate web of reliance and vulnerability that characterizes Tennessee’s nonprofit landscape. This report aims to provide a better understanding of the sector’s current state and to offer actionable recommendations for ensuring its continued resilience.
Sector Overview: Diversity and Direct Service
The survey participants represented a diverse tapestry of Tennessee’s nonprofit landscape, encompassing organizations of varying sizes, missions, and geographical reach. A significant revelation was the widespread reliance on federal funding, with 34% of respondents indicating that federal dollars constitute a portion of their operational budgets. This dependency, ranging from supplementary support to complete reliance, underscores the sector’s vulnerability to fluctuations in federal policy and funding priorities. The wide range in annual budgets, from under $100,000 to over $16 million, further highlights the diverse operational scales within the sector. Critically, the overwhelming majority, 80%, identified as direct service nonprofits, emphasizing their essential role in delivering frontline assistance and addressing immediate community needs. This dominance of direct service providers underscores the sector’s critical role in addressing pressing social needs, from food security and housing to healthcare and education.
Impact of Political and Societal Shifts
The survey sought to quantify the impact of recent political and societal shifts, which have fostered a climate of uncertainty and apprehension. A significant 70% of organizations reported that their boards had convened to discuss and strategize in response to these changes. This proactive engagement reflects a recognition of the need to adapt and navigate the evolving landscape. However, the impact on funding streams has been a source of considerable concern and a major driver of this strategic planning. The survey revealed a nuanced picture of funding shifts across different sources, with respondents sharing specific experiences.
Funding Trends: Shifting Landscapes
- Foundation Support:
- While 52% reported no change, suggesting a degree of stability, the remaining respondents painted a concerning picture.
- 22% experienced a slight decrease, indicating a potential tightening of foundation purse strings.
- 10% reported a significant decrease, signaling a more dramatic reduction in foundation support.
- Corporate Support:
- Similar to foundation support, 54% reported no change.
- However, 22% experienced a slight decrease, and 10% a significant decrease, mirroring the trend observed in foundation giving. This suggests a broader trend of diminished support from institutional funders.
- Individual Support:
- This category presented a more complex picture.
- 52% reported no change, suggesting that individual donors have largely maintained their support levels.
- 18% saw a slight increase, potentially reflecting a growing sense of individual responsibility and a desire to fill funding gaps.
- 14% saw a slight decrease. This could be due to economic pressures on individuals, or donor fatigue.
Demand vs. Resources: A Growing Gap
The divergence between increased demand for services and potential funding reductions creates a precarious situation for many nonprofits. A significant 50% of respondents reported an increased demand for their services, driven by factors such as economic hardship, policy changes, and social needs. This surge in demand places significant strain on existing resources and highlights the critical role nonprofits play in filling gaps in public services. Compounding the financial pressures, 20% of organizations reported losing federal or state funding since January. (Note: though the National Council of Nonprofits was successfully able to fight the federal funding pause, this did not stop all federal contracts from being cut.) This loss of funding, whether through direct cuts or shifts in funding priorities, further exacerbates the challenges facing the sector. The combination of increased need and reduced funding creates a perfect storm, placing immense pressure on already stretched resources.
Operational Adjustments: Facing Difficult Choices
In anticipation of potential financial shortfalls, nonprofits are actively considering a range of operational adjustments. The survey revealed a sobering picture of potential cutbacks, with respondents sharing their concerns:
- Program Reductions:
- A significant 42% anticipate having to reduce programs or services, a difficult decision that will directly impact the communities they serve.
- “We would halt services in several places and have to layoff staff doing incredible work. All while need for services increases,” one respondent stated, illustrating the dire consequences. This highlights the painful trade-offs that nonprofits are forced to make in the face of funding constraints.
- Program Alterations:
- 34% expect to alter their program offerings to adapt to changing circumstances and resource constraints.
- “We have to decrease our scope,” one organization reported, showing the necessity of change.
- Staffing Reductions:
- 24% are considering layoffs, a measure that will not only impact staff members but also reduce the organization’s capacity to deliver services.
- “We would have to start laying off staff and shutting down programs,” a respondent warned. This underscores the human cost of funding reductions.
- 18% are contemplating reducing staff hours, and 14% are considering wage reductions, further highlighting the financial pressures facing the sector. These measures can have a significant impact on staff morale and well-being.
- Financial Strategies:
- 26% plan to draw from reserves to mitigate financial shortfalls, a strategy that is not sustainable in the long term.
- “Draw from reserves (e.g., emergency fund, board designated reserves, etc.),” was a common response. This highlights the reliance on short-term solutions to address long-term challenges.
- Organizational Changes:
- 8% are considering changing their mission statements, and 6% are contemplating ceasing operations, indicating the severity of the situation for some organizations.
- “Cease operations or shut down due to lack of funds,” was a possible outcome for some. These drastic measures underscore the existential threats facing some nonprofits.
General Mood and Challenges: A Sense of Unease
The general mood within the nonprofit sector reflects the prevailing uncertainty and apprehension. A substantial 56% reported feeling slightly less positive or optimistic since January, while 24% expressed a significantly diminished sense of optimism. This pervasive sense of unease underscores the challenges facing the sector and the need for proactive measures to address them.
The survey also identified the biggest challenges facing nonprofits, with respondents expressing their concerns in their own words:
- Uncertainty and Instability:
- “The uncertainty is excruciating,” one respondent stated, highlighting the emotional toll.
- “Not knowing what to expect. There’s no timeline or way to predict what will happen and when,” another respondent shared. This sense of unpredictability is a significant source of stress for nonprofit leaders.
- Funding Concerns:
- “Corporations were already pulling back after COVID. Foundations are completely silent and we have no clue what their plans are. Our major individual donors are worried about the economy. Now all of our federal dollars are on the line. This is a perfect storm, and no one knows what to do,” one respondent simply stated, summarizing a major concern.
- “Gaps in services for our patients due to impending programmatic cuts,” another respondent shared.
- Staff Morale:
- “Lots of fear among staff,” one respondent reported, highlighting the impact on employees.
- “Employee morale (we have already lost employees),” another stated.
- Increased Demand for Services:
- “Increased demand with no clear funding sources to assist in meeting the need,” one organization reported.
- “We anticipate more need for our services-more individuals experiencing homelessness,” another shared.
- Navigating the Political Landscape:
- “The uncertainty regarding funding and policy decision at the federal and state levels,” one respondent stated.
- “Harmful immigration policy changes affecting our clients,” another shared.
- “One of our [clients] told me that she will commit suicide if ICE separates her from her children. What’s most heartbreaking is that she is a legal immigrant to this country and was trafficked in her home country before finding a better life here.”
- Administrative Burden:
- “Increased reporting requirements are taking away from program time.”
- “The increased cost of insurance and operating cost is very difficult to manage.”
Recommendations for Philanthropy: A Call to Action
In this challenging environment, philanthropy can play a pivotal role in supporting the nonprofit sector. Respondents highlighted several key areas where philanthropic support would be most impactful:
- Unrestricted Operating Support:
- “Operating support, operating support, and operating support!” one respondent emphasized.
- “Unrestricted funding is always a challenge,” another shared. This highlights the need for flexible funding that allows nonprofits to address their most pressing needs.
- Multi-Year Grants:
- “Multi-year gifts, increasing gifts,” one respondent suggested.
- “Provide more funds for more than one year,” another said.
- “Multi-year grants provide stability and predictability, enabling nonprofits to engage in long-term planning.”
- Increased Funding:
- “Increase financial support,” one respondent urged.
- “More giving and involvement on the ground,” another stated.
- Advocacy and Communication:
- “Step up their giving and use their influence/connections to encourage corporations to increase giving,” one respondent suggested.
- “Please listen to the concerns of the people in Tennessee,” another pleaded.
- “Philanthropy has been nowhere to be found in all of this. They seem to be only concerned for themselves. I remember during COVID and the George Floyd murders that there were lots of performative commitments to the nonprofit sector. This shows that nonprofits cannot rely on philanthropy.”
- Capacity Building:
- “Providing capacity-building and technical support,” one respondent recommended.
- Collaboration and Partnership:
- “I would love to see local funders work together to force more collaborative resource-sharing,” one respondent suggested.
- Streamlining Grant Processes:
- “Simplify the grant application and reporting process.”
- Increased Communication:
- “Increased, and open communication between funders and nonprofits.”
Conclusion: Ensuring Resilience and Effectiveness
The narratives from the survey showed that many organizations are having to spend more time on fundraising and operational strategy, and less time on their missions. The emotional burden placed on nonprofit employees is also very high, as shown by the quotes within the report.
In conclusion, the nonprofit sector in Tennessee is navigating a period of unprecedented uncertainty and challenge. The combined pressures of potential funding cuts, increased demand for services, and a shifting political landscape are creating a difficult environment for these vital organizations. Philanthropy can play a critical role in mitigating these challenges by providing flexible funding, advocating for supportive policies, and fostering collaboration within the sector. Continued monitoring, analysis, and strategic intervention will be essential to ensuring the continued viability and effectiveness of Tennessee’s nonprofit sector. The strength of our communities depends on it.