Researchers tracking the nonprofit sector warn that organizations across the U.S. face an existential crisis after policy actions beginning in January 2025, even as demand for services increases. Foundations control about $1.8 trillion in assets but raised giving just 3% in 2025 — far less than during the 2020 pandemic — while federal support has been sharply cut. A May–June survey found most foundations stayed at typical payout rates (many at the 5% IRS minimum), and only a small share of CEOs rated the sector's response as very effective. The authors urge large foundations to accelerate flexible grantmaking to prevent further service losses and closures.
Researchers Warn U.S. Nonprofits Are in Crisis — Foundations’ Response Falls Short
The social sector is in severe distress.
The U.S. nonprofit sector is under severe strain. Since January 2025, a series of federal actions targeting nonprofits, combined with cuts to social safety net programs, have pushed many organizations to the brink — even as demand for their services has risen.
What Happened
Federal actions described by nonprofit leaders and observers include frozen funding, terminated grants, investigations, public censure of specific causes, congressional hearings, threats to revoke tax-exempt status, and the tying of federal awards to administration priorities. These pressures have arrived alongside deep cuts to federal programs that previously helped communities weather economic shocks.
Human Impact
Nonprofit leaders report alarming levels of burnout and mounting financial stress. Across the country, communities are already feeling the effects: food banks are rationing supplies, some domestic violence shelters have closed, housing-assistance programs are scaling back, and environmental and arts organizations are reducing or ending operations.
Foundations’ Role — And Shortfall
Foundations control roughly $1.8 trillion in charitable assets and are uniquely positioned to respond rapidly in times of crisis because many are managed to exist in perpetuity. In 2025, foundation-supporting grantmaking totaled roughly $117 billion out of $617 billion in total charitable giving — nearly one in five charitable dollars, according to Giving USA.
Yet foundation giving rose only about 3% in 2025 (inflation-adjusted), far less than the 15.6% increase foundations achieved in 2020 during the pandemic. That muted response came even as one recent analysis estimated federal cuts to nonprofits of nearly 40% — roughly $14 billion — in the first eight months of the second Trump administration, a figure that has likely grown.
Survey Findings
In our May–June survey of foundations, 65% of independent foundations described their payout rate as "typical," with many defaulting to the IRS-mandated minimum payout of 5% of assets. While many foundations reported operational adjustments, most are not using their most powerful lever: significantly increasing the share of endowment assets distributed to nonprofits.
Only 8% of foundation CEOs said the overall foundation response to the current crisis was "very effective," and just 12% rated their own foundation's response as "very effective." Many CEOs cited risk aversion and restrictive board preferences as primary barriers to doing more.
Who Has Stepped Up
Some funders have increased giving and spoken out in defense of nonprofits. National examples include the Marguerite Casey Foundation, the MacArthur Foundation, and the Robert Wood Johnson Foundation; regional examples include the Skillman Foundation in Detroit and the Mary Reynolds Babcock Foundation in North Carolina. [DISCLOSURE: MacArthur, Robert Wood Johnson, and Skillman Provide Grant Support To CEP And Are Clients]
Why More Giving Matters
Arguments we heard from foundation leaders for restraint include a desire to preserve endowments for future generations, doubts about sufficient high-impact opportunities, and the belief that philanthropic dollars cannot replace lost federal funding. A few suggested the crisis might "weed out" weaker nonprofits. We disagree: many struggling organizations are proven, high-performing institutions that provide essential services to vulnerable people, protect habitats, and sustain local culture. Their weakening will have tangible, negative effects on communities.
Call to Action
With many foundation endowments at or near record levels thanks to recent market gains, now is the time for foundations — particularly large, endowed institutions — to move more resources into immediate grantmaking. Accelerated, flexible funding can prevent further layoffs, closures, and service reductions that harm communities across the country.
The views expressed here are those of the authors and do not necessarily reflect the positions of Fortune. This story originally appeared on Fortune.com.
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