This morning, staff from CalNonprofits led a 90-minute briefing for hundreds of listeners into the current status of rule changes proposed by the Federal Office of Management and Budget. Here is a summary of what was discussed.
Threats to Federal Grants and Nonprofits
Overview and Federal Funding Context
Public sector grants/contracts are second largest nonprofit revenue stream (~1/3 of total sector funding)
California is a donor state sending ~$80B more annually to Washington DC than received back
Subsidizes operating budgets of ~11 other states lacking state income taxes
May OMB proposal introduced sweeping changes across hundreds of pages governing federal fund flows
OMB Regulatory Proposals and Systemic Threats
Proposals introduce political screening into grant selection
Political appointees could reject proposals deemed inconsistent with vague “national interest” or agency priorities without explanation or appeals process
Considers organization memberships, affiliations, and activities unrelated to grant proposals
Discretionary funds could be withheld indefinitely if not advancing White House policy priorities
Mid-performance grant changes
Agencies could terminate/suspend grants without cause or notice, and alter terms/conditions mid-delivery without hearings
Restrictions on equity programming
Bars funding for “unlawful DEI” or immigration work despite legality upheld in court
Proposed SAM.gov certifications
Vague attestations required under penalty of civil/criminal law and perjury
Federal Oversight and Enforcement Trends
Broad federal pressure across executive actions
Approaching 300 executive orders and over 400 active investigations targeting nonprofits via White House, DOJ, FBI, and congressional committees
OMB Director Russell Vought testing Impoundment Control Act limits via executive fund halts and pocket rescissions
Legal and advocacy counter-offensives
Litigation win rate exceeds 80%; over 600 legal actions filed against unlawful administration measures
Nearly 500,000 public comments submitted against OMB rules
Bipartisan congressional action inserted a stay in the continuing resolution (CR) delaying implementation through December 11, 2026
California State Action and Legislative Efforts
California DOJ led by Attorney General Rob Bonta filed 80+ lawsuits, supported by $25M legislative funding
State legislation passed
AB 1318 (enacted October 2025): California will not recognize unilateral federal revocation of 501(c)(3) status
Permissive advance pay legislation authorizing up to 25% grant funds upfront to nonprofits
Stalled state measures
AB 1039 to mandate 25% advance pay vetoed/opposed by Governor Newsom over grant control concerns; targeting reintroduction under future Governor Becerra
Proposal to establish an Office of Nonprofit Empowerment modeled on GO-Biz stalled
Feasibility of state tax strike: impossible since individual citizens pay federal taxes directly, exposing residents to federal prosecution for tax evasion
Upcoming Deadlines and Action Items
December 11, 2026: Expiration of current continuing resolution and rule stay
November 10, 2026: National Day of Action for nonprofits
Key direct actions
Sign national opposition letter circulated by National Council of Nonprofits (~2,000 organizations signed to date)
Contact congressional representatives urging permanent blocks on OMB rule during the post-election lame-duck session
Continue applying for federal grants and documenting discriminatory or arbitrary agency actions for court records
Subsidizes operating budgets of ~11 other states lacking state income taxes
Political appointees could reject proposals deemed inconsistent with vague “national interest” or agency priorities without explanation or appeals process
Considers organization memberships, affiliations, and activities unrelated to grant proposals
Discretionary funds could be withheld indefinitely if not advancing White House policy priorities
Agencies could terminate/suspend grants without cause or notice, and alter terms/conditions mid-delivery without hearings
Bars funding for “unlawful DEI” or immigration work despite legality upheld in court
Vague attestations required under penalty of civil/criminal law and perjury
Approaching 300 executive orders and over 400 active investigations targeting nonprofits via White House, DOJ, FBI, and congressional committees
OMB Director Russell Vought testing Impoundment Control Act limits via executive fund halts and pocket rescissions
Litigation win rate exceeds 80%; over 600 legal actions filed against unlawful administration measures
Nearly 500,000 public comments submitted against OMB rules
Bipartisan congressional action inserted a stay in the continuing resolution (CR) delaying implementation through December 11, 2026
AB 1318 (enacted October 2025): California will not recognize unilateral federal revocation of 501(c)(3) status
Permissive advance pay legislation authorizing up to 25% grant funds upfront to nonprofits
AB 1039 to mandate 25% advance pay vetoed/opposed by Governor Newsom over grant control concerns; targeting reintroduction under future Governor Becerra
Proposal to establish an Office of Nonprofit Empowerment modeled on GO-Biz stalled
Sign national opposition letter circulated by National Council of Nonprofits (~2,000 organizations signed to date)
Contact congressional representatives urging permanent blocks on OMB rule during the post-election lame-duck session
Continue applying for federal grants and documenting discriminatory or arbitrary agency actions for court records
