Last updated: February 25 at 8:12 p.m.
The federal Office of Management and Budget (OMB) sent a memo to federal agencies on the evening of January 27 ordering them to pause most of their grants and loans – including billions of dollars in grants to nonprofits – at 5 p.m. on January 28. In a significant (at least temporary) victory for nonprofits, OMB rescinded the memo on January 29. For now, this means that the federal grant and contract process, including the disbursement of federal funds to nonprofits, should continue for the time being. Most recently, a federal judge issued a preliminary injunction on February 25 stopping the funding freeze from being implemented indefinitely.
The original memo would have required all federal agencies to pause issuing new grant awards, disbursement of funds under existing grants, and other relevant agency actions related to their grant programs. It also would have required agencies to review their grant programs and report to OMB by February 10 on grants that are inconsistent with President Trump’s Executive Orders.
Thanks to a lawsuit led by the National Council of Nonprofits and other advocacy organizations, a federal judge issued an administrative stay minutes before the original memo was set to take effect delaying the implementation of parts of the memo until at least Monday, February 3 at 5 p.m. That administrative stay is now moot since the original memo has been rescinded.
On January 31, the Center issued a statement to media on the funding freeze at a press conference hosted by Congresswoman Deborah Ross.
Here are answers to questions nonprofits have been asking the Center:
Does the rescission of the OMB memo also rescind any of President Trump's Executive Orders? No. Those Executive Orders remain in effect.
Can you explain the social media posting from the White House press secretary saying that the rescission of the OMB memo does not rescind the federal funding freeze? Not really, but we'll try! Legally, the original OMB memo established the federal grants pause, so the memo revoking the original memo rescinded the funding freeze. From a legal perspective, the funding freeze is rescinded. It appears that the White House is reminding the public that the underlying Executive Orders, including an Executive Order that directs federal agencies and OMB to remove DEI practices from federal grant processes and agreements. That Executive Order requires that federal contracts and grant agreements (in the future, at least) include terms requiring grantees and contractors to comply with federal anti-discrimination rules and to agree not to have DEI programs. It also gives OMB authority to provide guidance and issue directives across the federal government on elimination of DEI references, requirements, or programs within federal agencies, federal grants, and federal contracts. That Executive Order does not, however, establish a funding freeze for federal grants and loans.
Which federal funding streams would be affected? Potentially, a federal grants pause would apply to all (or at least most) federal grants to nonprofits and to state and local governments. The original memo directed agencies to “pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities that may be implicated by the executive orders, including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.” Because several of these terms are not clearly defined, it is possible that some or all federal agencies may have interpreted the memo to require a pause in virtually all of their grants to nonprofits. The memo would not have applied to federal aid to individuals, including Social Security, Medicare, Medicaid, Supplemental Nutrition Assistance Program (SNAP), Pell grants, and rental assistance, so these payments would have continued. Under the original memo, OMB would have the authority to grant exceptions to allow agencies to grant new awards or make payments on a case-by-case basis.
How long would the pause be in effect? The original memo was unclear on how long the pause in grants will be in effect.
Could this have led to the cancellation of existing grants? Potentially, yes. It remains possible that federal agencies may may efforts to cancel grants that are deemed inconsistent with recent presidential Executive Orders.
What should nonprofits expect next? OMB has not yet indicated what its next steps will be. It is quite likely that OMB may try to issue new guidance requiring federal agencies to make changes to, cancel, and of stop payments on, federal grants that are deemed to be inconsistent with recent presidential Executive Orders. It is likely that future guidance from OMB will drafted more clearly and narrowly than the January 27 memo to increase the likelihood that it would be upheld in court. At this point, it is unclear when (or if) OMB will issue further direction to federal agencies or exactly what that guidance would be.
Is there anything nonprofits with federal grants should do now? Nonprofits should be in touch with their grant administrators to get a better sense of their granting agencies' plans for any future guidance from OMB that could pause the federal grantmaking process. Organizations that rely heavily on federal government funds and whose granting agencies anticipate that potential future action from OMB could lead to disruptions of grant disbursements may want to take steps to ensure that they have adequate funds in reserve or available from other funding services to be able to weather any such disruptions.
Can you provide more information about court challenges to the original memo? Certainly!
- The National Council of Nonprofits (NCN), along with small business and public health advocates, filed a lawsuit on January 28 asking the U.S. District Court for the District of Columbia to stop the implementation of the original OMB memo. The lawsuit alleges that OMB’s memo is not allowed under the Administrative Procedures Act because it is: (a) arbitrary and capricious; (b) in violation of the First Amendment to the U.S. Constitution; and (c) beyond OMB’s statutory authority. The NCN lawsuit seeks a temporary restraining order and preliminary injunction that would immediately stop the implementation of the memo, along with a permanent injunction that would invalidate the memo. Shortly before the pause was set to take effect on January 28, the court issued an administrative stay delaying the implementation of parts of the memo until Monday, February 3 at 5 p.m. As the court explained in its ruling, "[a]n administrative stay 'buys the court time to deliberate' when issues are not 'easy to evaluate in haste.'" On February 25, the court issued a preliminary injunction, preventing the funding freeze from taking effect nationwide and preventing OMB and other federal agencies from implementing another similar broad freeze on federal grants. In her opinion, the judge wrote: "In the simplest terms, the freeze was ill-conceived from the beginning. Defendants either wanted to pause up to $3 trillion in federal spending practically overnight, or they expected each federal agency to review every single one of its grants, loans, and funds for compliance in less than twenty-four hours. The breadth of that command is almost unfathomable."
- On February 3, the court issued a temporary restraining order temporarily preventing OMB and federal agencies from issuing another broad funding freeze applicable to open grant awards. The attorneys general of 22 states (including North Carolina) filed a separate lawsuit in a federal court in Rhode Island seeking to block the implementation of the original OMB memo. On January 31, the judge in the case initiated by the attorneys general issued a temporary restraining order directing that OMB and federal agencies "shall not pause, freeze, block, cancel, or terminate [their] compliance with awards and obligations to provide federal financial assistance to the States, and [they] shall not impede the States' access to such awards and obligations, except on the basis of the applicable authorizing statutes, regulations, and terms." This broad temporary restraining order effectively (and temporarily) prevents a federal funding freeze in North Carolina and the other 21 states (plus the District of Columbia) that are plaintiffs in the suit. On February 10, the judge found that OMB and federal agencies were not fully complying with the temporary restraining order stopping a funding freeze, so he granted a motion for enforcement that directs OMB and federal agencies to restore federal funding for grants and loan while the temporary restraining order is in effect.
- Judges in both cases are expected to issue further rulings in the near future.
How can my nonprofit share the impact of a grants pause on our organization? To help understand the impact of a pause on federal grants, the Center is asking nonprofits with federal funding to respond to this quick survey. Your responses will help the Center best advocate for solutions to provide for continuity of federal funding.
