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Updated: Court Halts Trump Administration Order Pausing Government Grants; Trump Administration Rescinds OMB Memo
Wednesday, January 29, 2025

Today the US Office of Management and Budget (OMB) issued a brief statement rescinding OMB Memorandum M-25-13, after a federal judge in Washington, DC, temporarily ordered the freeze on current awards to be lifted pending a hearing on Monday February 3, to consider a coalition of nonprofits’ request for a temporary restraining order. See our previous alert below.

We expect federal agencies to continue to review federal funding assistance programs for potential conflicts with President Trump’s Executive Orders, and we will update this Alert as developments warrant.


Many parties are rightly concerned about the impact of yesterday’s announcement that nearly all federal funds will be frozen for an indeterminate period. Minutes before it was intended to go into effect today, a federal judge in Washington, DC, temporarily ordered the freeze to be lifted until at least Monday February 3, when a full hearing will occur as to whether the freeze is permissible under federal administrative procedure laws and the First Amendment. 

The court’s action pauses the Office of Management and Budget’s (OMB) instruction of the heads of all federal executive departments and agencies to temporarily pause all obligation and disbursement activity related to federal financial assistance. The pause was to go into effect at 5pm EST, January 28, but this is now temporarily on hold.

The OMB Memo M-25-13 entitled “Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs” (OMB Memo) requires federal agencies to identify and review all federal financial assistance programs and activities to ensure consistency with President Trump’s policies, stating that “the use of Federal Resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve.”

OMB Memo

Purposes

The OMB Memo, issued by Matthew J. Vaeth, acting director of OMB, states that federal financial assistance should be dedicated to advancing the Trump Administration’s priorities, strengthening national security, taming inflation, increasing domestic manufacturing and energy production, ending “wokeness,” promoting efficiency, and improving Americans’ health. The OMB Memo specifically references seven of the executive orders signed by President Trump on January 20[i] as examples of the Trump Administration’s intent to safeguard taxpayer funds. See our previous alerts on Trump’s Executive Orders here and here

Requisite Agency Comprehensive Program Analyses

The OMB Memo directs each federal agency to complete a comprehensive analysis of all federal financial assistance programs, identify programs and activities potentially implicated by the Executive Orders, including, but not limited to, “financial assistance for foreign aid, nongovernmental organizations, diversity, equity, and inclusion (DEI), woke gender ideology, and the green new deal,” and submit to OMB detailed information on such programs and activities no later than February 10. OMB also released a set of instructions for programs with funding or activities planned before March 15, which requires that answers to 14 specific questions regarding the programs listed on the accompanying spreadsheet be submitted to OMB by February 7, 2025.

Interim Guidance

In the interim, the OMB Memo requires each federal agency to pause issuance of new awards, disbursement of federal funds under all open awards, and any other relevant agency actions potentially implicated by the Executive Orders until OMB reviews and responds to the agency’s analysis. In a subsequent guidance FAQ issued on January 28, OMB clarified that “the pause does not apply across-the-board” and is instead “expressly limited to programs, projects, and activities implicated by the President’s Executive Orders, such as ending DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.” The OMB Memo states that the purpose of the pause is to provide the Trump Administration with time to review federal programs and determine use of federal funds consistent with the Administration’s priorities.

The OMB Memo also requires all agencies to promptly identify legally mandated actions or deadlines for federal assistance programs that arise during the federal funding pause and report this information to OMB with an analysis of the applicable legal requirement.

Policy Realignments

Finally, the OMB Memo requires agencies to take the following steps with respect to each federal financial assistance program:

  • Assign oversight and responsibility to a senior political appointee.
  • Review pending federal financial assistance to ensure the Administration’s priorities are sufficiently addressed.
  • Modify unpublished federal financial assistance announcements consistent with the Administration’s priorities and withdraw any announcements already published.
  • Cancel awards that conflict with the Administration’s priorities.
  • Ensure adequate oversight of federal assistance programs.
  • Initiate investigations to identify underperforming recipients and address underperformance issues, including cancelling awards.

Medicare and Social Security Benefits

The OMB Memo states that it does not apply to assistance received directly by individuals or to Medicare or Social Security benefits. OMB’s subsequent follow-up FAQ further made clear that “any program that provides direct benefits to Americans is explicitly excluded from the pause and exempted from this review process” and that “[i]n addition to Social Security and Medicare… mandatory programs like Medicaid and SNAP will continue without pause.” Similarly, the FAQ noted that “[f]unds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs will not be paused.” 

Exceptions

The OMB Memo provides that exceptions to the mandatory pause will be considered on a case-by-case basis.

Timing

While the OMB memo itself did not specify how long the pause might continue, OMB’s subsequent FAQ provided that “[a] pause could be as short as day” and that “OMB has worked with agencies and has already approved many programs to continue even before the pause has gone into effect.”

There already have been two lawsuits to stop the Trump Administration’s proposed funding freeze. The first, filed by a coalition of nonprofits and small businesses, led to the judicial pause; that complaint is available here. An additional lawsuit to stop the Trump Administration’s proposed funding freeze was filed by a coalition of 22 states and the District of Columbia in federal district court in Rhode Island. The plaintiff jurisdictions request an emergency temporary restraining order and allege violations of the Administrative Procedure Act (APA), separation of powers, and the Spending, Presentment, Appropriations, and Take Care Clauses of the US Constitution.

What Should You Do If You Are Concerned About An Award or Grant?

Affected Program Assessment

Grant recipients and subrecipients should first assess whether their grant or financial assistance award is covered by the pause. Despite its potentially broad reach, the pause is not intended to cover all grants and awards. The pause is instead limited to funds in support of programs implicated by the Executive Orders. Award recipients should reach out to their federal agency contacts to determine the agency’s view on whether their specific grant program is subject to the pause. If the grant or award is subject to the pause, the grantee may wish to inquire whether the program might receive an exception. 

Cash Flow and Cost Concerns

Where implicated, the temporary pause in funding may raise liquidity and cash flow concerns and could lead to additional costs, delays, and other consequences for projects. As a result, many award recipients may have to consider temporarily laying off or permanently furloughing those responsible for administrating awards for an affected program (see ‘Potential Labor Implications’ below).

Rights and Remedies

Award recipients should review the specific terms of their grant award for procedures to take during the pause as the award itself is the most definitive source for the recipient’s rights and remedies during the pause. Grant recipients should review agency grant regulations for the specific agency that granted the award as these regulations may provide additional remedies and/or procedures.

Downstream Impact on Subcontract and Supplier Arrangements

Additionally, unless subcontracts and supplier agreements under grants include in case of government suspension or stop work, downstream contractors and suppliers could seek continued payment from the grant holder notwithstanding the pause in funding. This could lead to claims and disputes with subcontractors and suppliers. Grantees should review such agreements to determine their legal rights to place subcontractor and supplier agreements on hold during the pause.

Potential Reimbursement for Pause/Termination Costs

If the pause is only temporary, recipients may potentially be able to receive a payment adjustment for reasonable costs arising out of the pause.[ii] Grantees should review their grant agreements for potential requirements to notify of additional incurred costs or changes to their budget and push agencies to expressly authorize such additional costs.[iii]

If a grant does fall within the ambit of one of the Executive Orders, however, recipients might remain concerned about longer term implications, including whether the financial assistance award will ultimately be terminated or have its funding withdrawn. Federal regulations require that agencies provide recipients with written notice of termination including the reasons for termination, the effective date, and the portion of the federal award to be terminated, if applicable.[iv] Federal agencies must also maintain written procedures for processing objections, hearings, and appeals.[v] If the termination proceeds forward, a recipient may potentially receive reimbursement for costs properly incurred before the effective date of the termination where the agency authorizes such termination costs.[vi] 

Possible Legal Challenges

Receiving reimbursement for termination costs may be cold comfort for aid recipients that rely extensively on federal funding to remain afloat. In such cases, grant recipients may seek to enjoin or halt federal action to terminate the award. 

Potential bases to challenge termination might include one or more of the following arguments:

  • OMB’s action violates the Impoundment Control Act, 2 U.S.C. § 681 et seq., which requires the President to request authority from Congress to rescind funding authorization insofar as awarded grant funds have already been obligated.
  • The agency’s action constitutes a breach of “contract” sufficient to invoke the Tucker Act where the grant resembles a “contract” through competitive acquisition, offer, acceptance, and consideration. 
  • The agency’s action violates the APA, 5 U.S.C. § 706, to the extent it is in excess of statutory jurisdiction, authority, or limitations, or short of statutory right, or is otherwise arbitrary, capricious and/or contrary to law.
    • An APA challenge might include arguments that the agency’s action was ultra vires, violative of regulations specifying termination procedures (e.g. under 2 C.F.R. § 200.340), or contrary to constitutional protections (e.g., limits imposed by the Spending Clause, Due Process concerns, Takings Clause issues, and First Amendment concerns). 

Potential Employment Implications

WARN Warning Requirements

Recipients of federal financial assistance that have employees whose positions are entirely grant-funded may be faced with the difficult question of whether it is necessary for them to furlough employees or even layoff all or part of their workforce until disbursements resume. Employers who do so may have to comply with the notice requirements of the federal Work Adjustment and Retraining Notification (WARN) Act[RAM5] [TC6] , which requires covered employers to notify employees, unions, and government officials in advance of covered plant closings or mass layoffs. Moreover, a number of states have their own “mini WARN” Acts, some of which have more onerous or expansive notice requirements. Employers who fail to comply with federal or state WARN Act requirements may be subject to government enforcement actions as well as private lawsuits from employees seeking the maximum allowable damages for noncompliance.

Layoffs and Furloughs

Employers considering temporary or permanent layoffs of employees without pay should first consider the type of action that is best suited to their workplace and employees — whether that means temporarily reducing impacted employees’ paid hours, temporarily reducing their pay, or requiring employees to take time off without pay. Employers for whom it is necessary to require employees to take time off without pay should ensure that employees do not perform any work during that time. This is particularly important for employees who are exempt from applicable minimum wage and overtime requirements, as any work they perform in a week would entitle them to pay for the full workweek. Employers should also determine whether a temporary furlough would trigger an obligation to pay out employees for any unused, accrued paid time off under applicable state law. 

Finally, employers who have no choice but to furlough employees should decide whether and to what extent they are able to support employees in maintaining their benefits during the furlough period. If feasible, many employers may wish to cover both the employer and employee cost of any health insurance premiums during the furlough period, or otherwise make alternative arrangements for employees to pay their premiums directly. Employees whose hours are reduced such that they no longer meet plan eligibility requirements may be entitled to continue their coverage through COBRA. Employers who lay off employees and offer severance pay will have to determine if such pay is an allowable expense.


[ii] See 2 C.F.R. §§ 200.305(b)(7) (“When a Federal award is suspended, payment adjustments must be made in accordance with § 200.343.”); 200.343 (“[C]osts during suspension or after termination are allowable if: (a) The costs result from financial obligations which were properly incurred by the recipient or subrecipient before the effective date of suspension or termination, and not in anticipation of it; and (b) The costs would be allowable if the Federal award was not suspended or expired normally at the end of the period of performance in which the termination takes effect.”). 

[iii] See C.F.R. § 200.343 (“Costs to the recipient or subrecipient resulting from financial obligations incurred by the recipient or subrecipient during a suspension or after the termination of a Federal award are not allowable unless the Federal agency or pass-through entity expressly authorizes them in the notice of suspension or termination or subsequently.”). 

[iv] See 2 C.F.R. § 200.341(a), Notification of termination requirement.

[v] See 2 C.F.R. § 200.342, Opportunities to object, hearings, and appeal.

[vi] See C.F.R. § 200.343. 

Travis L. Mullaney, Alexandra M. Romero, Brian D. Schneider, J. Michael Showalter, Michael L. Stevens, and David Tafuri also contributed to this article. 

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