The Latest Federal Government Shutdown: What Not-for-Profits Need to Know

Understanding the Impact

As the federal government enters another shutdown, not-for-profit organizations face immediate operational challenges that threaten their ability to serve communities. The most critical impacts include halted grant payments, contract renewal delays, and limited access to federal systems and personnel. Organizations that rely on federal funding must act quickly to assess their exposure and prepare contingency plans. Understanding what this shutdown means for your organization and taking decisive action now can make the difference between maintaining continuity and facing serious disruptions to mission-critical work.

Immediate Impacts

Grant Payment Disruptions

The cessation of federal grant payments creates acute challenges, particularly for organizations operating on cost-reimbursement grants where expenses continue while reimbursements halt. Even organizations with advance payment arrangements may encounter problems if scheduled payments fall during the shutdown period or if spending reports requiring federal approval are pending.

Cascading Service Demands

For not-for-profits serving populations dependent on federal benefits, including the Supplemental Nutrition Assistance Program (SNAP), housing assistance, and Women, Infants, and Children (WIC), the impact multiplies as beneficiaries lose access to federal support and turn to not-for-profit emergency services. Food banks, homeless shelters, and emergency assistance programs often see dramatic demand spikes precisely when their own resources are most constrained.

Administrative and Compliance Complications

The shutdown doesn't pause compliance obligations, but it eliminates access to federal officials who provide guidance and approvals. Organizations must make judgment calls about allowable costs, reporting requirements, and program compliance without federal input, knowing those decisions will be scrutinized later.

Critical Action Steps

1. Assess Your Federal Funding Exposure

   Identify all revenue streams tied to federal sources, including direct grants, contracts, subrecipient arrangements, and programs dependent on federal beneficiary eligibility. Quantify not just the annual amount, but the timing and structure of payments. Document which expenses are covered by federal funds and which programs would face immediate cuts if payments are delayed beyond specific timeframes.

2. Conduct a Cash Flow Analysis

   Calculate your current runway — how long your organization can maintain operations without federal payments. Distinguish between restricted and unrestricted funds, as restricted resources may not be available to address federal funding gaps. Review your cash position weekly during the shutdown, updating projections as the situation evolves. If your analysis reveals that a shutdown extending beyond two to three weeks would create crisis conditions, escalate immediately to board leadership.

3. Secure Emergency Financing Options

   If your organization has an existing line of credit, review the terms and ensure you can draw on it quickly if needed. If you don't have a credit facility, consider establishing one now — financial institutions are more receptive when an organization is stable than when it's in crisis. Be strategic about taking on debt: borrowing to cover short-term cash flow gaps makes sense if you're confident federal payments will resume, but borrowing with no clear repayment path creates future problems.

4. Prioritize Core Operations

   Review all programs and determine which are essential to your mission and which have flexibility for temporary suspension or reduction. Programs entirely dependent on federal funding may need to be scaled back, but programs with diversified funding should continue if possible. Consider whether partnership opportunities might allow you to maintain services with reduced infrastructure or shared administrative costs.

5. Document Everything

   Maintain meticulous records of all decisions, expenses, and operational changes during the shutdown period. Federal agencies will eventually want detailed accounting of activities during their absence and will scrutinize how you handled accounting and compliance matters. Document your reasoning for key decisions including revenue recognition judgments, compliance determinations, and spending authorizations to protect your organization if questions arise later.
   
   Also document service delivery data: how many people sought assistance, what unmet needs you observed, and what programs had to be reduced or eliminated. This information strengthens future advocacy efforts.

Planning for Recovery

Even when the shutdown ends, federal agencies typically face significant backlogs that delay processing payments, approvals, and applications for weeks or months beyond the shutdown period. Plan for a recovery timeline that extends well beyond the official end of the shutdown. Even a brief shutdown can create cash flow pressures lasting significantly longer than the shutdown itself.

How Citrin Cooperman Can Help

Organizations that view these disruptions from the shutdown as opportunities to build resilience by strengthening reserves, diversifying revenue, and improving financial planning will be better equipped for long-term sustainability. By taking decisive action now, not-for-profit leaders will ensure their organizations continue serving their missions when communities need them the most. Citrin Cooperman’s dedicated Not-for-Profit Industry Practice is here to assist your organization through these changes and to help plan for a strong future. For more information, please contact John Eusanio.