Taking Stock of Stake

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Zach Curinga
April 14, 2025

De Tocqueville referred to America as a “nation of joiners.” However, Putnam demonstrates that social capital has been declining for decades. More recently this has coincided with the simultaneous decline of liberalism as a dominant western political philosophy. These concomitant factors have called into question what the future of civil society will look like. Under the current presidential administration, it is foreseeable that nonprofits could lose significant amounts of funding notwithstanding the cost of potential litigation. Power and political alignment are favored and expected over service efficacy. What this means for the third sector, which provides a broad range of services that depend largely on external funding, is uncertain; however, recent examples of confrontation may offer clues as to what the future holds.

Nonprofits have increasingly become an important provider of a broad range of services. According to a report by the Urban Institute, one-third of nonprofit funding is from the federal government. Nonprofits also expend considerable efforts engaging the government to receive this funding, with over 60 percent of respondents stating in the same report that they have discussed obtaining grants and contracts with a government official. Additionally, larger nonprofits tend to have a higher percentage of funding from the government. Thus far, a flurry of executive orders and other executive actions has led to substantial cuts to government funding in general. This lack of funding means significant staffing cuts, which can reduce the ability of nonprofits to carry out services and plan ahead. The challenge is that nonprofits will need to substitute this funding gap, notwithstanding that they had adopted processes over time to ensure both eligibility and compliance with federal rules. The funding provided had also been seen as desirable by states and services recipients as it ensures stability and reliability. Because it is unlikely that this funding will be replaced in the short term, nonprofits will need to increase funding from other sources, such as state and local governments.

Other models of funding should be explored such as the “community bond.” This model has gained traction in Canada to help purchase affordable housing. Here, the nonprofit issues bonds that individuals (that is, neighbors and community members) can purchase in lieu of making regular donations. Over time, individuals who purchase these bonds then collect interest on the bonds. This model allows for more flexible borrowing terms than traditional financial institutions and reinvests in the community.

Nonprofits have also come under additional stress from the political field. First, at the federal level, there has been the passage of a House bill that would allow the Treasury Department to remove an organization’s tax-exempt status. The language of the law has been described vague and seemingly gives the Treasury unilateral power. It has also been criticized as an attack on free speech, or a measure meant to chill nonprofit activities. Similarly, the Attorney General of Texas, Ken Paxton, has been using a type of discovery device “request to examine” to view nonprofit records without the prior authorization of a court. This has been part of a legal strategy utilized by the AG’s Office of Consumer Protection to scrutinize nonprofits that pursue goals that can be seen as politically salient. Although legal decisions have not been favorable to the Texas AG, they have been made on a case-by-case basis, amounting to a game of Whack-a-Mole. Increasingly, there has been a tendency to share policy and novel legal applications to pursue similar goals and to test strategies. Unfortunately, this means that similar battles may spread to other states. This reflects the polarization of the legal environment which is weaponized against civil society.

Ultimately, the consequences of these actions will unfold. It is not unreasonable to think that many organizations will become more reliant on localized networks that are less dependent on federal funding, but this transition will take time. Moreover, this may necessitate a shift in organizational forms, elevating the importance of David Horton Smith’s “dark matter.” Dark matter organizations are not registered with the IRS, and they are highly flexible, democratic and localized. They are also thought to be more numerous than traditional nonprofits, suggesting that a future issue will be coordination and activation of these latent networks. Whether this will occur is difficult to say, but it has become increasingly apparent that the current nature of nonprofit organizations is ill-suited to the current environment. Thus, if organizations want to survive meet the needs of their community, they will need to adapt in a way that reduces their dependence on the federal government.

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 Author: Zachary Curinga is currently a PhD student at Rutgers-Newark, School of Public Affairs and Administration, (SPAA). His research interests include nonprofit management, organizational change, public health nutrition, and disability equity. He can be contacted by email at [email protected]

           

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