After freezing foreign aid, infrastructure and health spending, the Trump administration ordered a far-reaching pause on federal grants of all kinds, causing confusion and worry among funding recipients and public officials.
On Monday, the White House Office of Management and Budget issued a memo stating, in part, “Federal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance.”
Minutes before it was set to take effect on Tuesday, a federal judge halted the plan to freeze spending, at least until next Monday.
Attorneys general from blue states had vowed to block the administration's plans, which were widely criticized by Democratic officials. The memo stated that programs that provide direct assistance to individuals would not be affected, but states were locked out of federal Medicaid funding sites, alongside Head Start centers and many other providers of services to individuals.
The reason for the pause was to allow agencies to review spending programs to ensure they align with a series of executive orders Trump issued last week, touching on everything from energy policy and infrastructure spending to diversity, equity and inclusion (DEI) programs.
“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 memo stated. "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."
In an executive order last week, President Trump ordered a pause on grants funded by the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, two infrastructure laws approved by Congress during the Biden administration.
But the new order could potentially affect a far larger set of programs. Public officials, industry associations and advocacy groups were scrambling on Tuesday to understand how broad the order was meant to be.
High Stakes for States
The stakes are enormous for state budgets. Federal grants account for more than a third of all state revenue, according to the Pew Charitable Trusts, and a much greater share in some states. Louisiana and Alaska, for example, received over half of their revenue from federal sources in 2022.
U.S. House Speaker Mike Johnson, who represents a Louisiana district, said Tuesday that he "fully supports" the administration's plan to freeze grants and loans.
Medicaid is the largest source of federal funding to states. But federal money also supports a range of state transportation and infrastructure programs, including the vast majority of money spent on highways and roads. The order also potentially impacts grants to schools and police and fire departments, along with a long litany of other state and local programs.
“It remains to be seen how long this pause will last and the scope,” Justin Theal, a senior officer at Pew, said before the judge halted it. “Given the breadth of the executive order and how significant federal grants are to states, if this pause lasts for a long period, it will be very disruptive to their finances.”
Directors of some federally funded programs that provide assistance to low-income people, like Meals on Wheels, said the order could potentially halt those services. Diane Yentel, president and CEO of the National Council of Nonprofits, said in a statement that the order “could decimate thousands of organizations and leave neighbors without the services they need.”
In a briefing on Tuesday afternoon, White House Press Secretary Karoline Leavitt sought to clarify the impact of the order, saying it would not affect assistance paid directly to individuals, including Social Security, Medicare, food stamps and other welfare benefits. She reiterated that the pause was intended to target DEI programs within the federal government, programs associated with the “green new deal” climate agenda, and “transgenderism” as outlined in Trump’s executive orders last week.
In addition to Democratic attorneys general, a group of nonprofits and small businesses was also preparing a legal challenge. The National Governors Association and the Republican Governors Association did not respond to requests for comment.
(David Kidd/Governing)
Local Fallout
The stakes are high for cities and counties as well. Many local programs and services are funded by federal money passed through states, but some are directly funded as well. The Infrastructure Investment and Jobs Act, for example, included billions in new spending available directly to cities. Cities have learned to manage pauses in federal spending before, including during federal government shutdowns, says Oklahoma City Mayor David Holt, the Republican vice president of the U.S. Conference of Mayors. But the impacts would grow the longer the pause would last.
“Obviously, an extended pause or even cancellations would be damaging to many core city services that rely upon federal grants, from law enforcement to transit,” Holt says. “It is certainly expected for a new administration and a new Congress to set their own priorities for future spending, but people have made decisions based on grants already awarded in ways that truly impact lives.”
“Unprecedented” has been the word on many lips to describe the breadth of the funding pause. But presidents have halted federal funding before.
In the early 1970s, President Richard M. Nixon put a moratorium on many federal housing assistance programs, partly in response to controversial efforts to desegregate communities, says Yonah Freemark, a senior associate at the Urban Institute. Congress responded to the moratorium by passing the Budget Impoundment and Control Act, which limits presidents’ ability to delay or withhold funds appropriated by Congress.
Early in his first term, President Ronald Reagan also ordered a freeze on federal spending as he was preparing to request substantial budget cuts from Congress, notes Judge Glock, a senior fellow at the conservative-leaning Manhattan Institute. President Joe Biden also paused spending on the border wall with Mexico that Congress allocated during the first Trump administration, he notes. But presidents' ability to impound funds is time-limited under the 1974 law and is also constrained by a 1998 Supreme Court decision that found presidents cannot amend statutes already passed into law.
But Trump’s order seems unusually broad, Glock says. It’s likelier to affect grant payments that are “higher up the chain of spending appropriations” and less likely to affect those that are closer to being distributed, he says. But the order’s specific impacts, in the short term, could come down to how individual civil servants in various government agencies choose to interpret it, he says.
“This memorandum,” Glock says, “is really only going to be known by its fruits.”
