Navigate the turbulence in not-for-profit

Recent federal actions have shocked the not-for-profit sector and pushed many organizations to discuss emergency measures and long-term adaptations.

Executive orders and policy shifts have disrupted not-for-profit funding streams and operational frameworks. As organizations consider how their compliance and funding must adapt, each one seeks a balance that mitigates its unique risks while maintaining its essential mission.

In this difficult environment, it’s important to examine all the impacts. Organizations must meet today’s demands today — but they should also recognize where some recent actions are being contested according to established controls that are already in place.

The controls in place

Some recent orders and changes at the federal level are being contested and might not have the long-term impact that organizations anticipate.  

The Impoundment Control Act and Executive Authority

The Impoundment Control Act of 1974 (ICA) establishes clear limits on the president’s authority to withhold funds appropriated by Congress. Under the ICA, there are only two legal mechanisms for the executive branch to withhold appropriated funds:

• Deferrals allow for a temporary delay in spending funds but are limited to the same fiscal year. Also, they can only be used for administrative purposes, such as contingencies or to effect savings through more efficient operations — not to advance policy goals contrary to congressional intent.
• Rescissions can permanently cancel budget authority, but they require the president to submit a formal request to Congress detailing the proposed rescission. The president can withhold the funds for up to 45 days of continuous session but, if Congress does not approve the rescission within this timeframe, the funds must be released for obligation.

The Constitutional foundation of appropriations

The Constitution explicitly grants Congress the “power of the purse” through Article I, Section 9, Clause 7, which states that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Once Congress passes and the president signs an appropriations bill, it becomes law, and the president is obligated to faithfully execute that law.

This constitutional principle means that the executive branch is prohibited from spending more than appropriated, spending less than appropriated, or spending for purposes other than those specified by Congress. As the Congressional Research Service explains, appropriations acts “provide funding in definite dollar amounts for specific purposes over limited periods of time” and “impose legal constraints on the subsequent use of appropriated funds.”

The Department of Government Efficiency (DOGE) and legal constraints

The Trump administration’s Department of Government Efficiency (DOGE) has moved aggressively to cancel contracts and reduce federal spending at numerous agencies, including the Department of Education and USAID. However, these actions raise significant questions about compliance with the ICA and constitutional principles.

When DOGE cancels contracts or terminates programs that Congress has funded through appropriations, it is effectively attempting to rescind those funds without following the procedures required by the ICA. This bypasses the requirement for congressional approval of rescissions and ignores the 45-day limitation on withholding funds.

Many lawmakers have asserted that DOGE does not have the authority to make spending decisions, echoed by University of North Carolina law professor Michael Gerhardt, who said, “Congress and Congress alone has the authority to enact appropriations measures. The president does not have unilateral authority to shut down an expenditure, or instrumentalities funded by Congress without the authorization of Congress.”

Current actions and court responses

EducationWeek said that the administration’s actions have targeted significant Education Department programs, including efforts to evaluate federal investments, expand educator pipelines, improve instructional practices and support students with disabilities. DOGE has also “excised contracts for regional education laboratories and comprehensive centers — organizations that help states and schools coordinate improvement efforts.”

At USAID, employees around the world were placed on leave and ordered to return to the U.S., and the administration has moved to terminate various foreign aid programs.

Courts have responded by blocking many of these actions. Two federal judges ordered the government to resume funding after blocking the administration’s directive to pause almost all federal grants. The Supreme Court ruled 5-4 on March 5 to uphold a lower court ruling requiring the disbursement of foreign aid funding for already completed work, with Chief Justice John Roberts joining the majority.

Judge Christopher Cooper ordered DOGE to comply with a watchdog’s request for documents under the Freedom of Information Act related to its financials and operations. Additionally, federal judges have ordered the reinstatement of fired federal workers at multiple agencies, finding that the administration circumvented legal procedures for workforce reduction. 

Future actions from the government

The fundamental takeaway is that despite DOGE’s aggressive actions to cancel contracts and reduce spending, these efforts cannot legally succeed without congressional approval. The Constitution places the power of the purse squarely with Congress, and the ICA provides specific procedures that the executive branch must follow when seeking to withhold funds.

For DOGE’s cuts to have permanent legal effect, either:

• Congress would need to pass legislation approving the rescissions.
• The Supreme Court would need to rule that aspects of the ICA are unconstitutional, enhancing executive authority over appropriations.

Even with unified control of the White House and Congress, Republicans don’t have the power to enact these sweeping changes without support from Democrats. Senate rules require 60 votes to invoke cloture on any bill without privilege (bills that can move with a simple majority or cannot be filibustered because of special rules). Democrats will not vote for legislation to dismantle Executive branch agencies and are unlikely to support an appropriations bill that makes significant cuts to programs they deem important.

The Supreme Court, with its conservative majority, appears reluctant to significantly expand executive power over appropriations, as evidenced by its ruling on USAID funding. While the administration has asked the Court to limit nationwide injunctions blocking its policies, there is no indication that the Court is prepared to fundamentally rewrite the constitutional separation of powers regarding spending authority.

Current actions for not-for-profits

For not-for-profit organizations dependent on federal funding from agencies like the Department of Education or USAID, the legal landscape provides both challenges and potential protections.

Organizations with existing contracts or grants that have been terminated or threatened have strong legal grounds to challenge these actions, particularly if the administration has not followed the rescission procedures required by the ICA. The pattern of court decisions suggests that judges are likely to be receptive to arguments that the administration has overstepped its authority. For programs explicitly mandated by Congress and mentioned by name in federal law, the administration cannot simply eliminate them without congressional action. Even for discretionary programs, the administration must follow specific procedures when seeking to reduce or eliminate funding.

While the situation remains fluid, the constitutional and statutory framework governing appropriations provides a strong basis for challenging unauthorized funding cuts. Until Congress acts to approve rescissions or the Supreme Court fundamentally reinterprets the relationship between the legislative and executive branches regarding appropriations, DOGE’s most aggressive actions are likely to face continued resistance in the courts.

However, even if some funding cuts could eventually be overruled, reversed or revised, many not-for-profit organizations have limited reserves. They face difficult decisions about how to function today.