How reliant are nonprofits on government grants?
Delve into data to learn how many nonprofits rely on government grants—including which types of organizations and U.S. states receive them most–and discover what a potential freeze of federal funding may mean for the sector as a whole.
Recent developments around an Office of Management and Budget memorandum to freeze federal grants and loans has put the nonprofit sector in the spotlight. But just how many nonprofits receive government grants? And how big a role do government grants play in the nonprofit sector? Here’s what we know.
At least 30% of nonprofits rely on government grants
Roughly 30% of U.S. nonprofits filing an IRS Form 990 report receiving grants funding from the government.i This translates to over 100,000 nonprofits being awarded a total of $303 billion annually.
The proportion of nonprofits receiving government grants is fairly consistent across the country, with state averages ranging from 21% to 47%. The three states with the highest proportion of nonprofits receiving government grants are Vermont (47%), Alaska (46%), and West Virginia (44%).
Large nonprofits are more likely to receive a government grant
While 30% of U.S. nonprofits receive government grants, 55% of organizations with budgets above $5 million receive at least one government grant. This is consistent with previous research that has found that large nonprofits are more likely to have the capacity to go through the arduous and lengthy government grants application process.
Some nonprofits rely on government grants as their primary source of revenue
Government grants are a primary revenue source for many nonprofits. Over 35,000 nonprofits—about a third of government grantees—rely on these grants for more than 50% of their total revenue.
The level of dependence on government grants is not uniform across nonprofit subsectors. Organizations in the human services, international foreign affairs, and public, societal benefit subsectors are most likely to heavily rely on government grants to execute their work. The human services subsector, which includes many direct-service organizations, is particularly vulnerable, with 40% of government grantees reporting that those grants comprise their primary revenue stream.
Filling the gap left by a government funding freeze will be challenging
In recent days, there have been calls for private foundations to step in and fill the potential gap that would be left by the government in the event the funding freeze is implemented. While this is indeed an opportunity for private foundations to send aid—ideally quickly and without restrictions—it’s also important to realize that foundations would struggle to make up this shortfall.
According to the latest available data, private foundations award around $107 billion annually to U.S. nonprofits. To make up for the loss of government grants, private foundations would have to increase their grantmaking by 282%.
Government funding goes beyond grants
It’s worth noting that the figures presented here focus on a narrow slice of government funding—grants. However, nonprofits also receive other types of support from the government, including loans and contracts. Unfortunately, IRS Form 990 does not include detailed information about these types of funding. Moreover, small nonprofits may not fill out a 990. For these reasons, the numbers presented here likely underestimate the full impact of government funding on the nonprofit sector. For more detailed analysis that includes both grants and contracts, as well as disaggregation by local, state, and federal government level, see Urban Institute’s recent survey analysis.
Moreover, it’s important to remember that government grants and contracts are not simple charity. Most government funding goes toward countless public programs that are critical for society, such as afterschool programs, homeless shelters, and groups working with disabled veterans. So, while this analysis has focused on nonprofits’ reliance on government grants, an equally important question is: How will the government support communities without helping to fund the work of nonprofits?
i Filings are based on those most recently filed, the majority of which are from 2023 or 2022. Smaller nonprofits (with less than $200k in gross receipts or less than $500k in assets) who do not file 990s are not included in this analysis because government funding is not asked about in the shorter Forms 990EZs or 990Ns. Additionally, the 990 data on government grantmaking does not differentiate between local, state, and federal funding. However, according to research from Pew, over 36% of state revenue comes from federal dollars.
