Analysis of OMB’s Temporary Funding Pause
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Analysis of OMB’s Temporary Funding Pause

Brownstein Client Alert, Jan. 28, 2025

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Update: On Jan. 29, the Office of Management and Budget (OMB) issued Memorandum M-25-14, which rescinded the Jan. 27 memorandum (M-25-13) temporarily pausing a substantial amount of federal spending. The new guidance instructs agencies to contact their internal General Counsels regarding “questions about implementing the President’s Executive Orders,” but includes no language restricting or otherwise halting federal spending. The Executive Orders referenced in the memo are not impacted by OMB’s rescission—an agency-by-agency review of affected programs is expected to continue.

 

On Monday, Jan. 27, President Donald Trump’s Office of Management and Budget (OMB) issued a memorandum (“memo”) directing all federal departments and agencies to “temporarily pause all activities related to obligation or disbursement of all Federal financial assistance.” The directive—which took effect in part at 5:00 p.m. EST on Tuesday, Jan. 28—pauses federal grant and loan programs that implicate any one of seven executive orders (EOs) signed by the president since taking office on Jan. 20. There was initial concern that the memo would effectively halt all federal assistance expenditures pending agency and OMB review. However, subsequent guidance clarified the intent of the initial memo and explicitly excluded mandatory spending programs, as well as “any program that provides direct benefits to Americans,” among other exclusions.

Organizations that are affected by the memo have already filed suit, and an administrative stay issued on Jan. 28 ordered the Trump administration not to block the disbursement of federal funds under any open awards until at least 5 p.m. EST on Feb. 3. As outlined below, other legal challenges are likely to follow.

 

Scope of the Freeze

The memo directs agencies to undertake a temporary freeze designed to ensure that all federal obligations and disbursements comply with seven EOs announced over the last week:

  • Protecting the American People Against Invasion (Jan. 20, 2025);
  • Reevaluating and Realigning United States Foreign Aid (Jan. 20, 2025);[1]
  • Putting America First in International Environmental Agreements (Jan. 20, 2025);
  • Unleashing American Energy (Jan. 20, 2025);
  • Ending Radical and Wasteful Government DEI Programs and Preferencing (Jan. 20, 2025);
  • Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government (Jan. 20, 2025); and
  • Enforcing the Hyde Amendment (Jan. 24, 2025).

OMB notes that implicated activities will include any “financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.” Under the definition of “Federal financial assistance” cited in the memo, this could include grants, cooperative agreements, non-cash contributions or donations of property, direct appropriations, food commodities, loans, loan guarantees, interest subsidies and insurance.[2]

The memo requires agencies and departments to complete a “comprehensive analysis of all . . . federal assistance programs” to identify any funding that “may be implicated” by one of the EOs listed above. Agencies were also directed to pause activities related to open notices of funding opportunities (NOFO) and the issuance of new awards. By Feb. 10, each agency and department must provide OMB with a list of all programs subject to the pause. However the clarifying guidance indicates that OMB has also created a process by which agencies can quickly determine whether a specific program should be subject to the pause without disrupting program operations. The memo also requires agencies and departments to “identify any legally mandated actions or deadlines” that will occur during the pause. This request possibly indicates a willingness to permit funding if disbursement or obligation of the funds is “legally mandated,” though that remains uncertain.

 

Exceptions to the Freeze

The memo and clarifying guidance explicitly exclude the following categories from the scope of the freeze:

  • Social Security and Medicare;
  • Mandatory spending programs, including Medicaid and the Supplemental Nutrition Assistance Program (SNAP);
  • Programs that provide “direct benefits to individuals”;
  • Funds for small businesses and farmers, Pell grants, Head Start, rental assistance “and other similar programs”; and
  • Any payment that is required by law.

The memo’s exclusion of “assistance received directly by individuals” initially raised concerns that it would be applied only to programs that provide money to individuals directly, rather than programs that provide federal assistance to individuals via various third parties. This interpretation would have implicated Medicaid, Head Start, school breakfast and lunch programs, Section 8 housing vouchers, SNAP and other similarly structured programs under which benefits do not reach individuals directly. Instead, the benefits pass through other entities such as state governments, landlords or nonprofits. However, OMB subsequently clarified the scope of the exclusion as outlined above, adding that “[a]ny program not implicated by the President’s Executive Orders is not subject to the pause.”

Broadly, this effort is intended only to pause programs where doing so will further the administration’s goal of “ending DEI, the green new deal, and funding nongovernmental organizations that undermine the national interest.” Practically speaking, for a program’s funds to be frozen, there must be a nexus between the program and one of President Trump’s executive orders. For example, a DEI program funded with federal dollars would have such a nexus and its funding would be frozen by the memo.

 

Federal Spending Overview

Generally, federal money is first obligated (promised) to an individual, entity or lower level of government, and then the money is disbursed (actually sent). Once funds have been obligated, they must be disbursed according to the terms of the grant agreement. For example, the Federal Fish and Wildlife Service may send a certificate of apportionment to a state wildlife agency promising a certain amount of federal funding. Once that certificate is sent, the funds are obligated and the federal government incurs a “legal liability to disburse funds immediately or at a later date.”[3] Federal regulations, and often the grant agreements themselves, allow for termination of obligated funds in four instances: (1) failure to comply, (2) mutual agreement, (3) recipient request or (4) if the award no longer meets the program goals or agency priorities.[4] Funds that are already disbursed, meaning they have already been sent to the recipient’s account, where they are unlikely to be rescinded.

Federal funds not yet obligated—which is money appropriated by Congress but not yet intended for a specific recipient—can be more easily clawed back or frozen given that there is no grant agreement in place creating any kind of legal liability requiring their disbursement.

 

Legal Uncertainty

The Congressional Budget and Impoundment Control Act of 1974 (ICA) traditionally governs this process.[5] The ICA offers the president two options to halt congressionally appropriated funds: deferral or recission. Deferral allows the president to withhold funds only temporarily; the funding cannot indefinitely be deferred, nor can it be allowed to expire. Recission allows the president to propose cancellation of the funds, but Congress must act to include the recission in enacted legislation within 45 days of the request. However the ICA offers no statutory authority to defer or terminate federal funding indefinitely.

Some Republicans believe the ICA is an unconstitutional restriction on presidential power and President Trump has the constitutional authority to freeze or terminate federal funding. Notably, this topic featured prominently during OMB nominee Russel Vought’s confirmation hearing before the Senate Budget Committee. This argument centers on the view that the president has the constitutional charge to “take Care that the Laws are faithfully executed,” meaning that President Trump must have the discretionary authority to impound funds while executing the laws.[6] Conversely, others argue that the “take Care” clause means that the president has no discretionary authority in this area outside of what Congress delegates. This means that once Congress appropriates funds, the president must expend them, in the manner which Congress intended.

In the past, the Department of Justice and the U.S. Supreme Court have agreed with the latter argument: the president has no inherent authority to terminate or impound appropriated money. In Train v. City of New York, 420 U.S. 35 (1975), the court held that while Congress can confer upon the president the authority to withhold appropriated funds, he may not do so absent such a delegation of power.[7]

Prior to narrowing of the order’s focus, Democratic appropriators in Congress, including Senate Appropriations Committee Vice Chair Sen. Patty Murray (D-WA) and House Appropriations Committee Ranking Member Rosa DeLauro (D-CT), argued that the order is illegal under both the ICA and the Constitution. Already, several state attorneys general are indicating plans to challenge the order.

However, OMB’s memo describes this effort exclusively as a “temporary pause,” thus the clarifying guidance explicitly states that it does not qualify as an impoundment under the ICA. OMB describes the pause as a “necessary part of the program implementation that have been ordered by past presidents to ensure that programs are being executed and funds spent in accordance with a new President’s policies.”

 

Legal Challenges

On Jan. 28, shortly before the memo took effect, U.S. District Judge Loren AliKhan granted an administrative stay in a case challenging the Trump administration’s attempt to pause federal aid. Judge AliKhan specifically ordered the Trump administration not to block the disbursement of federal funds under any open awards until at least 5 p.m. EST on Feb. 3. The administrative stay does not affect OMB’s memo as it pertains to the “issuance of new awards” or “other relevant agency actions that may be implicated by the executive orders.”

The judge’s order did not address the legality of the freeze, instead allowing more time for arguments on whether to grant a temporary restraining order (TRO) that could block the administration’s actions for an additional two weeks. In order to secure a TRO the moving party must show “(1) a substantial likelihood of success on the merits, (2) that it would suffer irreparable injury if the injunction were not granted, (3) that an injunction would not substantially injure other interested parties and (4) that the public interest would be furthered by the injunction.” Judge AliKhan has scheduled another hearing for Monday, Feb. 3 at 11 a.m. EST.

The attorneys general of 22 states and the District of Columbia also filed a request for an emergency temporary stay of the memo: California, New York, Arizona, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, North Carolina, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, Washington and Wisconsin. Other impacted stakeholders are expected to pursue additional challenges to the policy in court.

 

Outlook

The OMB memo requires federal agencies and departments to submit details regarding paused funding by Feb. 10. Requested information includes, among other information, the name of the political appointee responsible for the funding, whether the funding is used to “promote gender ideology” and whether the program advances “in any way abortion or other related activities.” Presumably, at that time, OMB and White House officials will determine what halted funding will be disbursed. Judge AliKhan’s order is intended to “maintain the status quo” until the Monday hearing, and the underlying seven executive orders signed by President Trump are not impacted by the stay.


[1] The executive order pertaining to foreign aid—Reevaluating and Realigning United States Foreign Aid—is separate from and supersedes the memo. Aid that might be approved under the memo is still subject to the 90-day pause in the EO.

[2] 2 CFR 200.1(1)-(2).

[3] 50 CFR 80.91.

[4] 2 CFR 200.340.

[5] Congressional Budget and Impoundment Control Act of 1974, Pub. L. No. 93-344 (codified at 2 U.S.C. §§ 681-688).

[6]See Mark Paolettta, Daniel Shapiro, The President’s Constitutional Power of Impoundment, Center for Renewing America (September 10, 2024), https://americarenewing.com/the-presidents-constitutional-power-of-impoundment/,

[7] See Clinton v. City of New York, 524 U.S. 417, 468 (1998) (Scalia, J., concurring) (“President Nixon, the Mahatma Gandhi of all impounders, asserted at a press conference in 1973 that his ‘constitutional right’ to impound appropriated funds was ‘absolutely clear’ . . . Our decision two years later in Train v. City of New York, 420 U.S. 35 (10975), proved him wrong…”).


THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING recent executive action relating to federal project funding. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.

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