Sequestration's Damaging Effects on Nonprofits and Communities They Serve

The additional $91 billion in sequestration cuts scheduled to go into effect in January 2014 come on top of $64 billion in automatic, across-the-board cuts from FY 2013 and $1 trillion in previously scheduled federal cuts and $250 billion in state budget cuts over the past four years of the Great Recession.1 Policymakers across the political spectrum have and continue to presume that nonprofit organizations in their communities will step in to fill the gaps created when programs are shut down due to sequestration and other spending cuts.

However, cuts made under sequestration are undermining the ability of nonprofits to maintain programs and services, much less to expand them to meet the growing needs that have resulted. If allowed to continue, the sequestration cuts will hurt the work of nearly every charitable nonprofit in America – even nonprofits that do not receive any direct government funding. Here’s how: 

Increased Community Needs

Continuing Needs: Even before sequestration, nonprofits were reporting dramatically increased demands for their services at a rate of more than 75 percent each of the last four years.2 The sequestration cuts have – among many other things – threatened public housing or shelter for 100,000 people, resulted in an average of 364 fewer meals per week served to senior citizens across programs, eliminated 57,000 children from early education programs, and harmed education for the children of military families in 1,400 school districts.3

New Needs: Since the arbitrary sequestration cuts began on March 1, job losses and furloughs have hit employees in many for-profit, nonprofit, and government organizations. Adding to the job losses from sequestration this year, the 2013 government shutdown is expected to put 800,000 federal civilian employees and as many as 1 million workers on temporary unpaid leave.4 Those losing income and benefits – plus their families – will need help, and many will turn to nonprofits, including nonprofits that have never had any government contracts or grants.

Expanded Needs: Sequestration cuts hit basic needs, too, so when individuals experience cuts in services – such as early education for 57,000 children and shelter for 100,000 homeless3 – many will develop additional needs, thus compounding strains on the communities nonprofits serve.

Decreased Resources

Direct Funding Losses: Many state governments say there is nothing left to cut after five years of reductions, combined with population increases. The second round of arbitrary sequestration cuts will force nonprofits, one way or another, to take on even more of the costs currently borne by state and local governments.5

Indirect Funding Losses: Less obvious but just as real and damaging will be multiple ways that the cuts will create collateral damage by hitting virtually every charitable nonprofit, such as the following ways:

  • Reallocated funding: When seeing the extent of funding cuts to basic human needs, some individuals, foundations, and corporations will shift their normal giving from organizations working in the arts, environment, education, and elsewhere to those providing safety-net services, thus creating huge and sudden funding gaps for other organizations.
  • Displaced funding: When states and local governments lose funding from almost every federal domestic program, many may reallocate and reduce their own funds, further decreasing funding for programs.
  • Loss of charitable contributions: With the cuts directly and indirectly taking income from millions of individuals, those individuals will not be able to continue their traditional support of their neighbors through donations – and many other Americans, fearful that they could wind up in the same situation, will hold onto their funds more.

[1] Sequestration Update Report: August 2013, Congressional Budget Office (CBO)

[2] Nonprofit Finance Fund, 2012 State of the Sector Survey

[3] National Council of Nonprofits, Program Impact of Sequestration

[4] Government Executive, Many Federal Employees Are Facing Second Set of Furloughs in Six-Month Span (September 30, 2013)

[5] Stateline, States Brace for New Round of Sequester Cuts