Government grants: federal, state, local, and pass-through funding

Government grants can be the largest awards a nonprofit ever receives, and the most demanding. They also come from more places than most people realize. When someone says "government grant," they might mean a competitive federal award from a cabinet agency, a subgrant from a state agency spending federal formula funds, a county contract for services, or a city's small community grant program.

This guide maps the landscape so you can find the government money that fits your organization, and understand what you're signing up for.

The three levels of government funding

Much of the government money that reaches community-based nonprofits doesn't come straight from Washington. It comes from a state, county, or city that received federal or state money and passed it along.

Formula vs. discretionary grants

Understanding this distinction tells you where to look.

Formula grants (also called mandatory grants) are awarded based on statistical criteria set by legislation and regulations. They generally go to states, localities, territories, or tribes rather than private organizations, and they aren't competitive at the federal level: the money is distributed according to the formula. Many formula programs require or allow states to pass a portion through to local agencies and nonprofits.

Discretionary grants (also called competitive grants) let the federal agency choose which projects to fund and how much to award. These are the grants you'll find as Notices of Funding Opportunity (NOFOs) on Grants.gov, and nonprofits often apply for them directly.

Federal grants

Federal discretionary grants are posted on Grants.gov, the official place to find and apply for them. To apply, you'll need an active SAM.gov registration and a Unique Entity ID, along with a Grants.gov account. These registrations take time, so start well before any deadline. See our guides to Grants.gov and SAM.gov registration.

Federal grants come with significant requirements: the Uniform Guidance at 2 CFR 200, specific program rules, cost principles, reporting, and potentially a Single Audit if you spend enough federal money. Read our guides to reading a NOFO and the Uniform Guidance before you apply.

The federal landscape has changed

Federal grantmaking changed substantially in 2025. Among other actions, Executive Order 14332, "Improving Oversight of Federal Grantmaking," signed August 7, 2025, directed agencies to have a senior appointee review funding opportunity announcements and discretionary awards for consistency with agency priorities, to revise grant terms to allow termination for convenience, to write announcements in plain language, and, all else being equal, to prefer institutions with lower indirect cost rates for discretionary awards.

For nonprofits, that means more uncertainty in federal programs, closer attention to termination clauses, and a stronger case for diversifying funding. Our federal funding landscape page tracks what's changed and how nonprofits are adapting.

Pass-through funding

When a state, county, city, or another nonprofit receives a federal award and then makes a subaward to you to carry out part of the program, it's acting as a pass-through entity, and you're a subrecipient. Formula programs often work this way; for example, many cities and counties fund local nonprofits as subrecipients using federal Community Development Block Grant (CDBG) dollars.

What you need to know:

• Federal rules follow the money. The Uniform Guidance and program-specific requirements generally flow down to subrecipients. Your agreement should identify the federal program, award, and requirements.
• The pass-through entity monitors you. Expect risk assessments, reporting, site visits, and documentation requests.
• Reimbursement is common. Many subawards pay you back after you spend money, so you need enough cash flow to front expenses.
• There may be layers. Federal money might pass from an agency to a state to a county to you, with each layer adding its own requirements.

See subawards and pass-through funding for the compliance details.

Finding state grant opportunities

States don't have a single, uniform system, so finding state grants takes some legwork.

1. Check for a central state portal. Some states publish a single grants portal. California's Grants Portal, run by the California State Library under the Grant Information Act of 2018, lists grant and loan opportunities offered on a competitive or first-come basis by California state agencies. Search "[your state] grants portal" and look for an official .gov site.
2. Go agency by agency. Identify the state agencies that work in your field (health, human services, aging, education, justice, workforce, arts, environment) and check their funding or grants pages.
3. Subscribe to notices. Sign up for agency email lists and RFP notifications. State procurement portals sometimes list grant opportunities and service contracts too.
4. Use your state nonprofit association. Many associations track state funding and advocacy news.
5. Follow the state budget. New line items for programs like yours often turn into RFPs months later.

State single points of contact (EO 12372)

Executive Order 12372, "Intergovernmental Review of Federal Programs," lets states set up a process to review certain proposed federal financial assistance. States that participate designate a State Single Point of Contact (SPOC). OMB publishes the SPOC list; as of its July 2026 update, only some states and territories participate. States not listed have chosen not to participate, and applicants there can send materials directly to the federal awarding agency.

Two practical points:

• Check whether your federal application needs intergovernmental review. NOFOs indicate whether a program is covered by EO 12372. If it is and your state participates, contact your SPOC early.
• SPOCs and state clearinghouses aren't grant search engines, but some state clearinghouse offices also share information about funding opportunities. It's worth knowing who yours is.

Local government funding

Counties and cities fund nonprofits in many ways: community grant programs, arts and culture funding, human services contracts, youth programs, and pass-through federal and state money. To find these:

• Check county and city websites for "community grants," "funding opportunities," "notices of funding availability," or "requests for proposals."
• Watch city council and county commission agendas, which often include budget allocations and grant awards.
• Get to know the staff who run community development, human services, and parks and recreation departments.
• Ask peers who already receive local funding how the process works.

Grants vs. contracts

Government money comes as grants (or cooperative agreements) and as contracts, and the difference matters.

Under 2 CFR 200.331, a pass-through entity decides whether you're a subrecipient or a contractor based on the substance of the relationship, not the label on the document. Subrecipients typically have responsibility for programmatic decisions, have performance measured against program objectives, and must follow federal program requirements. Contractors typically provide goods or services within normal business operations, to many purchasers, in a competitive environment.

Many human services nonprofits receive "contracts" from counties that are really subawards under federal rules, or vice versa. If you're unsure, ask the agency how it has classified the agreement, and check with your auditor.

Common pitfalls with government funding

• Underestimating registration time. SAM.gov and Grants.gov registrations can take weeks. Start long before a deadline.
• Missing match requirements. Some programs require cost sharing or matching funds. Read the NOFO or RFP carefully and budget for it.
• Budgeting without the rules. Government budgets have to follow cost principles, including rules on indirect costs. See indirect costs.
• Not reading the terms and conditions. Award terms, especially termination provisions, reporting requirements, and any certifications, are part of the deal.
• Running out of cash. Reimbursement-based awards mean you spend first and get paid later. Map your cash flow before you sign.
• Weak documentation. Timesheets, receipts, and procurement records are your evidence that costs were allowable. Build the habits from day one. See post-award compliance.

Is government funding right for you?

Government funding can be transformative, but it's not for every organization at every stage. Consider:

• Cash flow: Can you front expenses for 60 to 90 days or more while waiting for reimbursement?
• Systems: Do you have accounting that tracks costs by grant, timekeeping that supports personnel charges, and written policies?
• Capacity: Can you handle detailed applications, reporting, and monitoring visits?
• Risk: Can you absorb a delay, a reduction, or a termination?

For the readiness questions to ask before you pursue any grant, try our Grant Readiness Assessment. And if you're building your broader list of funders, start with grant prospecting.