Sequestration's Damaging Effects on Nonprofits and Communities They Serve
The sequestration cuts will hurt the work of almost 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 70% each of the last four years.1 The sequestration cuts will – among many other things – stop 4 million meals to seniors, drop 600,000 women, infants, and children from the WIC nutrition program, and halt services to 150,000 returning veterans,2 yet children, seniors, veterans, and their families still need those services, so they will turn to nonprofits for help.
New Needs: Sequestration will directly cut income for millions of Americans through direct job loss (an estimated 750,000 losing salaries and benefits), furloughs (800,000 defense civilians, and hundreds of thousands on the domestic side), and emergency unemployment.3 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 treatments for 373,000 seriously mentally ill adults and disturbed children, housing assistance for 125,000, and shelter for 100,000 homeless2 – many will develop additional needs, thus compounding strains on communities.
Direct Funding Losses: Every nonprofit with a federally-funded contract or grant (including pass-through dollars to states and localities) will lose approximately 9% of its federal funding for Federal Fiscal Year 2013.4
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, for example, arts, environment, and education, to instead help people survive, thus creating huge and sudden funding gaps for other organizations.
- Displaced funding: When states and local governments lose 9% 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.
- Higher operational costs; Nonprofits will not be immune from higher food (e.g., cuts to food and meat inspectors), transportation (e.g., cuts reducing the number of FAA controllers working to keep air traffic from congesting will increase costs of moving freight and passengers), and other costs, which will further erode their resources and ability to serve their existing levels of demand, let alone the higher demands.
 See 2012 State of the Sector Survey, Nonprofit Finance Fund.
 White House, Fact Sheet: Examples of How the Sequester Would Impact Middle Class Families, Jobs and Economic Security (Feb. 8, 2013).
 Jonathan Weisman, Annie Lowry, “Hard Budget Realities as Agencies Prepare to Detail Reductions” (New York Times, Feb. 23, 2013).
 Office of Management and Budget, Report to Congress on Sequestration 2013 (March 1, 2013).