Reflections on CEP’s 2026 State of Nonprofits Report and NFF’s Heart of the Sector

The Center for Effective Philanthropy (CEP) hosted a webinar this month on their 2026 State of Nonprofits report, and one number stopped me cold: 89% of nonprofit leaders are concerned about their own burnout. Not their staff’s burnout — their own. And 46% say burnout is “very much” a concern — the highest rate in the three years CEP has been tracking it.

I’ve spent six years working alongside nonprofit leaders. I’ve sat in the rooms where EDs carry the weight of funding uncertainty, increased service demand, and a management team that — through no fault of anyone — hasn’t had the support to lead independently. So none of this surprised me. And that’s the problem. We’ve known this for years, and the trend line is not improving.

The numbers tell a story the sector keeps hoping will resolve itself.

Budget deficits are up sharply — nearly 40% of nonprofits reported a deficit in the last fiscal year, compared to just 22% when CEP first began collecting this data in 2023. Nearly 60% of nonprofit CEOs report it’s been harder to get foundation funding since January 2025. More than 40% have seen foundation funding actually decrease. And the damage doesn’t stop with organizations that depend directly on federal dollars: organizations that never received federal funding are now competing in a compressed philanthropic market, overloading donor bases and leaving less to go around.

Meanwhile, demand for services has increased for 73% of nonprofits. The math doesn’t work, and the people trying to make it work are running out of runway.

What’s driving this isn’t complexity. It’s abandonment.

During the webinar, Diane Yentel of National Council of Nonprofits named it directly: over $20 billion in federal funding specifically designated for nonprofits has been eliminated or cut in the last year. That’s not a funding gap. That’s a deliberate dismantling of a decades-long partnership between government and the nonprofit sector — while simultaneously increasing demand for the very services that sector provides.

Dr. Laura Gerald of the Kate B. Reynolds Charitable Trust was just as direct about the structural problem. The nonprofit sector has historically been asked to make poverty and inequality more palatable — to distribute a little relief without changing the systems that generate the need. That’s the context in which burnout is happening. And Nonprofit Finance Fund’s (NFF) Heart of the Sector report adds a layer the CEP data doesn’t fully surface: the funding model itself is part of the design failure. When funders restrict grants to specific outputs and don’t fund full cost — including staff compensation — they are, often without intending to, making staffing decisions for the organizations they support. As one nonprofit leader put it in the NFF report: salaries are often set by the funder.

That’s a through-line worth sitting with. Foundations are pulling back on flexibility at exactly the moment their own funding practices are contributing to the compensation crisis driving turnover.

So what is actually being done — and what needs to happen?

The CEP webinar surfaced some genuine, if insufficient, examples of funders stepping up. Dr. Gerald’s foundation piloted “Camp Kate” — a week-long wellness retreat for 15 nonprofit leaders, no deliverables required, no surveys, just space to recover. They’ve since extended it into a grant program. Diane Yentel’s organization, NCN, created a micro-grant program called THRIVE that funded wellness stipends and paid time off for member organizations. The Kate B. Reynolds Charitable Trust increased its annual grant-making from $20 million to $30 million this past year and has moved toward multi-year, general operating support for grassroots organizations — funding organizations to exist and operate, not just to deliver specific outputs.

The NFF report goes further by documenting what it actually looks like when organizations invest in worker wellbeing and what the returns are. Canal Alliance, a California nonprofit, implemented a four-day work week and tracked it rigorously. Within the first year, staff turnover dropped 50%, burnout-driven resignations fell to zero, and applications for open positions increased 70%. The Richmond Neighborhood Center expanded benefits eligibility and improved health coverage; the result was increased retention and reduced recruiting costs that stabilized their programs. These aren’t anecdotes. They’re proof points that the sector has been asking for.

The question the CEP room kept returning to — and that went largely unanswered — is why more foundations aren’t funding these kinds of investments. The NFF evidence suggests the return is there. The barrier is a funding culture that still treats staff investment as overhead rather than infrastructure.

The questions nobody could fully answer.

The Q&A during the CEP webinar was as revealing as the data itself. Attendees asked: What is the evidence base for wellness stipends — were they more effective than other interventions? If foundations give unrestricted grants, how do they ensure those funds go toward staff wellbeing? And the question I kept thinking about: if things are this dire, what justifies maintaining billions in endowment indefinitely?

Dr. Gerald offered the most honest answer to the endowment question. Her foundation’s entire corpus is roughly $600 million. When she was state health director of North Carolina, one small division of the state’s public health budget ran $800 million a year. All of philanthropy combined could drain its corpus and still not cover a year or two of federal healthcare funding. The math is stark: philanthropy cannot replace what government has withdrawn. But that doesn’t resolve the moral question about what foundations should do with the resources they hold, or the structural question about whether the funding practices themselves are part of the problem.

What tends to get overlooked in reports like this.

The headline stats on burnout and funding are striking. But there are quieter trends worth naming.

The downstream contagion of federal cuts is broader than the direct impact. Nonprofits that never received federal funding are now competing in a compressed philanthropic market. The scarcity mindset is sector-wide, not confined to organizations with federal exposure.

The organizations cutting staff are cutting deep. Among those that have reduced headcount, many have cut more than 10% of their workforce. That’s not trimming overhead — that’s gutting delivery capacity at exactly the moment demand has increased for nearly three in four nonprofits.

The leadership pipeline is compressing from both ends. Long-tenured EDs are staying because there’s no succession infrastructure and no safety net for the organizations they’ve built. Emerging leaders are watching the sector and making choices about whether to stay. The pipeline gap will widen before it narrows.

And compensation freezes — the most common survival action nonprofits are currently considering — are retention risks in disguise. The NFF report documents organizations that moved in the opposite direction and saw measurable returns: one raised its salary floor and saw retention stabilize; another made an automatic retirement contribution regardless of employee contribution and watched 60% of staff engage with benefits they previously didn’t use. The organizations treating staff investment as strategy are outperforming the ones treating it as a luxury. The sector is making the more expensive choice by freezing compensation, and we have the data to say so.

One thing that gave me hope.

Amid the hard data, one thread ran through the closing conversation that I want to name. Diane Yentel made a point that landed: we shouldn’t be trying to return to where the sector was before this moment. Not to 2024, not to pre-pandemic, not to any prior version of normal — because none of those versions were fully resourced, resilient, or trusted enough to serve the communities that needed them. The argument she and Dr. Gerald both made, in different ways, is that this crisis is a catalyst. The question is whether the sector will use it to re-envision something better, or simply survive long enough to inherit the same structural problems.

The NFF report points in that direction too. The organizations in it that made real change — on compensation, benefits, schedule flexibility, shared leadership — didn’t wait for the funding environment to improve. They made a values-aligned decision about what their staff deserved and built financial strategy around it. That’s a different posture than survival mode, and it’s worth paying attention to.

The narrative piece matters here as well. One of the most consistent themes across the CEP panelists was the importance of the sector telling its own story — clearly, together, and loudly — rather than letting coordinated misinformation define what nonprofits are and why they exist. Most people interact with nonprofits throughout their lives without realizing it. That’s a communications failure the sector can address, even when it can’t address federal funding cuts.

What this means for how I work.

Both reports confirmed what I’ve been seeing in client conversations for the past two years. The problem isn’t that nonprofit leaders lack vision or commitment. It’s that they’re carrying out execution on their own — because the management layer beneath them hasn’t been given the frameworks, support, or shared language to lead independently. And building that capacity takes time and investment that the sector has consistently been told it can’t afford.

The NFF report documents organizations that solved this deliberately: Youth Organize! California implemented a shared leadership model that distributed decision-making across staff teams, gave everyone a raise to reflect expanded responsibility, and in doing so reduced the cognitive and relational load on the executive director. Several organizations that unionized reported the same unexpected outcome — a contract that clarified decision ownership actually relieved pressure on leadership rather than adding to it. The lesson isn’t that there’s one right model. It’s that the organizations investing in distributed leadership are more resilient, and the ones that aren’t are burning out their people at the top.

The burnout data should reframe the calculus for funders and boards. The cost of not investing in leadership infrastructure — in turnover, lost institutional knowledge, reduced service capacity — is far higher than the cost of building it. Foundations investing in grantee organizations have a stake in this whether they’ve named it or not.

The sector isn’t burning out because it’s weak. It’s being burned by a policy environment that has withdrawn support while increasing demand, a funding culture that still treats staff as overhead, and a decades-long underinvestment in the leadership infrastructure that makes mission delivery possible.

The reports show us where we are. The harder question is what we’re willing to do about it.