Navigating Uncertain Waters: Minnesota’s New Legislative Proposal and Its Impact on Nonprofits

By Michael Giovanis, Strategist, Fundraising Sol

Recent moves by the Minnesota House Ways and Means Committee and Fraud Prevention Committee suggest a significant shift in how nonprofits receive state funding. The committees have recommended halting the direct appropriation of state funds to nonprofits, advocating instead for a competitive grant application process. While the intention to increase accountability and oversight of taxpayer dollars is commendable, this shift may introduce new challenges for nonprofits already stretched thin.

Historically, legislatively named grants allowed nonprofits quick, direct access to essential resources, enabling them to respond efficiently to community needs. Yet, this practice has recently come under scrutiny due to reported compliance issues and perceived inequities. As a result, legislators are proposing more structured, competitive grant processes managed through state agencies.

While the pursuit of transparency and fairness is crucial, it’s important to recognize the subtle yet potentially adverse effects of such changes on nonprofits:

1. Increased Administrative Burdens: Competitive grant applications often require significant staff time, expertise, and resources—luxuries smaller nonprofits typically can’t afford.

2. Delays in Funding: A lengthier, more bureaucratic process could delay crucial funding, hampering nonprofits’ ability to deliver timely services.

3. Potential Disadvantages for Smaller Organizations: The shift might unintentionally favor larger, better-resourced nonprofits, leaving smaller, community-based groups struggling to compete effectively.

Given these concerns, nonprofits must begin strategizing immediately:

• Strengthen Internal Capacity: Shifting to competitive grant processes means organizations may need to sharpen their grant writing and compliance skills. Simple tools—like templates, timelines, and easy-to-follow checklists—can make it less overwhelming to build strong applications, even for small teams.

• Leverage Partnerships: Collaboration is more important than ever. Partnering with other organizations can help share the administrative load, strengthen proposals, and demonstrate broader community impact. Whether through formal coalitions or informal alliances, working together can increase your access to funding and amplify your voice.

• Diversify Funding Streams: With direct state appropriations on uncertain footing, it’s worth taking stock of where your funding is most vulnerable. Are there places you’re overly reliant? Are there revenue sources—like monthly giving, donor-advised funds, or mission-aligned earned income—you’ve overlooked because state dollars felt dependable? Rebalancing your mix doesn’t have to mean a full overhaul, but it’s a good time to get intentional.

While accountability and oversight are essential, it’s equally vital to advocate for nonprofit-friendly policies that understand the unique constraints these organizations face. Minnesota nonprofits contribute immeasurably to the state’s communities, and preserving their operational agility is crucial. Moving forward, stakeholders must carefully balance transparency with practicality to ensure nonprofits remain effective and impactful.

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Michael provides policy and advocacy expertise at Fundraising Sol, helping clients navigate funding landscapes and legislative initiatives. He is also the principal consultant of Availing Echosim, offering fractional operations, finance, HR, and development services to nonprofits. He loves jazz music and camping with his dog.