Nonprofit and philanthropy friends,
Before we begin, a fact check: federal funding has not been cut to nonprofits. There is a federal funding freeze that goes into effect today at 5pm. The consequences of this are still massive, but please note that all federal funding to nonprofits has not been cut. Though we should expect major cuts to funding in the near future for some organizations, we don’t know what that looks like yet and won’t know for some time. In the wake of this announcement by the federal government, we must keep our facts straight and battle misinformation.
Secondly, big news: A coalition of organizations filed a Motion for Temporary Restraining Order in the U.S. District Court for the District of Columbia to block the White House Office of Management and Budget from pausing all agency grants and loans, as revealed in a memo issued January 27, 2025.
We have several additional updates for you regarding the federal funding freeze. Tennessee nonprofits, higher education institutions, state and local governments, health care entities, and many more organizations that receive federal funding are facing an immediate and severe freeze in federal funding, due to a memo issued by the federal Office of Management and Budget (OMB) Monday, January 27. (Special thanks to Minnesota Council of Nonprofits for their help in disseminating this information.)
The freeze of federal grants and loans starts Tuesday, January 28 as President Trump’s administration begins an across-the-board ideological review of its spending.
The pause is temporary, although no end date has been declared, pending a review from federal agencies “to identify and review all Federal financial assistance programs and supporting activities consistent with the President’s policies and requirements.”
This is a rapidly evolving situation with currently unknown implications for Tennessee nonprofits and the communities we serve. TNN is actively engaging with elected officials and the National Council of Nonprofits to gain clarity. This is what we know so far.
WHAT WE KNOW
- Who does that freeze impact: Based on the memo, the freeze impacts nonprofits, higher education institutions, state and local governments, health care entities, and more that receive federal funding.
- When does the freeze begin: Federal grants and loans will be paused starting Tuesday, January 28 at 5pm ET, 4pm CST.
- How long will the freeze last: The pause is temporary, but no end date has been declared. “Each agency must pause…until OMB has reviewed and provided guidance with respect to the information submitted.” Some news agencies are reporting February 10 as a freeze deadline, but the OMB memo names that as a deadline for federal agencies to identify programs, projects, and activities subject to the pause, not the resumption of funding.
- What is being reviewed during the freeze: Federal agencies must submit detailed information to the administration on programs, projects, or activities no longer eligible under the series of Executive Orders by Monday, February 10.
- Are any programs exempt from the freeze: Medicare and Social Security benefits will be unaffected by the pause. The memo does state that the OMB may grant exceptions on a case-by-case basis, and to the extent required by law, agencies may continue certain administrative actions.
- Does this impact previously awarded grants: Even grants that have been awarded but not spent are supposed to be halted. Any pending payments organizations are waiting to receive on federal grants will likely be delayed or stopped. Activity must freeze by 5pm ET Tuesday, January 28, so there is a chance a pending payment already in process is paid out today.
- How does the freeze impact federal funding to Tennessee: The funding freeze could affect the billions of dollars Tennessee gets each year from the federal government, including funds directly to nonprofits and funds to the state of Tennessee, some of which are then used by nonprofits in furtherance of the state’s priorities.
- Is this legal: There is likely to be legal action taken to attempt to pause or delay this process, which may delay or lessen the impact on the sector. As of this writing, a coalition of organizations (represented in the legal challenge by Democracy Forward, include the National Council of Nonprofits, the American Public Health Association, Main Street Alliance, and SAGE) filed a Motion for Temporary Restraining Order in the U.S. District Court for the District of Columbia to block the White House Office of Management and Budget from pausing all agency grants and loans.
- What is considered “federal financial assistance”: Defined by 2CFR 200.1, it is assistance that recipients or subrecipients receive or administer in the form of grants, cooperative agreements, non-cash contributions, direct appropriations, food commodities, loans, loan guarantees, interest subsidies, and insurance.
WHAT WE DON’T KNOW
- How wide is the scope of the freeze and how will the Executive Orders be interpreted during this evaluation period?
- What access will nonprofits have to individuals at their funding agencies to ask questions and receive guidance during this evaluation period, particularly in light of staffing freezes and terminations?
- What are the ramifications in our communities if needs go unmet and if organizations are forced to downsize or close?
WHAT NONPROFITS CAN DO
- Communicate what you can with staff to reduce fear.
- Contact state and federal elected officials, though our state legislators are in the middle of the Special Session.
- Fill out National Council of Nonprofits’ Effects of Executive Actions on Nonprofits to share the impacts of these executive actions on your work.
MANAGING YOUR FUNDING DURING THIS PERIOD
An immediate impact on nonprofits, particularly those with tight balance sheets and reliance on timely grant reimbursements, is cash flow. Advice from CliftonLarsonAllen (CLA):
- Build a daily cash flow model and run scenarios for paused federal payments through the end of February, March, etc. to determine when you will be challenged to meet expense obligations.
- Connect with your bank(s) to refresh on your cash flow options and what may be available to your organization. What are the terms on your lines of credit? What ability do you have to pull funds from CDs or similar products?
- Consider engaging with other funding sources (individuals, foundations, and other non-federal sources) that are not impacted by the freeze to see if they can assist in temporary cashflow support.
- Run scenario plans and engage in discussions with your leadership and governance. If all your federal funds were cut, what changes would you need to make to program services, staffing, or other expenses to remain viable?
- Start documenting how you anticipate this impacting your organization.
- Ensure any communications you receive from federal agencies is legitimate. There will be scammers! Beware!
It is important to take care of yourselves, maintain calm and not spread fear, and focus on your values, your community, and what we can control. You are not alone.
With that said, we also recognize how lives of the most vulnerable Tennesseans and our nonprofit sector’s ability to meet their needs will be drastically impacted by this federal grants freeze. Your voice, your advocacy, and your stories matter. Communicate your concerns, stories of direct impact, and questions to Tennessee’s federal congressional offices.
We are vetting information as it becomes available and will be sharing updates and calls to action on our website and via TNN social media channels.
Sincerely,
Kevin Dean President & CEO Tennessee Nonprofit Network