For many U.S. social service organizations, "doing more with less" has become the norm. Government block-grant budgets have remained flat for years, while inflation, higher wage expectations, and surging community needs have pushed expenses upward. To cope, organizations are trimming expenses wherever they can, postponing upgrades, freezing new hires, and stretching every line item. Yet rising costs still outpace their budgets and put their long-term viability in jeopardy.
A broken funding model
One illustration is the Social Services Block Grant (SSBG). According to The Brookings Institution, in 1979, SSBG appropriations approached $3 billion; for fiscal 2025, the total is $1.7 billion — a 43 percent cut in nominal terms and an estimated 89 percent loss in purchasing power once inflation and population shifts are considered. Because these block-grant dollars are fixed and not indexed, each year's budget effectively shrinks, forcing providers to stretch thinner funds across a growing range of services such as child welfare, home-delivered meals, and adult day care.
The hidden cost of underfunding
Operating on tighter margins has real consequences. According to the 2025 State of the Nonprofit Sector Survey, 37 percent of nonprofits ended 2024 with an operating deficit, 52 percent held three months or less of cash, and 18 percent had reserves of only one month or less. Limited liquidity leaves little room for technology upgrades, building maintenance, or competitive pay. Only 41 percent of surveyed organizations can meet a living-wage benchmark for all full-time staff, heightening turnover risks. Over time, chronic understaffing, aging equipment, and deferred training erode service quality, illustrating what researchers have termed the "nonprofit starvation cycle," in which inadequate funding for overhead makes it harder to deliver programs effectively. Capacity limits mean many programs may operate waitlists or cap enrollment, illustrating how funding shortfalls translate into unmet demand.
Recent shifts in grant rules
While the core funding picture remains tight, some administrative rules are changing. In 2024, the Office of Management and Budget bumped the standard indirect-cost allowance on federal grants from 10 to 15 percent, giving organizations a bit more room to cover everyday administrative and infrastructure costs. Philanthropic funders have likewise begun re-examining policies that restrict overhead, though practices still vary widely. This may be helpful on the margins, but the update doesn’t address the deeper issue of limited overall funding.
An enduring structural challenge
Chronic underfunding leaves social service organizations with shrinking dollars, rising costs, and expanding community needs. Financial indicators like deficits, thin reserves, and deferred maintenance show a sector managing continuous strain rather than planning for growth. Understanding these pressures is essential context for leaders navigating budgets, workforce stability, and program capacity in today's environment.
Sources
Arnold & Porter
Stanford Social Innovation Review
Nonprofit Finance Fund
