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Cliff Diving: Sequestration and A New Year’s Resolution for Nonprofits and Local Public Agencies Worried About the Fiscal Cliff and Grants

December 31st, 2012 · by Isaac Seliger · 2 Comments

EDIT: It looks like we’re not going over the supposed cliff. But much of the analysis below will remain relevant in the coming years, as political fights about debt, spending, and taxation continue.

EDIT 2: The analysis below has been augmented with “Sequestration Still Looms Over the Grant World: Two Months and Counting.”

I find it hard to believe, but as I write this post in the waning hours of Sunday in the waning days of 2012, it seems that the President and Congress are actually going to do a Thelma and Louise and send us collectively off the dubiously named “fiscal cliff.”

If this happens, we may see sequestration. As I understand the implications of sequestration on domestic discretionary spending, including funding for block granted and competitive grant programs, this would mean at least an 8.8% haircut across the federal spending board. Since we’re now already three months into the FY ’13 budget year, however, there are only nine months left, meaning that the cutbacks could be as high as 15%.

Now, what “across the board” means is still subject to interpretation, as this has not actually been done before. One assumes current grantees would get an immediate budget reduction notice, while open RFP competitions might be scaled back. There would also significant impacts for federal sub-grantees for such locally administered block granted programs as CDBG, CSBG, OAA, and so on. The mechanics of sequestration are subject to murky federal regulations and a cadre of anonymous GS-12 and GS-13 budget officers spread across the departments, who are going to be in particularly bad moods coming back after their Christmas holidays to this morass.

The short-term impact of sequestration for garden-variety nonprofits and public agencies that have direct or indirect federal contracts, or are vying for discretionary grant funds, is sure to be confusion in the short term and chaos over the medium term. But—and this is big “but” (so to speak)—it’s not the end of the world. To quote REM, “It’s the end of the world as we know it and I feel fine.” While media pundits and trade association/advocacy groups will make a lot of noise, the grant world will return to normalcy once the temporary Federal crisis passes.

Despite sequestration and ongoing budget battles, I think significant cutbacks in federal funding for discretionary grants are unlikely, as least for the next few years. What is more likely is a slowing of the increase in federal spending, or as it is more popularly called in a phrase I’m beginning to intensely dislike, “bending of the cost curve.” Keep in mind that we have not had a federal budget in four years and probably won’t have one anytime soon, as the feds will continue to operate with continuing resolutions and baseline budgeting. Thus, unless there is a sudden come to Jesus moment among Democrats and Republicans, it will be the same as it ever was.

This brings me to my suggested New Year’s resolution for nonprofits and local public agencies–take a hard look at your current programs and new initiatives in the planning stages. While there will still be plenty of RFPs available, the competition for government grants is sure to be more intense as the nation stares down its tax and spending challenges.* Seek foundation grants too; as the economy has staggered out of the Great Recession, foundations have recovered investment losses and are going full steam in grant making.

For those nonprofits that survive mostly on donations, a bigger issue is the potential of limits on the charitable tax deduction, which we wrote about recently in “Nonprofit ‘Whales’ May Face Extinction with Potential Tax Law Changes.” In other words, diversify and your organization will thrive in the exciting new year.


* Free proposal word here. In grant writing, there are never any problems, only challenges.

Tags: Advice · Budgets · Government · Nonprofits · Stimulus