Navigating Federal Funding Uncertainty: Insights from Jason Rittenberg

The Current Landscape: Shifting Policies and Uncertainty

As Jason highlighted, the current political and policy environment is anything but predictable. While federal transitions are typically marked by delays, shifts, and changes in program priorities, this moment in time feels especially uncertain. Jason's extensive background working with Congress on economic development and appropriations gives him a unique vantage point from which to assess these ongoing shifts. However, even Jason admits that the current environment has made it difficult for even the most seasoned experts to keep track of what’s happening at the federal level.

One particularly challenging aspect has been the varying levels of awareness among federal program staff. Many have found themselves in situations where they are unaware of what’s happening in other parts of the government or across different agencies. This lack of coordination has led to confusion and even misalignment in program execution, making it harder for those who rely on federal funding and programs to navigate the bureaucracy.

The Transition Process: What’s Normal and What’s New?

In normal times, during a federal transition, Jason notes that you might expect to see delays in competitions and changes to existing cooperative agreements and contracts. For instance, Jason points to the SBA Growth Accelerator Fund Competition, where deadlines were pushed back slightly and modifications were made to the program’s diversity and inclusion requirements. While such delays can be inconvenient, they are typically manageable.

However, with the current administration, things are different. As new appropriations come in, agencies often face significant changes in their budgeting priorities. For instance, in a typical year, the President would release a budget that reflects political priorities, but the reality is that Congress has the final say. With a trifecta control situation, where one party controls the executive and both legislative branches, we have seen more dramatic shifts in policy than in previous years.

Executive Orders, Budget Freezes, and Program Delays

Recently, Jason’s firm has been closely tracking a number of executive actions that are reshaping the federal policy space. One of the key areas of focus has been Diversity, Equity, and Inclusion (DEI) requirements, which have come to the forefront in many federal initiatives. In addition, there’s an increased focus on climate policy and clean energy as agencies look to address pressing environmental issues.

In addition, Jason points out that there have been several OMB memos freezing spending, although some of those memos have since been overturned. That said, the landscape remains murky as agencies continue to review their ongoing spending plans. The uncertainty surrounding spending on existing awards has led to confusion and a lack of clarity, which poses challenges for organizations that depend on this funding.

Additionally, there have been changes in federal staffing levels, with some employees being let go and others resigning or retiring. This change has been particularly noticeable at the Economic Development Administration (EDA), which received one-time funding through the CARES Act and emergency appropriations. As a result, a significant portion of EDA staff is composed of term employees who lack the civil service protections of full-time employees. These shifts in staffing have further contributed to the uncertainty surrounding federal programs.

Major Policy Shifts Ahead: What to Expect

As we look ahead, Jason has identified a number of key developments that are likely to impact the future of federally funded programs. One major shift that’s already underway is the reconciliation process in both the House and Senate. This process allows for changes in spending without the need for extensive policy negotiations, which makes it a powerful tool for advancing key legislative priorities. Given the previously mentioned trifecta control situation, we can expect to see significant changes in policy and funding allocations.

For example, Jason notes that the Tax Cuts and Jobs Act and various climate change initiatives have been pushed through using the reconciliation process in the past, bypassing the usual negotiation process in favor of a quicker, more streamlined approach. This could have significant implications for the direction of federal funding in areas such as innovation, research, and clean energy.

Another area to watch closely is the indirect cost limitation rule that was recently introduced by the National Institutes of Health (NIH). This rule, which would limit indirect costs for federal grants, has been met with legal challenges and is currently on hold. If the rule is upheld, it could have widespread implications for institutions that rely on federal grants, particularly those in the research sector.

What Organizations Should Do Now: Key Action Items

Given the current state of federal policy and the ongoing uncertainty, Jason urges organizations running federally funded programs to take a proactive approach in preparing for potential changes. Some of the key action items that he recommends include:

1. Stay Informed: The landscape is shifting quickly, and it’s crucial to stay informed about the latest executive orders, policy changes, and funding updates. Engaging with lobbyists, policymakers, and other influencers can help provide valuable insight into where things are headed.

2. Plan for Delays: With many programs facing delays or shifting deadlines, it’s important to plan for potential setbacks in the approval or execution of federal funding. Flexibility and adaptability will be key as agencies adjust to new directives.

3. Understand the Impact of Budget Changes: Changes in budget priorities, particularly around climate policy and DEI, could affect the funding available for certain programs. Organizations should be ready to pivot based on these shifts.

4. Prepare for Staffing and Administrative Changes: Given the uncertainty around staffing levels and personnel changes within federal agencies, organizations should have contingency plans in place for potential disruptions in program administration.

5. Monitor Legal and Regulatory Challenges: With new rules, like the indirect cost limitation rule, facing legal challenges, it’s important to stay up to date on any changes that could affect how programs are implemented and funded.

The Budget Battle: What’s Likely to Happen?

As we look toward the coming months, one thing seems increasingly clear: budget reconciliation is highly likely to occur. While there are always disagreements in Congress, it seems almost certain that we will see some form of large-scale tax cuts pass, possibly including the reauthorization of certain programs, like Opportunity Zones. These tax cuts could allow for more money to flow into certain initiatives, but they also bring the possibility of significant program cuts.

At this point, it’s unclear where exactly those cuts might fall, but it is almost guaranteed that the reconciliation process will take place in some form before the end of this fiscal year. Meanwhile, Fiscal Year 2025 (FY 25) budget decisions are still in the air, with discussions continuing in Congress about how much funding to allocate for various programs.

One important element that’s likely to remain unchanged is the normal appropriations process for FY 26, with Congress beginning to move on these decisions in line with their typical schedule. However, the uncertainty lies in how agencies will handle money once it’s allocated and the political factors that may shape the distribution of these funds. While Congress might continue appropriating funds in a fairly predictable manner, there are potential risks that political influence could lead to more selective funding decisions by federal agencies.

The federal funding landscape is undergoing significant changes, especially in relation to innovation and entrepreneurship programs. Following the initial federal freeze, agencies were required to assess their programs and evaluate how they aligned with the new administration’s priorities. This review process led to the distribution of surveys, which agencies were asked to complete, including a detailed look at contracts and competition programs. However, it remains unclear whether recent changes to programs and canceled contracts were directly tied to this review process or if they were due to other factors.

As for the SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) programs, they are facing several challenges in the coming year. One major issue is that SBIR's reauthorization is set to expire on September 30, and it’s uncertain whether bipartisan support can be mustered to renew it. Additionally, many agencies have experienced staffing reductions—such as NSF, which lost 10% of its staff, and SBA, which lost 400 employees, including key staff in the office overseeing SBIR. This loss of staff, combined with a hiring freeze, could slow down program execution and delay the processing of awards.

Another concern is that funding for SBIR programs may decrease due to changes in how funds are allocated, such as reduced spending on extramural research. The indirect cost rate cap at agencies like NIH also threatens to reduce the overall value of SBIR awards, as organizations may now have to accept lower indirect rates. These factors combined signal a challenging year ahead for SBIR and STTR recipients, with potential delays and reduced funding.

In short, while the SBIR program faces an uncertain future due to reauthorization challenges, staffing cuts, and funding reductions, organizations should be prepared for slower execution and possible adjustments to funding levels.

The Potential for Political Influence in Agency Funding Decisions

It’s possible that federal agencies will become more politically driven in their funding choices, especially if new tax cuts and program reauthorizations are introduced. The worry here is that funding decisions could be shaped more by political agendas rather than being driven by merit or need. While this hasn’t been the norm for federal agencies in recent years, the current administration’s approach to various funding initiatives—along with the shifting dynamics in Congress—could make political shaping more prevalent.

Moreover, it’s also possible that the Impoundment Control Act could come into play, where Congress allocates funds but the administration decides to spend less. This could become part of a broader savings effort or be used as leverage in the tax cut discussions, further complicating the financial landscape.

Ultimately, what we’re facing is a great deal of uncertainty, particularly in how agencies will manage their funds and how Congress will respond to these evolving dynamics. This uncertainty has left many wondering how best to plan for what’s ahead.

What Does This Mean for Organizations with Federal Awards?

If your organization is currently managing a federal award or is expecting future federal funding, now is the time to get organized and be proactive. Below are several key action items to ensure you’re prepared for potential changes, delays, or even the possibility of a government shutdown.

1. Understand Your Award Terms

Before anything else, you must fully understand the terms of your federal award. This includes:

• The procedures for changes to scope or termination of the agreement by the agency.

• Rules around stopping funding without formally canceling the contract.

• Make sure your award includes specific shutdown language in case of disruptions.

Having a solid understanding of these terms is crucial for responding effectively if the situation changes suddenly. Documentation is key—if you’re facing a potential violation of these terms, clear records will help you pursue action if needed.

2. Prepare for Delays and Potential Funding Gaps

Federal programs are often delayed during turbulent political periods, and there’s always a chance that your funding could be impacted by a shutdown or shift in priorities. If you’re managing an ongoing grant, make sure to:

• Communicate regularly with your grant officers.

• Be prepared for delays in disbursements or changes to the terms of your grant.

• Keep stakeholders informed about any disruptions.

3. Engage with Key Advocates

Even if you’re not directly in trouble yet, it’s important to engage with your board, state advocates, and federal delegation. Let them know about your situation and ensure they understand the potential impact of a funding disruption. Establishing strong relationships now will make it easier to act quickly if the situation escalates.

4. Evaluate the Viability of Continuing Your Program

Federal grants can be essential for scaling initiatives, but they also come with restrictions and limited sustainability. If political shifts impact your program or your grant terms change drastically, you may need to evaluate whether the federal award is still worth pursuing. This decision is never easy, especially if your staff or organization’s sustainability relies on the grant, but it’s important to consider if the program’s goals align with your long-term vision.

Organizations should be aware that relying heavily on federal funding may create vulnerabilities in times of uncertainty. If changes are forced upon your organization that are at odds with your mission, it may be time to reconsider the direction of your federally funded initiatives.

5. Plan for Sustainable Funding

One of the key takeaways from this current turmoil is that federal funding is not a reliable long-term strategy for sustainability. If your organization depends heavily on federal funding, now is the time to diversify your revenue streams. This might mean:

• Pursuing state and local funding opportunities.

• Developing fee-for-service models.

• Exploring partnerships with foundations or private sector sponsors.

A strong, diverse funding strategy will help your organization weather periods of federal uncertainty, ensuring that you’re not left high and dry in the event of a shutdown or major funding cuts.

Final Thoughts: Embrace Flexibility and Resilience

The federal funding landscape is in flux, and it’s impossible to predict exactly how things will unfold. However, by staying proactive, understanding the rules around your funding, and preparing for potential shifts in priorities, your organization can position itself to navigate these challenges. Flexibility and resilience will be your greatest assets in the coming months, as you work to ensure the long-term sustainability of your programs despite the political and budgetary uncertainty.

The situation is complex, but with the right strategies and preparation, your organization can continue to thrive even in uncertain times.