Catalyst Biweekly Policy Briefing Issue XXIII: Under Pressure

Hi all — Katie here, stepping in while Megan takes a much-deserved sabbatical this month. This week’s update has a lot to cover, so grab your coffee and let’s dive in.

Here’s a look at what happened this week. Catch up on our previous installments of this briefing here.

THE FACTS

GOVERNMENT SHUTDOWN

• After a standoff in the Senate on September 30, the House-passed continuing resolution to temporarily fund the federal government failed, 55-45, in a mostly party-line vote. With no agreement in place, the government entered a shutdown at 12:01 a.m. on October 1. With both sides laying blame on the other, here’s a brief summary of what each side wants:
  • The Democratic proposal would have extended funding through October 31. It was tied to extending Affordable Care Act premium tax credits set to expire at the end of December, protections for Medicaid, and legal guardrails to prevent the executive branch from withholding funds or rescinding parts of appropriations.
  • The Republican proposal would have extended funding through November 21 with no policy provisions attached.
  • The Senate rejected a continuing resolution for the seventh time Thursday afternoon. The Senate has adjourned until Tuesday, leaving no hope for the shutdown to end before the weekend. After Thursday’s vote, President Trump held a Cabinet meeting where he promised to begin permanently cutting Democratic-backed programs.
  • House Speaker Johnson said Thursday that he has no intention of bringing the House back into session next week. He said the only way out of the shutdown is to pass the bill already approved by the House.
  • California Senators have consistently voted “nay,” as have the state’s congressional representatives, with the exception of Rep. Darrell Issa (R-48). Issa’s seat is one of five redistricting targets if Proposition 50 passes.
• Today marks the 10th day of the shutdown, making it the seventh longest shutdown since the modern budget process began in 1976. The longest shutdown lasted 34 days in 2018.
• The day after the shutdown began, the Trump administration attempted to pressure Democrats by freezing $26 billion in approved funding for Democratic-led states, fulfilling his promise to use the shutdown “to get rid of a lot of things that we didn’t want, and they’d be Democrat things.” Trump has also threatened to fire federal workers who would normally be furloughed during shutdown, but as of this morning (Friday), layoffs had not been enacted. Unions sued on September 30, arguing the potential layoffs would violate the Antideficiency Act.
• A memo from the administration suggested many furloughed workers guaranteed back pay under the 2019 Government Employee Fair Treatment Act may not receive it. On October 3, after the memo circulated, the Office of Management and Budget (OMB) revised its shutdown guidance to remove mention of that law and guarantees of back pay.
  • As of October 6, approximately 620,000 federal workers had been furloughed. On Wednesday, they were joined by an additional 34,400 IRS workers nationwide who were kept on for the first five days of the shutdown using funding from the 2022 Inflation Reduction Act. In contradiction to OMB’s updated guidance, the IRS workers received notices reminding them that federal law requires them to receive back pay. On Thursday, however, the agency walked back that statement, increasing confusion over back pay and shutdown policy.
• Active-duty service members are required to continue working during a shutdown, but they will miss their first paycheck on October 15. After that, they will work without pay until the shutdown ends and they receive back pay. Some members of Congress are working on a bill to fund service members during the shutdown, but the proposal has caused tension among House Republicans, some of whom prefer to use military pay as leverage. As of Thursday, Johnson announced plans for such a bill had been ruled out.
  • San Diego is home to more than 115,000 active-duty service members. Food banks are preparing for an uptick in demand from military families as paychecks stop.
  • In all, 147,000 military members or civilian employees will work without receiving paychecks in our region.

• Air traffic controllers, who also must continue working during a shutdown, will receive only partial paychecks this week and no paychecks after that until the shutdown ends. Sick calls have risen slightly among both controllers and TSA workers, who are also required to work without pay. Even with small increases in absences, travel has already been disrupted at several major airports.
  • San Diego International Airport has not yet reported delays but is warning travelers to arrive earlier than usual in case of disruptions.
  • The Department of Homeland Security has confirmed that a new video blaming the shutdown and airport delays on Democrats is rolling out at airport TSA screenings.
• Meanwhile, federal workers have sued the Department of Education over partisan out-of-office auto-replies they didn’t approve. Since the shutdown began, some nonpartisan agencies have sent messages and posted banners blaming Democrats, potentially violating the Hatch Act, which bars political activity by federal employees. House Oversight Committee Democrats are also pushing for an investigation into these shutdown-related messages.

Implications for Funders: Expect a higher demand for food banks and social services, including mental health care providers, especially from military and furloughed workers, and adjust accordingly. Consider short-term relief to alleviate the back pay uncertainty affecting federal workers and contractors. Funders can help by providing flexible, emergency, or bridge funding to support grantees and vulnerable populations during this disruption. 

NONPROFITS & EDUCATIONAL INSTITUTIONS

• The treasury has released its 2025-26 priority guidance plan. The plan includes implementing excise taxes on excess compensation of nonprofit executives and investment income of some colleges and universities. It also prioritizes new regulations for donor-advised funds and updated guidance on the Johnson Amendment.
• Following on the heels of the September 25 memo from the administration, House Ways and Means Committee Chairman Jason Smith called on the IRS to revoke the tax-exempt status of several organizations, including the Tides Foundation and WESPAC Foundation. Nonprofit groups are banding together to form what they call a “NATO for nonprofits” to work together against what they describe as attacks from the administration.
  • Governor Gavin Newsom signed Assembly Bill 1318 this week, providing some protection from politically motivated efforts targeting nonprofits whose ideology does not mesh with the administration. The law expands the definition of a “qualified nonprofit organization” for state grants and contracts to be either federal or state tax-exempt status. Should a nonprofit targeted by the administration lose their federal status, they will no longer automatically be ineligible for state funds as well.
• The Trump administration also sent letters to nine universities, including the University of Southern California, asking them to sign contracts tying future federal funding to changes on campus. The contracts would require universities to eliminate departments accused of “punishing” or “belittling” conservative policies and ideas, commit to a gender binary, and reject all foreign applicants deemed hostile to the United States or its “values.” The letter did not define those values. The contracts also proposed caps on international enrollment and agreements on college affordability.
• Separately, a coalition of unions and nonprofits filed suit Monday claiming the Environmental Protection Agency illegally rescinded a $7 billion solar program designed to expand access to solar energy for low-income residents.

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Implications for Funders: Heightened IRS scrutiny on executive pay, donor-advised funds, and endowment taxes may create major operational challenges, while updated guidance on the Johnson Amendment could lead to changes in rules around nonprofit political activity. Advocacy organizations are especially vulnerable as their tax-exempt status comes under increased threat, making monitoring and proactive support more important than ever. 

FREE SPEECH

• On Monday, the Pentagon circulated an updated draft of guidance released last month that would have required members of the press to sign a pledge not to obtain or use any unauthorized material — even if unclassified — in order to receive Pentagon press credentials. The revised memo softened the language after pushback from the journalists but does not address all concerns and still puts onerous restrictions on press freedom. The updated policy will also severely restrict the movement of reporters within the building.
• On Wednesday, the administration held a White House round table with independent journalists and online commentators who claim to have been targeted by Antifa violence. President Trump and Attorney General Pam Bondi vowed to “destroy” Antifa, which Homeland Security Director Kristi Noem compared to ISIS, Hamas, and Hezbollah.
• Separately, a group of journalists, nonprofits, and unions in Chicago filed a lawsuit Monday against the administration over their treatment by federal agents at local protests. The suit alleges that federal agents violated First Amendment rights to peacefully protest and journalists’ rights to observe and report on political demonstrations.

Implications for funders: Be aware of heightened legal and operational risks for organizations documenting protests, reporting on government activity, or engaging in advocacy, and consider supporting initiatives that protect free speech and the rights of journalists. 

OTHER DEVELOPMENTS

• The Trump administration announced plans to construct an additional 10 miles of the San Diego-Mexico border wall near the Tecate and Otay Mesa ports of entry. The Border Patrol is accepting public comments on the project’s potential impacts through October 23.
• A federal judge has pushed back against the administration’s attempts to deploy National Guard troops to Oregon, issuing injunctions that block the deployments on the grounds that the president lacks legal authority to federalize and mobilize militia forces for domestic policing in these circumstances. The second ruling followed an attempt to circumvent the initial injunction by deploying troops from California and Texas. The president responded saying he was open to invoking the Insurrection Act. A federal appeals court heard the case on Thursday but has yet to rule.
• On Thursday, another federal judge issued a temporary restraining order blocking National Guard troops from being deployed to Chicago for two weeks. The judge said that DHS assessments of the situation in Chicago were unreliable.
• Ballots for Proposition 50 landed in mailboxes this week, A yes vote would temporarily change redistricting rules in the state of California and implement a new district map, designed to increase Democrats in the House of Representatives. It was initiated as a response to redistricting in Texas meant to increase the Republican majority. Prop 50 is the only issue on the ballot.

TAKEAWAYS & RESOURCES

• Find information on shutdown plans by each federal agency.
• Join philanthropy’s United for San Diego initiative by contributing to the San Diego Unity Fund or aligning your grantmaking for housing, food, and health security. This collaborative funding effort is at $70 million and counting.
• Connect with grantees about how their programs and community members may be affected: Check out the National Council of Nonprofits preparedness guide for shutdowns.
• Share how the current provisions in the tax package impact your foundation’s work in this national story bank.
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• Navigate the uncertainty with steadiness in your words: Review this helpful toolkit on public messaging during times of government censorship.
• Support existing local efforts that are seeing increased needs. One example: The San Diego County Board of Supervisors approved a $500,000 grant from the Prebys Foundation for the Immigrant Legal Defense Program.
• View and bookmark this new primer Philanthropy California launched to monitor how federal changes are shifting disaster resilience in our state.

Talk to you soon,

Katie Janowiak
SVP, Strategy & Impact
Catalyst of San Diego & Imperial Counties