Nonprofits are also economic drivers. They are the third-largest employer in the private sector and generate revenue for local economies by bringing in government grants and private donations.
Yet at a moment when rising prices are squeezing family budgets and more people are turning to nonprofits for help, nonprofits are contending with the same “affordability crisis” as the people they serve.
State and local governments can help their constituents by supporting a healthy and vibrant nonprofit sector. Together, they can ensure that families have the supports and services they need.
Shared Challenges
Today, nonprofits are navigating several emerging challenges as they work to fulfill their missions. Funding volatility in the wake of last year’s DOGE cuts led many nonprofits to reduce staff and programming. President Donald Trump’s budget proposed huge safety net cuts, and although Congress restored some funding, nonprofits were left uncertain about their future. The flurry of executive orders imposed new requirements on grantees and contractors, prompting nonprofits to hire lawyers and seek to mitigate risks.
Meanwhile, artificial intelligence is transforming the broader U.S. economy and the nature of work, raising important questions about how and whether nonprofits should responsibly adapt their services, strategy and infrastructure.
Like nonprofits, most states are also in a period of fiscal uncertainty as tax revenue growth slows. Further, the One Big Beautiful Bill Act made major changes to federally funded programs, such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP). That’s left states to shoulder more of the cost of critical supports.
Alignment Strategies
In this complex environment, nonprofits and state and local leaders should work together on responses to these challenges. Together, they can better support families in need.
To boost alignment, leaders in Denver, Connecticut and New York state have appointed dedicated nonprofit liaisons to establish and maintain long-term, cross-sector relationships.
Others, such as Michigan’s Office of Foundation Liaison, have advanced innovative funding partnerships between state agencies and philanthropies. Since its founding in 2003, the Michigan office has brokered more than $150 million in philanthropic investments to support the state’s strategic priorities.
That includes making it easier for Michigan families to access SNAP, health-care coverage, child-care assistance and other critical benefits. As more families sought supports in the wake of the Great Recession, the office brought together government, foundation and nonprofit-sector stakeholders to create a centralized, online application for multiple safety net supports.
State and local leaders can also partner with umbrella groups to create alignment across a broad array of smaller nonprofits that work directly with communities. For example, antipoverty groups like New York City’s Robin Hood and the Bay Area’s Tipping Point could help mobilize private resources for the philanthropic sector.
Absent formal liaison offices, state and local leaders can strengthen their ties with the nonprofit sector by partnering with national and state networks of nonprofits and philanthropies. Deeper coordination will not only help stabilize the nonprofit sector but also help make governments and philanthropies aware of the challenges and realities nonprofits are seeing in the community — setting the stage for better, more targeted solutions.
Streamlining Reimbursement
State and local governments can also ease the burden on nonprofit partners — and, therefore, help their residents — by dropping onerous application requirements and extending deadlines for state and local grants.
Oversight is a critical component of government grantmaking, helping ensure nonprofits remain accountable to the communities they serve. Still, as the pandemic showed, more flexible foundation and government grants enabled nonprofits to adapt as the emergency unfolded.
State and local lawmakers could mitigate uncertainties by paying nonprofit service providers sooner. In Tennessee, legislators in the House and Senate have introduced bills that would require state agencies to pay invoices within 30 days — down from 45 — and report late payments to the legislature. Removing preset caps on the indirect costs nonprofits can be reimbursed for could alleviate some financial stress for nonprofits forced to front the costs of the services they’ve been contracted to offer.
When nonprofits are forced to scale back, communities feel it. The repercussions show up as fewer programs, shorter hours, staff layoffs and longer wait times for essential services. State and local policymakers can do more to support the nonprofits in their communities and work together to solve the problems facing their residents.
Sarah Rosen Wartell is the president of the Urban Institute.
Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.
