The OMB Issued a Memo Freezing Federal Financial Assistance. And Then Rescinded the Memo, But Not the Freeze. Confused? Read On.

13 min

On January 29, the U.S. Office of Management and Budget (OMB) rescinded M-25-13, which it had issued two days earlier, and which required federal agencies to "temporarily pause all activities related to obligation or disbursement of all Federal financial assistance" and "complete a comprehensive analysis of all of their Federal financial assistance programs to identify programs, projects, and activities that may be implicated by any of the President's executive orders."

Days after it was issued on January 27, one federal judge administratively stayed a portion of the memo before the OMB rescinded it altogether. A White House press secretary subsequently explained that the "freeze" was, in fact, still in place, and another judge indicated he intends to issue an injunction soon. While much remains unclear, there are basic parameters and next steps every FFA recipient should consider.

If the OMB rescind the memorandum how is the "pause" or "freeze" still happening?

While the OMB did rescind the memo on January 29, the White House press secretary wrote on social media the same day that the OMB's action was "NOT a rescission of the federal funding freeze," but "a rescission of the OMB memo," and the Trump administration's executive orders "on federal funding remain in full force and effect, and will be rigorously implemented." This raises the question of whether the administration is respecting and following the directives of the administrative stay or has found a work-around. We know that as of the date of this article at least some federal agencies had still not reopened their payment portal.

Why is this freeze happening?

In its memorandum, OMB indicated it is acting to ensure FFA is "dedicated to advancing Administration priorities," including "the President's policies and requirements" as stated in "a series of executive orders" issued on January 20 and 24, 2025, relating immigration, foreign aid, environmental and energy policy, and diversity, equity, and inclusion (DEI) programs.

Is the freeze a stop-work order?

Much of what we have heard is that funds were (and in some cases still are) frozen. What we have not heard is that organizations are being told to stop work. This is likely because unlike contracts, federal financial assistance instruments do not routinely include stop-work or suspension notices. Typically work and funds can be frozen only if there is an identified and articulated noncompliance with the terms of the award. See, e.g., 2 C.F.R. § 200.339(c) (permitting suspension of federal awards "if the recipient or subrecipient fails to comply with the U.S. Constitution, Federal statutes, regulations, or terms and conditions of the Federal award" and "noncompliance cannot be remedied by imposing specific conditions"). Hence, if organizations have the funds to continue and have not received instruction from their grant/agreement officer stating otherwise, it does not appear they must stop work. It would also appear that organizations may have a strong case for breach if the government refuses to pay for costs incurred against an award.

A lot of people are talking about "impoundment" in relation to the OMB freeze's halt on new FFA awards. What does that mean?

Some members of Congress have already asserted that OMB's freeze memorandum may violate Congress's authority over federal spending under the U.S. Constitution, as implemented by the Impoundment Control Act of 1974. OMB released guidance denying that the freeze is an impoundment.

The U.S. Government Accountability Office's (GAO) "Red Book"—a leading treatise on federal appropriations law—summarizes an "impoundment" as "an action or inaction by an officer or employee of the United States that delays or precludes the obligation or expenditure of budget authority provided by Congress." GAO, Principles of Federal Appropriations Law, 4th ed., 2016 rev., ch. 2, § B.8, GAO-16-464SP (Washington, DC: Mar. 2016).

"There are two types of impoundment actions: deferrals and rescission proposals." Id. "In a deferral, an agency temporarily withholds or delays funds from obligation or expenditure." Id. By contrast, a "rescission involves the cancellation of budget authority previously provided by Congress (before that authority would otherwise expire)," which ultimately "can be accomplished only through legislation." Id. Many are likely reviewing whether OMB's freeze constitutes the deferral type of impoundment and, if so, whether it is an authorized deferral under the Act.

"The President is required to submit a special message to Congress reporting any deferral of budget authority." Id. GAO notes that, while a "deferral may not be proposed for a period beyond the end of the fiscal year in which the special message reporting it is transmitted … for multiple year funds, nothing prevents a new deferral message covering the same funds in the following fiscal year." Id.

Is the portion of the OMB freeze halting new FFA awards an illegal impoundment?

This question may soon be litigated, but the devil is in the details, and the president's proposed OMB director fundamentally disagrees with GAO's interpretation of the Impoundment Control Act. While the Act authorizes deferrals "to provide for contingencies, to achieve savings made possible by changes in requirements or greater efficiency of operations, or as otherwise specifically provided by law," id., GAO holds that "[d]eferrals for policy reasons are not authorized."

Those challenging the freeze may argue that OMB is simply impounding federal funds for policy reasons, in violation of the Act. But OMB may take the position that its FFA freeze is not a deferral-type impoundment, but instead a mere "programmatic delay"—a delay "in which operational factors unavoidably impede the obligation of budget authority, notwithstanding the agency's reasonable and good faith efforts to implement the program." Id. "Since intent is a relevant factor, the determination" of whether an action constitutes a programmatic delay instead of an impoundment "requires a case-by-case evaluation of the agency's justification in light of all of the surrounding circumstances."

Even if GAO or a court determined that the OMB freeze is a deferral-type impoundment, OMB might argue that the deferral is authorized under the Act because it is intended "to achieve savings made possible by changes in requirements or greater efficiency of operations," and not merely for "policy reasons." OMB might cite as support the portion of its memorandum alluding to "determin[ing] the best uses of the funding for those programs consistent with the law and the President's priorities," as well as references to efficiency in the underlying executive orders.

By contrast, those challenging the freeze may cite the OMB memorandum's references to policy issues, such as "DEI, woke gender ideology, and the green new deal" as clear indicators that the deferral is not authorized. They may also cite OMB's more recent guidance stating that "this pause is necessary … to ensure that [federal programs] are being executed in accordance with the law and the new President's policies."

What might happen if there is an unauthorized impoundment?

GAO's Red Book notes: "If, under the Impoundment Control Act, the executive branch is required to make budget authority available for obligation (if, for example, Congress does not pass a rescission bill) and fails to do so, the Comptroller General is authorized to bring a civil action in the U.S. District Court for the District of Columbia to require that the budget authority be made available."

As noted above and discussed below, other entities may also attempt to bring suit challenging the OMB freeze and related presidential actions as violating the U.S. Constitution and/or federal appropriations statutes.

Didn't the first administration of President Trump clash with GAO over impoundment?

Yes. In 2020, GAO found that OMB had violated the Impoundment Control Act by withholding security assistance that Congress had appropriated for Ukraine. GAO reasoned that OMB's justifications for withholding the funding—"to determine the best use of such funds" and "ensure that the funds were not spent 'in a manner that could conflict with the President's foreign policy'"—amounted to impermissible "deferrals for policy reasons."

OMB's then director, Russell T. Vought (whom the president has nominated to lead OMB again), responded to GAO's determination by expressing fundamental disagreement with GAO's interpretation of the statute. OMB's response asserted that "the ICA's bar on 'policy deferrals' does not mean that the Executive Branch may never pause spending to make policy decisions," because of the Executive's inherent authority under Article II of the U.S. Constitution, and because of the "discretion or affirmative authority granted an agency through its authorizing statutes or appropriations language to determine the best, most efficient, or even lawful uses of the funds." OMB went so far as to argue that the Act "is unworkable in practice and should be significantly reformed or repealed."

What rights might grant recipients have? Have grant recipients ever challenged a similar withholding of federal funds before?

For a dispute regarding payments due for work performed under an existing FFA agreement, careful analysis is required. Whereas federal procurement contracts have a clear disputes and appeals procedure under the Contract Disputes Act of 1978, the process for disagreements in federal grants and cooperative agreements is more varied. Some authorizing statutes and regulations prescribe a specific procedure, and many agencies have administrative appeals boards where recipients can challenge partial payment or nonpayment. Often, a recipient may be able to demonstrate that its FFA agreement is a contract under the Tucker Act (albeit not a "procurement" contract) and sue for breach of that contract in the U.S. Court of Federal Claims. See Pennsylvania Dep't of Pub. Welfare v. United States, 48 Fed. Cl. 785, 790 (2001) ("Grant related agreements have been held to be contracts within Tucker Act jurisdiction when all the requisite elements of a contract were present, including a government representative with actual authority to bind the government in contract."). If that is not possible, a lawsuit challenging the agency's actions in federal district court under the Administrative Procedure Act (APA) may be the appropriate mechanism. See, e.g., Texas Neighborhood Servs. v. United States Dep't of Health & Hum. Servs., 172 F. Supp. 3d 236, 239 (D.D.C. 2016), aff'd, 875 F.3d 1 (D.C. Cir. 2017) (hearing private nonprofit's APA claim against disallowance under grant).

As to disputes over terminated portions of an FFA agreement (as opposed to nonpayment for work already performed), recent case law related to the federal Teen Pregnancy Prevention Program (TPPP) indicates that some grant recipients could have a cause of action under the APA. But here again, the details may matter.

In 2018, Congress reauthorized the TPPP and appropriated $101 million for "medically accurate and age appropriate programs that reduce teen pregnancy[.]" Pol'y & Rsch., LLC v. United States Dep't of Health & Hum. Servs., 313 F. Supp. 3d 62, 69 (D.D.C. 2018). After approving TPPP projects with a five-year term, the U.S. Department of Health and Human Services (HHS) issued grant award notices for just three years with "no explanation for HHS's decision to shorten the project period." See id. at 70. Grant recipients sued, alleging the shortened period constituted a termination of a portion of the grants, in violation of HHS's own regulations, rendering HHS's decision arbitrary and capricious under the APA. See id. at 71-72.

Then-Judge (and current Supreme Court Justice) Ketanji Brown Jackson agreed with the grant recipients. But her decision underscored a narrow view of the circumstances in which relief may be available to grant recipients under the APA in such circumstances. She held that HHS's decision not to further fund a grant was "presumptively unreviewable" under the APA, such that "the Court can only review the agency's decision if the 'operative' statute or regulations provide 'clear guidelines by which to do so, or otherwise evince[ ] an intent to constrain the [agency's] discretion.'" Id. at 74 (emphasis added). Here, Judge Jackson concluded the shortened project period amounted to a termination and that HHS had violated its termination regulations, which "expressly address[ed]—and limit[ed]—the agency's discretion to 'terminate' monetary awards." Id. at 76. Several other courts have also provided relief to TPPP grant recipients. See Promundo-US v. Dep't of Health & Hum. Servs., No. 18-CV-2261, 2019 WL 3239245, at *1 (D.D.C. July 18, 2019) (collecting cases).

Note that OMB may attempt to argue in many cases that, absent more constrictive regulations applicable to specific agencies, the Uniform Administrative Requirements at 2 C.F.R. Part 200 permit the termination of federal awards "pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities." 2 C.F.R. § 200.340(a)(4).

Has anyone sued over the OMB funding freeze yet? What legal theories are they raising?

Yes. A coalition of nonprofits, public health leaders, and small businesses sued in the U.S. District Court for the District of Columbia (D.D.C.) on January 28, 2025 to block the OMB freeze. In addition to arguing that the OMB memorandum is arbitrary and capricious under the APA, they also allege the memorandum is contrary to the First Amendment of the U.S. Constitution and exceeds OMB's statutory authority.

Separately, a group of attorneys general has also sued in the U.S. District Court for the District of Rhode Island. That lawsuit alleges violations of the APA and multiple provisions of the U.S. Constitution. While the action also seeks a temporary restraining order, the court has not yet ruled on that request.

I heard there was a stay stopping part of the OMB freeze. Is that true?

Yes. The judge in the D.D.C. case issued an administrative stay on the evening of January 28, 2025, stating:

[B]ecause an administrative stay in this case blocks executive action—a consideration that is not to be taken lightly—the court will limit its duration to only the few days it will take for expedited briefing and a hearing. It will further limit the scope of the administrative stay to OMB's direction that agencies "pause . . . disbursement of Federal funds under all open awards," so that it is tailored to Plaintiffs' concern that a lapse in existing federal funding will cause irreparable injuries to recipients and their programs. See ECF No. 1 ¶¶ 31-42; see Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs, at 2. In this way, the administrative stay does not affect OMB's memorandum as it pertains to "issuance of new awards" or "other relevant agency actions that may be implicated by the executive orders." Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs, at 2.

Accordingly, to maintain the status quo until the court may rule on Plaintiffs' motion, it is hereby ORDERED that an ADMINISTRATIVE STAY is entered in this case until 5:00 p.m. at [sic] February 3, 2025. During the pendency of the stay, Defendants shall refrain from implementing OMB Memorandum M-25-13 with respect to the disbursement of Federal funds under all open awards.

In short, the stay stopped for a few days the OMB freeze as to existing FFA awards, but not future awards. The hearing is set for 11:00 a.m. on February 3, 2025.

Is there a stay or restraining order in the other court case, too?

Not yet. In the Rhode Island case, the judge said he is still inclined to issue a temporary restraining order, even though OMB had rescinded the memorandum. No order has been entered yet, though. Instead, he asked the state attorneys general to submit a proposed order, and then provided the U.S. government 24 hours to respond. The judge said the state attorneys general had convinced him that the harms from the memorandum appear to be ongoing because the executive orders themselves apparently require a pause in funding, although he also expressed concern with the potential breadth and wording of the planned restraining order.

What immediate next steps should I be taking right now?

This is a fast-developing situation. At minimum, grant recipients, cooperative agreement holders, and other recipients of FFA should consider:

  • Contacting their grant/agreement officers to determine whether their awards are subject to pause under the OMB freeze memorandum. If the officer answers affirmatively, recipients should inform them of the D.D.C.'s administrative stay against applying the OMB freeze to existing awards and the intended restraining order from the district court in Rhode Island.
  • Reviewing FFA agreements for relevant terms governing the agency's and recipient's obligations, especially those related to suspension or termination of awards and the potential issuance of stop-work orders.
  • Because the memorandum required a pause only "to the extent permissible under applicable law" and expressly permitted "obligations expressly required by law," they should also (ideally in coordination with counsel) consider providing detailed explanations to their federal counterparts for why an applicable statute or regulation requires the program to proceed. OMB has since clarified that "[a]ny payment required by law to be paid will be paid without interruption or delay."
  • Since OMB's new guidance also provided that "[a]ny program not implicated by the President's Executive Orders is not subject to the pause," FFA recipients should also be prepared to show that their specific programs are not related to the issues in those executive orders.
  • Consulting with legal counsel experienced in grants and appropriations law to determine their legal rights and, if appropriate, prepare for the possibility of litigation.