OMB Rescinds Pause of Federal Financial Assistance, Spending Cuts Still Forthcoming

January 30, 2025

On Jan. 27, 2025, the Office of Management and Budget (OMB) issued OMB Memorandum M-25-13, which directed all executive departments and agencies to temporarily pause all Federal financial assistance, including federal grants and loans. Events moved quickly following OMB’s issuance of the memo. Jan. 28 saw the filing of multiple lawsuits, the release by OMB of additional written guidance purporting to clarify the scope of the initial memo, and a federal district court ruling imposing a temporary stay on the spending “pause” pending further briefing by the parties. OMB rescinded the memo on Jan. 29 in light of the temporary stay, but the White House stated that the administration would take future executive action to address federal spending.

OMB’s Jan. 27 Memo

OMB’s memo directed federal agencies to pause all activities related to the obligation or disbursement of “Federal financial assistance” to provide the administration time to review agency programs and align uses of funding with the administration’s stated priorities. The memo called for (1) a comprehensive review of programs, projects and activities receiving federal assistance, (2) an analysis of whether they are consistent with stated priorities of the administration as reflected in recent executive orders listed in the memo, (3) a temporary pause on Federal financial assistance while the review is conducted, and (4) ongoing oversight by a senior political appointee, including the possible cancellation of grants already awarded.

Key policy priorities specified in the memo are reflected in President Trump’s recent executive orders listed by OMB, including foreign aid, immigration, energy production, gender and DEI matters, and abortion.

Per the memo, OMB’s steps could have included the cancellation of pre-existing open grant awards OMB found to be in conflict with the administration’s priorities. The memo also included language allowing for discretionary case-by-case exceptions under which federal agencies could seek permission from OMB to issue new awards or take other actions inconsistent with the spending/disbursement pause.

OMB’s Clarification of the Memo’s Scope

OMB’s Jan. 27 memo incorporated a cross-reference to 2 C.F.R. 200.1, which lists a wide range of federal tools — grants, cooperative agreements, donations of federal property, direct appropriations, food commodities, loans, loan guarantees, interest subsidies and insurance — as encompassed within the phrase “Federal financial assistance.” While the Jan. 27 memo itself specifically exempted Social Security and Medicare benefits from the memo’s spending pause, OMB also issued a “Q&A” document on Jan. 28 further refining and limiting OMB’s temporary freeze on activities involving the obligation and disbursement of Federal financial assistance.

In the Q&A document, OMB emphasized that the pause in obligation and disbursement activities was intended to reach only financial assistance programs that implicate the policy priorities addressed by the specific executive orders listed in the Jan. 27 memo. Given the breadth of those executive orders and the wording of the Jan. 27 memo, it would have been possible that agencies administering Federal financial assistance may have chosen to continue obligating and disbursing funds on matters they found to be unrelated to the executive orders in question. As a practical matter, it is not clear whether or to what extent federal agencies under newly appointed leadership would have taken this approach.

The Jan. 28 Q&A also listed specific expenditures that the administration intended to exempt:

[A]ny program that provides direct benefits to Americans is explicitly excluded from the pause and exempted from this review process. In addition to Social Security and Medicare, … mandatory programs like Medicaid and SNAP will continue without pause. Funds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs will not be paused. If agencies are concerned that these programs may implicate the President’s Executive Orders, they should consult OMB to begin to unwind these objectionable policies without a pause in the payments.

In response to a federal lawsuit filed by a coalition of nonprofit organizations the afternoon of Jan. 28, the Department of Justice submitted a notice attaching the Jan. 28 Q&A, indicating to the court that the document had been provided to the plaintiffs and was intended to be a formal clarification of the scope and reach of OMB’s Jan. 27 memo. Along with these stated limitations, OMB’s Jan. 27 memo did not purport to address or affect federal spending under procurement contracts, nor expressly specify a pause in spending under non-procurement contract instruments executed by federal agencies pursuant to their statutory “Other Transactions Authority.”

Lawsuits and the District Court’s Stay

Multiple lawsuits challenged OMB’s attempt to pause Federal financial assistance activities the afternoon of Jan. 28. A coalition of nonprofit organizations filed suit in federal court in Washington, D.C., and a group of Democratic state attorneys general filed another in federal court in Rhode Island. In the Washington, D.C., lawsuit, pending before Judge Loren AliKhan of the U.S. District Court for the District of Columbia, the court granted a temporary stay intended to freeze the status quo. Although the sweeping pause in Federal financial assistance activities was to have gone into effect at 5:00 p.m. on Jan. 28 under OMB’s Jan. 27 memo, the court’s order stayed further agency action implementing the pause until Feb. 3 to allow for detailed briefing and a hearing.

The merits of the pending lawsuits would have included debate over whether OMB’s Jan. 27 directive represented an improper executive branch “impoundment” of funds previously appropriated by the legislative branch (i.e., Congress). These arguments would have implicated constitutional and statutory provisions and would have likely required the federal courts to address the constitutionality of the federal statute (the Impoundment Control Act of 1974) that purports to require advance notice to Congress before a president can take formal steps to block the distribution or obligation of previously appropriated funds. OMB’s Jan. 28 Q&A also argued that its Jan. 27 memo was not an “impoundment,” but an administrative “pause” designed to allow the new administration to better align federal spending with its policy goals and priorities.

Recission of the OMB Memo and Next Steps

On Jan. 29, OMB rescinded the memo in light of the court’s temporary stay. This recission does not, however, affect executive orders referenced in the memo and the Q&A document, and White House officials have subsequently stated that the recission of the memo “is NOT a recission of the federal funding freeze.” Regardless of these actions, the administration will continue to undertake significant efforts to enforce existing and future executive orders and curb spending not in line with the administration’s priorities. The administration is likely to issue additional executive orders and/or OMB memos along the same lines as the Jan. 27 memo in the near future.

McGuireWoods is actively monitoring the rapidly evolving legal and regulatory landscape in the early weeks of the new administration. Companies and organizations that have pending federal grant awards, or that wish to pursue exemptions in relation to activities supported by Federal financial assistance, are encouraged to contact McGuireWoods for legal advice and strategic support. For questions related to this memorandum and the administration’s executive orders, or regarding government contracts generally, contact any of the authors or another member of the McGuireWoods government contracting team.

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