Your Part-Time Controller, LLC (YPTC), is committed to sharing regular updates with clients and friends. This update provides insights and guidance regarding a potential federal government shutdown on September 30th at midnight.

 

WHAT NONPROFITS NEED TO KNOW:

 

It’s budget season. Labor Day is barely in the rearview mirror, but the countdown clock for a new federal budget is now officially ticking. The overall spending levels and tax rates for the new federal fiscal year, which begins on October 1, were set by the One Big Beautiful Bill Act and signed into law on July 4. Now it’s up to Congress to determine the specific spending levels for each federal agency through the budget “reconciliation process.” 

How budget reconciliation works. The Congressional Budget Act of 1974 requires 12 appropriations committees in the House and the Senate to propose detailed budgets (appropriations bills). The House and the Senate debate and vote on these bills, which are approved when the Senate ratifies them with at least 60 votes, necessitating bipartisan negotiations. 

Will lack of a budget lead to a shutdown? In theory, if the Senate cannot muster 60 votes to approve a given appropriations bill before October 1, the government must shut down all non-essential services covered by the bill. The list of “essential services” is short: it includes things such as law enforcement, the military, air traffic control, and “mandatory” budget items such as social security payments. Agency employees who manage federal awards would not be deemed essential and would be furloughed without pay.

In the event of a shutdown, most prime recipients, who are direct grantees of government funding, will likely not receive payments on their federal grants and contracts. This may affect nonprofits that receive funding from the prime recipients as “subrecipients” on those awards. Prime recipients will also face communication barriers with government personnel, and limited access to government web sites, leading to cascading challenges for nonprofits and their stakeholders. 

A continuing resolution is another option. It’s no longer a binary question—budget or shutdown—as talk has increasingly centered on a third possibility: a full-year “continuing resolution” (CR). A CR simply keeps the existing budget levels in place, generally for a few months. This year, a CR might last the entire year, and include earmarks that raise or lower certain budget lines, making it very different from the prior-year budget it theoretically extends. A CR only requires a simple majority vote, avoiding bipartisan negotiations.  

While no one has a crystal ball, YPTC’s Federal Awards team will monitor the situation closely and provide occasional updates. YPTC has already helped clients weather previous government shutdowns and has lots of practical advice from that experience. (Please note, YPTC cannot provide legal or tax advice and this should not be construed as such.) 

 

WHAT NONPROFITS NEED TO DO:

 

Have your finance team prepare updated cashflow forecasts for the period beginning October 1. Select whatever cadence makes the most sense—bi-monthly? Weekly? Discuss how the outlook will change if no federal payments come in. Before cutting or deferring programs, events, or expenses, identify the direct, indirect, fixed, and variable costs, and which ones are covered by contracts and grants. 

Communicate NOW with federal agencies. Don’t wait to contact agency staff with your questions, to submit a drawdown request (but see below), or even just to ask for general updates. Reductions in force at many agencies have already caused longer response times, so it is essential to reach out well before September 30. If a shutdown takes place, agency employees will be unable to respond. 

Communicate with your stakeholders. Beyond your conversations with agency personnel, develop a broader communications plan so that all of your stakeholders understand the potential impact on your organization and what steps are being taken. 

Use caution drawing down current awards. With the specter of a shutdown that would see grant payment systems go dark, awardees may be tempted to draw all their federal funds at once. Most awards stipulate payment on a reimbursement basis, however. 

In general, awardees should draw down as spending is incurred, with payments going out promptly to vendors. If you are considering drawing funds well in advance, discuss it first with the agency fiscal or program officer—and get any agreement in writing! As noted above, do not delay initiating these conversations. 

Engage in scenario planning. Every organization can benefit from thinking through what to do in the face of unfavorable outcomes. Get started by having your finance team prepare budget projections that include more pessimistic scenarios, for example. Then, discuss the potential options with your board. Each organization must identify the best path based on their financial position, mission, and strategic goals. Need a leg up? YPTC’s recent Scenario Planning for Nonprofits webinar is an excellent resource.   

Diversify revenue streams. YPTC has long advised organizations to explore revenue diversification to reduce risk. A lost or delayed funding stream has less impact when several others exist. For example, perhaps some of your federal revenues can be replaced or augmented by foundation or individual gifts.  

Ask for advance payments or arrange a line of credit. Consider asking foundations and major donors that have already made pledges to advance the timing of their contributions. If appropriate, speak with your board about arranging or expanding a line of credit to bridge a potential gap in cash flow. Review your insurance policy to see if it covers business interruption.  

Questions or comments? YPTC’s Federal Awards team provides wraparound services for government and foundation awards of every kind. Write us at federalawards@yptc.com.   

YPTC is the nonprofit accounting specialist, with over three decades of experience helping nonprofits that are managing—or hoping to receive—federal awards. YPTC has posted numerous free Federal Funding Resources. Sign up to be notified about new ones, including a free webinar deciphering the impact of OBBBA on nonprofits on September 24. 


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