The landscape of federal funding for not-for-profit organizations has undergone a significant transformation since 2025, driven by new executive orders, legislative actions, and shifting policy priorities. Not-for-profits that rely on federal grants and contracts must adapt to these changes to safeguard their operations, manage risks, and plan for the future. This article summarizes the key developments and practical steps for not-for-profits, based on insights from the 2026 NYCPA NFP Conference.
Overview of the Political Environment
Recent executive orders signed in January 2025 have reshaped federal agency operations and grantmaking. These orders, which remain in effect unless revoked or nullified, have the force of law and direct agencies to align funding with administration priorities. Notably, new mandatory “termination for convenience” clauses, stricter drawdown controls, reduced indirect cost recovery, and revised selection criteria—such as avoiding diversity, equity, and inclusion (DEI) initiatives—are now standard in federal grants.
Two major executive orders have targeted DEI programs: one requires grantees to certify compliance with anti-discrimination laws. At the same time, another directs the termination of all DEI programs in federal agencies and related grants. These changes have led to ongoing litigation and uncertainty for many social service organizations.
Federal Funding Terminations and Reductions
Several federal agencies and programs have experienced significant funding cuts or terminations:
USAID
The Trump administration initiated a 30-50% reduction in obligations, disrupting food aid, healthcare, education, and refugee support globally. While some aid has been restored, the humanitarian fallout persists.
National Endowment for the Humanities (NEH)
The 2026 budget proposal included eliminating the NEH, National Endowment for the Arts (NEA), and Institute of Museum and Library Services. Thousands of NEH grants were canceled, and staff layoffs occurred, with funding priorities shifting away from DEI initiatives.
National Endowment for the Arts (NEA)
Hundreds of grants totaling over $27 million were canceled, with a new focus on “national artistic heritage,” and funds were reallocated to support historically black colleges and universities (HBCUs), Hispanic serving institutions (HSIs), disaster recovery, skilled trades and military families. NEA is updating its grant-making policy priorities to reflect the shift in funding focus.
Institute of Museum and Library Services (IMLS)
In March 2025, termination of IMLS funding led to termination of grants affecting State library agencies and museums across the country. One-third of American museums lost grants. A federal court decision in November 2025 reinstated the terminated grants.
Corporation for Public Broadcasting (CPB)
Congress rescinded over $1 billion in federal advance appropriations for FY2026 and FY2027, impacting PBS, NPR and local stations. CPB is officially shutting down, with its Board voting to dissolve the organization in early January 2026, following Congress’s complete termination of its federal funding in 2025. Operations began to wind down in late 2025, with most staff departing by September 30, 2025, and a small team handling the final closure in January 2026 to protect public media’s independence after defunding. Philanthropic groups have stepped in to support at-risk stations.
Community Development Financial Institutions Fund (CDFI)
CDFI Fund, administered by the U.S. Department of the Treasury, provides lending for the underserved communities, small businesses and affordable housing. They serve communities that larger banks have traditionally ignored. The agency faced attempted shutdowns and funding elimination, with its future remaining uncertain.
Medicaid
The “One Big Beautiful Bill Act” cut federal Medicaid funding by 15% over ten years, shifting more responsibility to states and affecting providers like Planned Parenthood. Court rulings in December 2025 now allow the federal government to cut Medicaid reimbursements for Planned Parenthood in many states.
Steps for Not-for-profits Facing Grant Termination
Not-for-profits should take the following actions if their federal grant or contract is terminated:
- Review Terms and Conditions: Understand the grounds for termination and provisions in Notices Inviting Applications or Funding Opportunities.
- Inventory Grants and Contracts: Document all federal funding sources, including direct, pass-through, and individual grants.
- Understand Federal Regulations: Familiarize yourself with Uniform Guidance (2 CFR Part 200), Federal Acquisition Regulation.
- Manage Termination and Closeout Costs: Certain costs incurred before termination may be allowable, including loss of value of equipment, rental costs, settlement expenses, and administrative closeout costs.
- Access to Grant Funds: Agencies may impose conditions on accessing remaining funds, such as requiring reimbursements or additional approvals.
- Appeals Process: Agencies must provide written procedures for objections and appeals, allowing recipients to challenge terminations.
Risk Assessment for Federal Funding
Not-for-profits should conduct a thorough risk assessment of their federal funding to ensure it accounts for the direct federal grant and contracts to the organization as a whole, the indirect pass-through grants and funding sources that the organization receives from the state, local or not-for-profit or for-profit entity, and any federal grants and contracts that individual employees or contractors receive.
Not-for-profits should review the Executive Orders to assess the impact on the organization’s programs by conducting and documenting a review of the organization’s activities in those issue areas and documenting which activities are using federal funds and which ones are not.
Not-for-profits should review their mission statement, Form 990 and public-facing profiles for potential conflicts with the Executive Orders. Communicate changes to stakeholders and ensure alignment with the organization’s mission.
Accounting Implications
Most government grants are accounted for as conditional contributions under Accounting Standards Codification (ASC) 958-605. This requires organizations to record revenue and receivables only when the conditions (barriers) are met and there is no longer a right of return. Federal funding freezes may not create new barriers for recognizing revenue, but uncertainty can affect the collectability of receivables. Changes in expected contributions should be recognized promptly. For exchange transactions, contract terminations must be accounted for under FASB ASC 606, and credit losses with the U.S. Government are generally not recognized.
Planning for Future Federal Grants
Not-for-profits must consider the unpredictability of federal funds, new grant certifications, vulnerability to investigations, and delays in accessing funds. The new grant review process emphasizes alignment with agency priorities, ideological restrictions, and lower indirect cost rates. Grant applications should be intentional, demonstrate alignment with policy priorities, and meet technical requirements.
The evolving federal funding environment presents both challenges and opportunities for not-for-profits. By staying informed, conducting risk assessments, and adapting to new requirements, organizations can continue to fulfill their missions and serve their communities effectively in 2026 and beyond.
Have Questions?
Connect with a CBIZ not-for-profit professional to discuss how these 2026 federal funding changes could impact your grants, compliance, and financial reporting, and get tailored guidance for your organization.
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