OMB proposes a major overhaul of 2 CFR Part 200. The proposed revisions, published May 29 with an October 1, 2026 target effective date, would eliminate fixed-amount awards (moving every federal grant to a cost-reimbursable model), expand agency authority to terminate grants at any time when alignment with federal priorities changes, extend E-Verify requirements to all federal grant recipients and subrecipients, prohibit federal grant funds from "funding, promoting, encouraging, subsidizing, or facilitating" diversity, equity, and inclusion policies, and prohibit certain "covered foreign collaborations." Discretionary awards would also require political pre-issuance review. Comments are due July 13 at regulations.gov, docket OMB-2026-0034. Ropes & Gray summary. NACo overview.

HHS continues ACL reorganization. The Department of Health and Human Services (HHS) continues its reorganization to integrate Administration for Community Living (ACL) programs into other HHS components, including the Administration for Children and Families (ACF) and the Centers for Medicare and Medicaid Services (CMS). The fiscal year 2026 ACL contingency staffing plan addresses transition operations through the fiscal year. HHS contingency plan.

Behavioral Health Services Act transition deadline arrives July 1. Counties must complete the transition from the Mental Health Services Act (MHSA) framework to the Behavioral Health Services Act (BHSA) framework by July 2026. New statewide bundled services and county requirements take effect, including Individual Placement and Supports (IPS), Supported Employment, Assertive Community Treatment (ACT), Forensic ACT (FACT), and Coordinated Specialty Care for First Episode Psychosis (CSC for FEP). DHCS CalAIM Behavioral Health Initiative.

Governor's May Revision sets HHS budget at $222.4 billion; $40 million one-time for nonprofit security. The 2026-27 May Revision allocates $222.4 billion in total ($48.8 billion in the General Fund) to Health and Human Services and includes $40 million in one-time funding for the Nonprofit Security Grant Program. The revision proposes no additional major state funds for behavioral health and reflects uncertainty in federal funding in its safety-net assumptions. California Budget Center analysis.

AB 1039 advances 25% advance pay; SB 1240 proposes a state Office of Nonprofit Empowerment. AB 1039 accelerates AB 590 (2023), which authorized up to 25% advance payment for state grants and contracts with nonprofits; the current bill would require advance pay for all new grants and contracts. SB 1240 (Senator Jerry McNerney) would establish an Office of Nonprofit Empowerment to coordinate state engagement with the nonprofit sector and respond to federal funding shifts. CalNonprofits 2026 bill round-up.

Mayor Lurie's $16.9 billion budget proposes deep nonprofit cuts. The June 1 budget proposal closes a projected $643 million deficit in part through reductions to nonprofit grant programs that serve immigrant communities, seniors, people with disabilities, and low-income residents. The People's Budget Coalition, representing more than 150 community organizations that receive city grant funding, reports that the layoffs anticipated when departments first signaled the cuts have not been significantly averted in the mayor's proposal. The Board of Supervisors will negotiate a final budget by July. SF Standard. Mission Local explainer.

Causes Count 3.0: nonprofits now California’s third-largest employer. New research from the California Association of Nonprofits (CalNonprofits) finds 1.5 million Californians work for nonprofit organizations and the state’s 110,000 public charities generate more than $430 billion in annual revenue. CalNonprofits in the news.

Three pressures land in the same window. The OMB proposal, if finalized, would restructure every active federal grant agreement and add compliance requirements that will be expensive to operationalize, particularly for organizations administering federal pass-throughs via DHCS, the San Francisco Department of Public Health (DPH), the Department of Homelessness and Supportive Housing (HSH), and HUD. Bay Area food security, transitional-aged youth housing, behavioral health, and adult employment programs that rely on city grant funding face the most immediate operational risk from the proposed Lurie budget; the Board of Supervisors’ negotiation through June and July will determine how much of that risk hits payroll on July 1. The BHSA transition adds a third deadline at exactly the same point. Organizations with federal grants should treat the July 13 OMB comment deadline as a real opportunity to demonstrate operational impact, and should model July payroll under a worst-case city-funding scenario this month.