Analysts Discuss Shutdown Impacts, 116th Congress
After the 35-day partial federal government shutdown ended in late January, with President Trump agreeing to reopen the government until Feb. 15 while a bipartisan congressional committee sought to reach a compromise on border funding, federal agency officials came back to work facing a backlog of grant-related duties ranging from issuing grant funding notices, launching peer reviews, funding recipient reimbursements and reviewing prior approval requests. Nonfederal entities reliant on their awarding agency to respond to their funding and oversight requests are urged to be vigilant in communicating with these agencies to ensure their program needs are recognized so they can continue to operate their federal funded programs effectively.
Dismas Locaria, partner with law firm Venable LLP, told attendees at a recent panel discussion on the new 116th Congress and its potential impact on grants that he is encouraging his clients to be proactive in trying to get their particular funding issues “front and center” at their awarding agencies. Although the panel discussion, hosted by Venable in Washington, D.C., was geared toward nonprofit organizations, the discussion could assist other types of award recipients as well. “You’ve got funding that has been on hold, and you need to get [your expenses paid] because who knows” if another government shutdown will occur if a compromise is not reached by Feb. 15. “Take a hard look at your finances and determine what monies are eligible to be drawn down for reimbursement. It will be difficult for the federal government [to respond to everyone], because they will have a lot of people in their ear, but the squeaky wheel gets the oil.”
Fellow panelist Andrea Wilson, partner with accounting firm BDO Greater Washington, D.C., concurred that incremental funding requests should be sent to the awarding agency immediately. “If you have any funding that can be obligated under your current awards, keep pushing [to get the funding], but make it about the program,” she said. “If you make it about paying overhead or your ability to make payroll, they may not care, but if you talk about how it will impact your programs, the agencies generally will [attempt to provide that funding]. If you have funding, plan ahead on how much you can draw down in advance on all the current funding that you do have, and see how long that will last you.”
The Shutdown’s Effects
Wilson acknowledged that during the shutdown, “things just stood still.” Along with the fact that many of her clients did not receive federal reimbursements since payment offices were closed, Wilson added that some of her clients’ audit resolutions were on hold, and one client that was slated to obtain incremental funding prior to the shutdown didn’t receive this funding, so it was forced to furlough staff. “The ramifications were pretty broad,” she said.
Locaria, a member of Thompson’s grants editorial advisory board, agreed. “We saw agency work come to a standstill. [Financial assistance] programs are predicated on [completing milestones by certain] dates and when the government is shut down, what do you do? I think while we could see [the shutdown] coming, the planning for it was just not there, and it left a lot of nonprofits and contractors in a pinch. When you’re talking about 35 days, that’s a sizable chunk of the year that’s lost.”
Panelist Mark Pryor, a former U.S. Senator and current partner with Venable, said the extended furloughs at federal agencies resulting from the shutdown, and the potential for future shutdowns, could create a “brain drain” as current federal employees leave for positions in the private sector or in other nonfederal governmental occupations. “They may feel like they can’t jeopardize their family situations,” he said. “The shutdown created a hardship on many Americans and the U.S. economy. It likely will have a chilling effect on hiring. You don’t want to see it degrade the quality of the federal workforce, but that may be inevitable.”
Locaria followed to say that a similar type of “brain drain” may occur among nonfederal award recipients because staff are worried about the continued receipt of stable federal funding.
One positive aspect of the shutdown was that many recipients are reconsidering their funding streams, Wilson said. “The shutdown created a ‘light bulb moment’ for many of my clients when thinking about their financial reserves,” she explained. “My nonprofit clients are now looking at their reserve policies differently and how long they can go without receiving reimbursements from the federal government. We saw organizations discussing how they could strategize on their fundraising efforts. We saw a lot of fiscal discipline [come] out of it.”
When asked about how recipients should manage staff during a funding impasse, Wilson said that would be case-by-case specific. “That is dependent on your incremental funding under your programs,” she said. “Audits may question costs if you [move staff] into a program that has money by redeploying them from a program that was almost out of money.”
Locaria added that during such funding freezes, recipients should take the time to update award compliance policies and procedures. “A lot of times, nonprofit organizations have a long to-do list that never seems to get addressed because there is no time to get to it,” he said. “There is no time like [during a shutdown] to get your compliance in better shape. While aspects of your programs are shut down, dust off that list of things that would have been nice to get done.”
When asked how a nonprofit organization’s board of directors should get involved during a shutdown that affects the organization’s overall funding, Wilson said a key consideration is determining what flexibility the board of directors will give organizational management to address cash-flow needs. “Board engagement is really important,” she said. “Also, it’s important that the board understands the organization’s responsibility to communicate with the public about the impact of losing these programs.”
Expectations for 116th Congress
The panel also addressed the makeup of the new 116th Congress — in which Democrats now comprise the majority in the House, and Republicans retained their majority in the Senate — and what that may mean for grant programs. Pryor noted that within the current Congress, the contingency of Republicans is much more conservative, while many of the new Democrats in the House are much more liberal. “There’s just not that group of congressmen and Senators like there used to be that could be in the middle and could work with both sides and find that blended solution that works best in our system of government,” he said. “It’s more polarized, and that’s not the way the government should work. You’re going to hear a lot of noise from House Democrats, but they can’t get much done with the [Republican] Senate and the president.”
Locaria mentioned the Teen Pregnancy Prevention Program (CFDA No. 93.297), which had received much bipartisan congressional and scientific support in the past. Under the Trump administration, however, “the abstinence-first policy has taken root,” and the administration attempted to terminate grants already awarded.
Pryor added that you can expect a good number of congressional investigations by the 116th Congress, particularly with respect to the House. “There has just not been a lot of oversight in the past few years” he said. Meanwhile, Locaria said he feared that congressional hearings on more high-profile political matters will garner attention while hearings on important programs like the Teen Pregnancy Prevention Program “will get a short shrift.”
Wilson noted that many nonprofits that have expressed concern that federal funding for their programs may be cut have actually received increases in contributions from foundations and donations. While some of these nonprofits may consider an attempt to diversify their services, she explained that those organizations that have “doubled down on their core mission” have been more successful. “Organizations that are more-specific resonate more with their nongovernmental donors,” she explained. “We’re seeing that over and over, and because foundations are supporting them, the government is coming in to buy in to that success.”
Uniform Guidance Implementation
When discussing whether the administration is likely to make any substantive changes to the uniform grant guidance, which is currently under a five-year review by the Office of Management and Budget (OMB) to meet provisions at §200.109, Wilson did not anticipate major changes in the coming months. “In some ways, it’s too early in to know the complete impact of the uniform guidance,” she said. “A lot of [Subpart F] audits are just making their way into the Federal Audit Clearinghouse, and it takes some time to develop trends. I don’t think we’re there yet.”
Wilson explained that countless auditors are still learning how to properly conduct audits under the uniform guidance and are assessing provisions inconsistently. “Many auditors aren’t really up to date,” she said. “There are many inconsistencies within how organizations are implementing the guidance and how auditors are auditing them based on the guidance. It is really dramatic. Subrecipient monitoring is the one area where I find the most inconsistencies as far as what auditors will tolerate as good subrecipient monitoring.”
Added Locaria, “Some things in the uniform guidance just aren’t clear and some things I doubt the federal government can truly implement or adhere to. It was designed to be flexible, but flexibility creates subjectivity and auditors, accountants and lawyers like objective standards and criteria. If the auditors have different subjective views, then inevitably you will have inconsistencies.”