One-third of U.S. nonprofits had some type of government funding disruption in 2025, and those disruptions are changing the nonprofit financial landscape, said Hannah Martin, policy associate at the Urban Institute’s Center on Nonprofits and Philanthropy, during an Urban Institute panel about the rapidly evolving relationship between government and nonprofits, leading nonprofits to turn to cities for funding instead of the federal government.

The Nonprofit Finance Fund’s 2025 State of the Nonprofit Sector Survey found that 84% of respondents expect future cuts to their funding, said panelist Jennifer Talansky, NFF’s vice president of marketing and communications. A 2025 Center for Effective Philanthropy survey found that 34% of nonprofits have experienced or anticipate a funding loss from the federal government and 29% from state and local government.

In response, many nonprofits plan to lobby local governments for funding to replace lost federal dollars. “This is a hard time, and we’re seeing a range of responses,” Talansky said, including “more organizations going to state and local governments and having open conversations and advocating for their needs.”

For about 35,000 nonprofits across the nation, federal government grantmaking funding accounts for at least half of their annual revenue, said panelist Cathleen Clerkin, associate vice president of research for Candid, a nonprofit funding organization.

Losing that funding “is not something private foundations can make up overnight,” Clerkin said about nonprofits turning to cities for funding.

Ellie Buteau, CEP’s director of research projects, said this is especially relevant in light of the CEP survey finding that about two-thirds of respondents had more demands for services last year. One-third reported that financial pressures caused them to reduce their services and staff sizes, Buteau said.

The nonprofit sector is “acting in new ways,” said panelist Diane Yentel, president and CEO of the National Council of Nonprofits. This includes partnering with local governments and other organizations to file lawsuits against the federal government, including a lawsuit fighting the suspension of Supplemental Nutrition Assistance Program benefits last October.

Read the full article about nonprofits turning to local governments by Vicky Uhland at Smart Cities Dive.