The Debt Ceiling Debate and Its Impact on Nonprofit Organizations

According to the Treasury Department and Treasury Secretary Janet Yellen, the U.S. government could default on its debt “as early as June 1” unless Congress raises and suspends the debt ceiling. The Treasury Department continues to urge lawmakers to act quickly to avert a fiscal and financial crisis. In this article we provide an update of where things stand, what’s to be expected over the next month, and why this matters for the nonprofit industry.

As it stands, in late April, Speaker Kevin McCarthy and House Republicans were able to narrowly pass the Limit, Save, Grow Act. This bill would:

• Raise the debt limit through March 31, 2024, or until the debt increases by $1.5 trillion, whichever occurs first,
• Decrease the spending limits for federal agencies to fiscal 2022 levels,
• Limits the spending growth to 1% per year,
• Rescind federally funded programs and repeal green energy tax credits recently passed in the Inflation Reduction Act
• Rescind unobligated funds from the COVID-19 relief packages in response to the pandemic,
• Block the Biden Administration’s student loan forgiveness program,
• Increase and add work requirements to safety net programs like food stamps and Medicaid

With the bill passed in the House, it now moves to the Senate for review, however, this bill is already considered “dead on arrival (DOA)” with the Senate controlled by Democrats and the president threatening to veto the bill if it would reach him. The president continues to urge lawmakers to raise the debt ceiling, however, with the House bill considered DOA at the Senate, the debt ceiling debate appears to be headed for a stalemate that could have serious economic consequences if no resolution or compromise is made. Top officials and the president are set to meet this week in hopes to move these discussions forward.

A potential default and government shutdown could have a significant impact on the nonprofit industry. Many nonprofit organizations rely on federally funded programs to conduct their own programs and services. A lost revenue stream of this magnitude could be devastating to those organizations. Additionally, interest rates could rise which would make it more expensive for organizations to borrow money.

As this debt ceiling debates continue and so long as there is such significant political polarization, it is important for management teams and governing bodies of nonprofit organizations to be building contingency reserves and long-term endowments, creating strategic planning and cash flow models, diversifying its revenue streams and portfolio, and following economic and political industry trends to help mitigate any adverse effects.