January 29, 2025 Update: OMB has withdrawn the Memorandum for now, a revised version may be issued at a later date.
Federal Office of Management and Budget Issues Memorandum Freezing Grant and Loan Payments
On January 27, 2025, Office of Management and Budget (OMB) Acting Director Matthew Vaeth issued Memorandum #M-25-13, temporarily freezing federal grant and loan payments pending further review. While Social Security and Medicare programs are not affected by this Memorandum, other federal grant and loan programs are potentially impacted. The Memorandum directs federal agencies to complete comprehensive analyses of all agency federal financial assistance programs to identify programs, projects, and activities that may be implicated by any of the President’s recent executive orders, including orders relating to DEI programs, foreign aid, environmental programs, binary sex designations, southern border closure, and other orders, some previously summarized here: Employment Law in Motion | President Trump’s First-Day Orders Impacting Employers | Miller Nash LLP and Employment Law in Motion | President Trump Order Seeks to End Discriminatory DEI Programs and Mandates, Affecting Federal Contractors, Private Sector, and Higher Education | Miller Nash LLP. While this comprehensive review takes place, and to the extent permissible under applicable law, “federal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance” that may be implicated by the executive orders, expressly including “financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.” The OMB has attempted to clarify that the pause for review is limited to those federal grants and loans that are implicated by the recently issued executive orders and proclamations.
The temporary pause was to be effective beginning January 28, 2025, at 5:00 p.m., however as described below a federal judge has issued a temporary stay.
The OMB Memorandum instructs federal agencies to pause all activities associated with open Notice of Funding Opportunities (NOFOs), issuance of new awards, merit review panels, and disbursement of federal funds under open awards. Federal agencies are instructed to submit to OMB a detailed report of programs, projects, and activities subject to this temporary pause no later than February 10, 2025. The pause will continue “until OMB has reviewed and provided guidance to [the] agency with respect to the information submitted.” OMB may grant exceptions on a case-by-case basis.
Finally, in order to ensure conformity with the Trump Administration’s identified priorities, the OMB Memorandum directs federal agencies to (a) assign oversight to a senior political appointee; and (b) review currently pending financial assistance announcements to ensure Administration priorities are addressed, modify unpublished financial assistance announcements, withdraw any announcements already published, and cancel awards already awarded that conflict with Administration priorities to the extent permissible by law.
Federal Judge Issues Temporary Stay One Day Later
The morning after the OMB issued its Memorandum, several nonprofit advocacy groups and other parties filed a request in federal court to temporarily stay the Memorandum’s directives, citing violations of the First Amendment and the Administrative Procedures Act. A federal judge issued a temporary stay late in the day on January 28, 2025. Litigation is expected to continue and involve numerous parties including higher education institutions, state attorneys general, and other interested parties.
Regardless of the status of the pending litigation, all recipients of federal grants and loans should prepare for a period of uncertainty.
Broad Impact of the Memorandum:
If part or all of the OMB Memorandum takes effect, the impacts may be far-ranging:
- Entities with current awards of federal grants and loans, including education entities and nonprofits, should consider preparing for a freeze or delay in funding. Such freeze or delay could become permanent if the grant or loan conflicts with any of the Trump Administration’s priorities. For example, a nonprofit receiving federal grant money to provide transgender counseling services to low-income individuals may face delay or loss of funding, unless applicable law and the grant’s contract terms prohibit alteration or cancellation of the terms of the grant. For further example, a university receiving a federal grant to study the development of biofuels or other alternative energy sources could potentially be impacted.
- Entities with grant applications pending or awaiting issuance of new federal grants or loans should also prepare for a freeze or delay in grant or loan awards pending the OMB and federal agency review.
- Entities that rely on a pass-through of federal grant or loan funds should similarly prepare for a freeze or delay in receipt of such funds. The OMB reportedly clarified on January 28, 2025, that Medicaid funding will continue unaffected.
- Employers potentially affected by the Memorandum’s delay and freeze may need to consider temporary layoffs or furloughs while the effects of the Memorandum are determined. Employers with unions and collective bargaining agreements may need to notify the union and work with union representatives to navigate and coordinate the potential delay or loss of funding.
- Legal challenges will continue while the OMB Memorandum is reviewed by the federal judge. However, the OMB Memorandum in several places indicates it is “subject to applicable law,” therefore legal challenges and injunctions may be of limited effect, for example only applying to the freeze and potential cancellation of existing grants and loans if applicable law or the existing grant and loan contract terms would be violated.
The legal issues impacting this topic are and will continue to be ever-changing (Employment Law in Motion!), and since publication of this blog post, new or additional information not referenced in this blog post may be available.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
