In Brief:
- A January memo from the Office of Management and Budget ordered a halt on disbursement of approved federal funds pending review from the Trump administration. The new president is intent on canceling federal programs that don’t align with his vision, especially those related to diversity, equity and inclusion.
- The memo has since been rescinded, and two federal judges have ordered funds to be disbursed, but this hasn’t resulted in a return to normal operation.
- Leaders from the Government Finance Officers Association talked to Governing about how these events are impacting their members.
On average, nearly 40 percent of state revenue comes from the federal government (for more than a dozen states, it's well over 40). A Jan. 27 memo from the Office of Management and Budget (OMB) ordered a halt on distribution of federal assistance, sending state and local finance officers into a state of confusion and alarm.
The funds in question were approved by Congress under the previous administration, but the memo from OMB asked all agencies to review whether the programs and activities in their grant programs were inconsistent with executive orders issued by President Donald Trump.
Implementation of the order was blocked by two federal judges, and OMB rescinded it two days later. But the dust hasn’t settled.
Safety nets such as Social Security and Medicare have not been affected, but some other federal funding still isn't being disbursed. The Environmental Protection Agency has stopped disbursement of funds from a "Solar for All" program, $7 billion intended to help bring solar power to low-income and disadvantaged households, for example. Some community health and Head Start programs have been unable to access funds. State agencies, local governments and nonprofits in Colorado alone have been cut off from $570 million in approved grants.
On Feb. 10, a federal judge in Rhode Island agreed with a coalition of 22 states who claimed the administration was ignoring his order to halt the funding freeze. "The Defendants now plea that they are just trying to root out fraud,” he said. “But the freezes in effect now were a result of the broad categorical order, not a specific finding of possible fraud." The Justice Department is appealing this ruling.
The Government Finance Officers Association (GFOA) serves a membership of more than 25,000 individuals responsible for financial management at all levels of state and local government. GFOA CEO Chris Morrill and Emily Brock, director of GFOA’s Federal Liaison Center, talked to Governing about how they are helping members navigate current uncertainty.
Governing: How did the OMB memo resonate among your members?
Emily Brock: The further out from the Beltway you go, the more frenetic it looks. The key theme is that it's uncertain. Uncertainty is not generally welcome when you have to maintain ongoing services to members of your community or have projects that need to be built. Our membership is thirsty and needs as much information as they can get. Unfortunately, it's not always readily available. We try to make sure when we're talking with our members that it's the actual and authorized information.
Chris Morrill: This shows the role that associations can play. Not just GFOA — public works, police, fire are tapping into their associations and their D.C. staff to try to get two-way information flowing. This is always critical, but even more so when there are so many unknowns.
What are some of the risks from the current situation?
Emily Brock: Some funds seem to be untouched. Funds that require drawdowns, like transportation and transit and other construction funds, seem to be drawable. We don’t know if that’s 100 percent true.
In broad brushstrokes, there are two kinds of grants. There are programmatic funds and there are project funds. When there is a program fund that requires regular draws, if the funds stop, that means the program has to pause. You're talking about things like education, with learning consequences, equitable distribution consequences. From a project perspective, just like an individual, a city or a state could be called out on non-payment of a contract. There are legal implications and there could potentially be credit implications.
What are budget officers doing to maintain some sense of resilience amid all this?
Chris Morrill: Fortunately, we've been talking about resiliency for many years, from what we learned from the Great Recession and then from COVID. We have a whole fiscal first aid series. The hope is that they're prepared for some short-term pain. If there are things that they need to get through long-term, it'll be harder.
Emily Brock: We are not advisers, but we do provide free resources to the public whether they are our members or not. We make sure best practices are available.
Chris Morrill: As soon as the OMB circular came out, we set up a special landing page and an alert. We provided real time information as we got it. That information page had 46,000 views that week. Obviously, people are worried and taking time to look at it.
Are there things on the radar besides the OMB memo?
Chris Morrill: We’re trying to be proactive. Emily works with a group of 42 associations called the Public Finance Network. They're trying to tell stories about the difference municipal bonds make in terms of infrastructure. There’s a page with a map that you can click into and see the types of projects that are able to be done because of tax municipal bonds. We are concerned about them being on the chopping block to pay for tax reform.
Do you have any feel for what might change in future allocations to states from Congress?
Emily Brock: There are fast-paced processes happening. We don’t have information about what’s on the table and off the table right now. What’s being reported is sort of nothing.
In 2017, there were very few people making the decisions. Republicans laid out their objectives, and they’re laying out their objectives now. The difference is that now there is $35 trillion worth of national debt, and the budget hawks tend to be the loudest in the room. We are leaning on what we learned from 2017, and what we can do as an approach that is more offensive than defensive this time around.
