Trump Administration Pauses Federal Financial Assistance
Federal Judge Temporarily Delays Funding Freeze Until Feb. 3
Highlights
- The Trump Administration issued a memorandum on Jan. 27, 2025, directing all federal agencies to temporarily pause the obligation or disbursement of federal financial assistance, effective Jan. 28, 2025, at 5 p.m. ET.
- The memorandum, authored by Acting Director of the Office of Management and Budget (OMB) Matthew Vaeth, does not specify when this pause will be lifted. Instead, it states that the suspension is intended to allow the Trump Administration to conduct a political review to assess whether federal financial assistance aligns with its priorities.
- The memorandum further requires federal agencies to submit a detailed report to OMB by Feb. 10, 2025. This report must outline all obligations or disbursements of federal financial assistance, enabling OMB to review and provide further guidance on the information submitted.
- Update: Minutes before the memorandum was to take effect, U.S. District Judge Loren L. AliKhan temporarily blocked the order to maintain the status quo while further litigation can play out. AliKhan's order applies only to existing programs and will expire on Feb. 3, 2025, at 5 p.m. ET.
The Trump Administration issued a memorandum on Jan. 27, 2025 (the Jan. 27 memorandum), directing all federal agencies to temporarily pause the obligation or disbursement of federal financial assistance, effective Jan. 28, 2025, at 5 p.m. ET The memorandum, authored by Acting Director of the Office of Management and Budget (OMB) Matthew Vaeth, does not specify when this pause will be lifted. Instead, it states that the suspension is intended to allow the Trump Administration to conduct a political review to assess whether federal financial assistance aligns with its priorities. These priorities include considerations related to Trump Administration executive orders (EOs) and administration policies, including those that address foreign financial aid, nongovernmental organizations, efficiency in government, American energy, gender ideology, the Green New Deal, and diversity, equity and inclusion.1
The memorandum further requires federal agencies to submit a detailed report to OMB by Feb. 10, 2025. This report must outline all obligations or disbursements of federal financial assistance, enabling OMB to review and provide further guidance on the information submitted.
On Jan. 28, 2025, an OMB memo clarified that "Any program not implicated by the President's Executive Orders is not subject to the pause" (emphasis in original) and listed seven EOs specifically covered by OMB guidance.2 It reiterated that programs providing direct benefits to individuals are not subject to the pause and specifically stated that student loans and Supplemental Nutrition Assistance Program (SNAP) benefits are excluded from the pause, in addition to other mandatory programs providing individual benefits such as Social Security, Medicaid and Medicare.
It further stated that "[f]unds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs will not be paused" and "[i]f agencies are concerned that these programs [the ones specifically mentioned above] may implicate the President's Executive Order, they should consult OMB to begin to unwind these objectionable policies without a pause in the payments." (underline added).
Update: Minutes before the memorandum was to take effect, U.S. District Judge Loren L. AliKhan temporarily blocked the order to maintain the status quo while further litigation can play out. AliKhan's order applies only to existing programs and will expire on Feb. 3, 2025, at 5 p.m. ET.
Federal Financial Assistance Implicated by the Temporary Pause
The Jan. 27 memorandum requires all federal agencies to pause 1) the issuance of new awards, 2) the disbursement of federal funds under all open awards, 3) all activities associated with open Notice of Funding Opportunities (NOFOs), including merit review panels, and 4) any other relevant agency action that may be implicated by the executive orders, to the extent permissible by law, until OMB has reviewed the actions and provided guidance to the agency.
The Jan. 27 memorandum defines federal financial assistance broadly to include any federal assistance that a recipient or subrecipient receives or administers, including assistance in the form of grants, loans and loan guarantees, cooperative agreements, non-cash contributions, donations of property, direct appropriations, interest subsidies, insurance and food commodities.3 For the purposes of the Jan. 27 memorandum, federal financial assistance does not include assistance received directly by individuals as well as Medicare and Social Security benefits.
Exceptions and Waivers
The Jan. 27 memorandum outlines two categories of agency actions exempt from the temporary pause and establishes a limited waiver process through OMB:
- Federal agencies may continue to take certain administrative actions not implicated by the executive orders, including the closeout of federal awards and the recording of obligations expressly required by law.4
- The memorandum provides limited waiver authority to the OMB to grant exceptions allowing federal agencies to issue new awards or take actions on a case-by-case basis. Importantly, agencies are to immediately identify any "legally mandated actions or deadlines" for assistance programs that would arise "while the pause remains in effect" and report such information to OMB. OMB presumably could issue waivers on such bases once reported and analyzed by the political leadership.
Obligations on Federal Agencies
The Jan. 27 memorandum requires agencies to submit detailed information to OMB by Feb. 10, 2025, on all projects or activities affected by the pause. Furthermore, agencies must, for each federal financial assistance program, 1) designate a senior political appointee to oversee compliance with administration priorities, 2) review pending federal financial assistance announcements to ensure alignment with these priorities and modify, withdraw or cancel conflicting awards to the extent permitted by law and 3) enhance program oversight and initiate investigations into underperforming recipients when necessary to identify issues "up to an including cancellation of awards."
Implications for Clients
Administration actions will continue to evolve rapidly in the area of paused federal spending as evidenced by OMB's clarifying memo one day following the Jan. 27 memorandum. Similarly, the Unleashing American Energy EO on Jan. 20, 2025, called for an immediate pause of certain funds and, the next day, OMB issued M-25-11, a memorandum clarifying that the pause did not apply to all such funds, only those implicating the president's policy goals. As a result of that clarification, for example, the highway construction funds at the U.S. Department of Transportation were turned back on so states could continue to receive regular reimbursements. It is possible that similar actions may be taken across government moving forward for funds that clearly are not implicated by the EOs and administration policies mentioned in the Jan. 27 memorandum and OMB's memorandum on Jan. 28, 2025.
Importantly, the recent presidential memoranda make no distinctions between obligated funding (i.e., those subject to a legally binding agreement with recipients) and unobligated funding. Recipients of obligated funds have a much stronger legal claim to receive the funds eventually, and Congress typically is not interested in rescinding obligated funds as they usually do not score any savings.
As a practical matter, clients may need to expect delays in disbursements and manage cash flow as best they can. In addition, clients need to pay special attention to meeting the terms of any award or loan agreements so that there is no reason government officials can use to cancel the awards.
As a legal matter, even though President Donald Trump has challenged the constitutionality of the Impoundment Control Act, it is unclear how courts would view a temporary pause at the outset of a new administration under the act. There are other budget statutes governing federal funds, such as the Prompt Payment Act, that may require the government to eventually honor federal obligations and even pay interest on late required payments.
OMB in its Jan. 28 memorandum claimed this "temporary pause" is not an impoundment but simply "give[s] agencies time to ensure that financial assistance conforms to the policies set out in the President's Executive Orders, to the extent permitted by law." The memo states other presidents have taken similar temporary measures "to ensure that programs are being executed and funds spent in according with a new President's policies and do not constitute impoundments." Congressional Democrats have disagreed, and Sen. Patty Murray (D-Wash) and Rep. Rosa DeLauro (D-Conn.) – the ranking members for the House and Senate Committees on Appropriations – sent a letter to OMB within hours of the original memo to express "extreme alarm" about the "Administration's efforts to undermine Congress's power of the purse."
In the near term, clients with strong claims of irreparable harm or damages during the pause may need to raise them with the agency's political leadership, who have the authority to determine, in consultation with OMB, whether programs are implicated by the OMB guidance and, if so, to seek OMB exceptions as necessary.
If you have questions about the potential impact to your business, please reach out to your Holland & Knight contacts.
Notes
1 President Trump has signed numerous executive orders across a host of issue areas. Holland & Knight has compiled these EOs and is providing ongoing analysis on its website.
2 The seven EOs are Protecting the American People Against Invasion, Reevaluating and Realigning United States Foreign Aid, Putting America First in International Environmental Agreements, Unleashing American Energy, Ending Radical and Wasteful Government DEI Programs and Preferencing, Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government, and Enforcing the Hyde Amendment.
3 The memorandum defines federal financial assistance to include paragraphs (1) and (2) of 2 C.F.R. 200.1.
4 The closeout of federal awards, as defined by 2 C.F.R. 200.344, is the process by which a federal agency or pass-through entity finalizes all administrative actions, financial reconciliations and reporting requirements for a federal award after its performance period ends. After a recipient submits all required post-performance documents and filings, the awarding agency has one year to complete its closeout actions, ensuring proper accounting and compliance before officially closing the award.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.
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