On Monday, January 27, 2025, the White House Office of Management and Budget issued a memorandum ordering a pause on federal financial assistance, pending a program-by-program review of compatibility with Administration priorities as outlined in a series of Executive Orders signed by President Trump last week. Those Executive Orders include:

• 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
• Enforcing the Hyde Amendment

The memorandum immediately created confusion for recipients of federal funds, including local governments. On Tuesday, January 28, OMB issued both a spreadsheet with questions for federal agencies to use in their evaluation of programs, as well as an additional memorandum to provide clarity on which programs would be impacted. 

In response to these memoranda, a lawsuit was filed in federal court by the National Council of Nonprofits, the American Public Health Association, the Main Street Alliance, and SAGE. (A group of 23 state attorneys general also filed a separate lawsuit against the memorandum Tuesday afternoon). On the evening of January 28, a federal judge issued a short administrative stay, temporarily halting the funding freeze until 5 p.m. on February 3. This short stay will allow the court time “to deliberate when issues are not easy to evaluate in haste,” and permit the parties to fully brief the issues for the court.

On Wednesday, January 29, OMB issued a new memorandum rescinding the January 27 memo pausing federal agency grants, loans, and other financial assistance. White House spokeswoman Karoline Leavitt subsequently said in a statement “The Executive Orders issued by the President on funding reviews remain in full force and effect and will be rigorously implemented by all agencies and departments.” 

A lot of uncertainty remains in the days ahead.

Many budget experts argue that the memorandum will likely set up a conflict over the question of whether the Executive Branch can withhold, or "impound," funding appropriated by Congress on a case-by-case basis. A similar conflict during the Nixon Administration ended with the conclusion that the Executive Branch has limited authority to do so, with Congress holding the power of the purse and the President Constitutionally required to “faithfully execute the law.” 

In the current situation, the "to the extent permissible by law" language included in the memorandum and the underlying Executive Orders raises the key political and legal question: To what extent does the law allow the Administration to cancel grant awards and other financial assistance? Right now, that seems very much to be determined. 

Summary of the Memorandum

At its most basic level, the memorandum clearly means there will be a temporary pause in many forms of federal financial assistance until at least February 10 or whenever OMB issues an exemption for a specific program. What it means after that is unclear. The Administration likely has the legal authority to pause federal financial assistance and conduct the reviews outlined in the memorandum, but they get into more uncertain ground after that. If they move to cancel grant awards and other financial assistance, they will likely face legal challenges and political challenges from Congress and recipients of federal financial assistance, including state and local governments. 

The overall goal of the memo is to align federal financial assistance with the Administration's goals. It states that:

"Career and political appointees in the Executive Branch have a duty to align federal spending with the will of the American people as expressed through Presidential priorities. Financial assistance should be dedicated to advancing Administration priorities, focusing taxpayer dollars to  advance a stronger and safer America, eliminating the financial burden of inflation for citizens, unleashing American energy and manufacturing, ending “wokeness” and the weaponization of government, promoting efficiency in government, and Making America Healthy Again. The use of Federal resources to advance Marxist equity, transgenderism, and green new deal social engineering policies is a waste of taxpayer dollars that does not improve the day-to-day lives of those we serve."

Guidance to Federal Agencies for Program Review

The day after issuing the memorandum, OMB followed up by sending a spreadsheet to all federal agencies, instructing them to complete it for programs under their jurisdiction by February 7. The spreadsheet is 51 pages long and requests information about a lengthy list of federal programs. If nothing else, it provides some clarity about which specific programs will be the focus of scrutiny. 

The list of programs on the spreadsheet includes many programs of interest to local governments, including CDBG, HOME, Safe Streets and Roads for All, Reconnecting Communities, Railroad Crossing Elimination, Community Services Block Grant, Urbanized Area Transit Formula Grants, WIC, school-based nutrition programs, and many others (including Community Project Funding [congressional earmarks] under HUD EDI and other program categories).

What Comes Next?

ICMA staff, along with federal advocacy partners and Capital Edge, will continue to monitor the situation and its impacts on local governments, and provide updates on ICMA web page Federal Funds landing page.

Members who have questions can contact ICMA's manager of public policy and special projects, Amber Snowden, at asnowden@icma.org.