Can Philanthropy Cover the Loss of Federal Funding?

This article was written by 2025 Mutz Philanthropic Leadership Institute class member Patricia Frank.

In recent years, Indiana organizations have seen a notable shift in the dynamics of public funding. Federal funding, which once formed the backbone of numerous essential services and social programs, is increasingly under scrutiny and being reduced, leaving a gaping hole in support for critical initiatives. This gap begs a significant question: Can philanthropy step in and fill the void left by diminishing federal funding? 

The Growing Dependence on Philanthropy 

Philanthropy has long been an essential component of societal welfare, but its role has dramatically evolved. Traditionally, charitable foundations and individual donors have focused on a few specific causes, while not always aligning with the government. According to Indiana Philanthropy Alliance, the shared priorities among foundations, government, and businesses in Indiana currently include workforce development, talent attraction, quality of life, healthy communities, quality education, and affordable housing. With the federal government pulling back from many social initiatives, many nonprofits have turned to philanthropic organizations to fill the gap. 

We’ve seen the rise of funders like Lilly Cares Foundation, Inc., Lilly Endowment Inc., and the Central Indiana Community Foundation, whose philanthropic endeavors are now advancing the funding landscape. Through large-scale giving, these foundations have launched initiatives that impact everything from local health to workforce development in our own backyards. While these efforts are commendable and undoubtedly beneficial, a critical question remains about whether private philanthropy can cover the growing deficits left by federal funding cuts. 

The Challenges of Philanthropic Dependence 

While philanthropy can play a vital role, relying on it to cover the loss of federal funding presents significant challenges. The first major issue is the inconsistency and unpredictability of charitable donations. Federal funding, even if reduced, provides a relatively stable foundation for budgeting and planning. Philanthropy, on the other hand, can fluctuate based on the whims of individual donors, economic conditions, and political factors. Unlike federal funds, which are often tied to specific regulations and guidelines, philanthropic giving is often more variable and is often directed toward causes that align with the personal interests of donors, rather than meeting urgent or widespread needs. As a Grants Administrator, I have seen firsthand how critical it is for programs to have funding that runs the full calendar length versus grants that begin mid-year. 

Furthermore, philanthropy is not necessarily an equalizer. The distribution of charitable funds often skews toward certain high-profile causes, while other pressing issues may go underfunded. A donor might choose to give a large grant for cancer research, for example, while causes like mental health services, homelessness, or affordable housing receive far less attention. This creates an uneven and fragmented support system where the most visible causes thrive, and less glamorous but equally necessary services struggle to survive. 

The Role of Government in the Future 

If philanthropy is to cover the loss of federal funding, it cannot do so alone. This was echoed by five organizations that spoke on a panel to the Mutz Philanthropic Institute class. While philanthropists and foundations can play a crucial role in responding to immediate needs, they cannot replace the function of a well-resourced government that provides equitable, sustainable, and long-term solutions for all citizens.  

There is a fundamental difference between government funding, which is structured and subject to accountability, and the whims of private donors. Federal funding is structured and subject to accountability. It provides a sense of social contract and civic duty—resources that are distributed across society based on need rather than on the preferences of a few.  

A Collaborative Approach 

While philanthropy cannot completely replace federal funding, it can play a complementary role. A partnership model, where governments, philanthropies, and businesses collaborate, can create more holistic and effective solutions to societal challenges. By aligning public resources with private investment, we can develop a robust framework that leverages both public and private strengths.  

IU Health Foundation Community Impact Investment funding is one example of this partnership model.  In their 2023 review, it addresses “how we might partner together to expand these programs and address the next wave of community challenges impacting health outcomes in our state”. We also see increasing collaboration between foundations and government agencies to fund social programs and educational initiatives. Foundations can provide the seed money and innovation, while governments can provide the scalability, regulatory support, and long-term planning necessary to ensure that programs have a lasting impact.  

Indiana is unique and leads the nation with 94 community foundations  affiliate funds, according to an article by the Greene County Foundation. Community foundations have a broad view of the communities they serve and can both provide philanthropic funding and act as an advocate for state and federal support for programs in their communities. This broad view can be established by community health needs assessments and gathering data that can be shared widely.  

Philanthropy also has a unique ability to experiment and innovate, testing new ideas that may be too risky for government institutions. If done thoughtfully, this can create models for success that governments can later adopt and scale. 

Conclusion

Philanthropy is an essential component of modern society, but it cannot bear the full weight of the challenges faced by social programs in the absence of adequate federal funding. While it can fill certain gaps and offer innovative solutions, it is not a substitute for the broad, equitable, and stable funding that government programs provide. To ensure the well-being of all citizens, a balanced and collaborative approach between public and private sectors is necessary—one that maximizes the strengths of both philanthropy and government in addressing society's most pressing issues. 

A Call to Action 

• As an individual, there are ways that you can support the work of organizations that count on federal funding: 
• Speak Up! Utilize organizations, such as Indiana Public Broadcasting Stations or ACLU Indiana, that summarize different legislation and call your representatives when there is a call to action. Advocate for the causes that are important to you. 
• Volunteer! Many organizations have had to cut staff or reduce the number of hours worked. Volunteering is a great way to alleviate some of the stress to keep the doors open and ensure people are served. Volunteer Match is a portal that has many volunteer opportunities across Indiana. 
• Donate! If you’re able, donate money. As this piece suggests, philanthropy can’t replace all federal funding, but it can make a difference.