Federal Funding in Flux: Policy Shifts and Uncertain Terrain

On January 27, 2025, the White House Office of Management and Budget (OMB) issued a memorandum instructing agencies to impose a “temporary pause” on federal loans and grants. Following legal challenges, OMB rescinded the memo, but uncertainty remains for companies, grant recipients, and state and local governments about the status of federal funding programs. This alert assesses the Trump administration’s federal funding directives to date.

Funding-Related Executive Orders
Several of President Trump’s initial EOs direct agencies to terminate contracts, pause disbursements, or review funding for alignment with Administration priorities. For example, on January 20, 2025, President Trump issued an EO titled Unleashing American Energy, which set forth a series of energy-related policy priorities.

The EO contains an explicit funding directive, ordering agencies to “immediately pause the disbursement of funds” appropriated through the Inflation Reduction Act (IRA) and the Infrastructure Investments and Jobs Act (IIJA), “including but not limited to funds for electric vehicle charging stations.” OMB later clarified the scope of this directive stating that the pause does not apply to all IRA and IIJA funds, but just those which involve the policies outlined in the EO.

The EO also contains language which seems to implicate funding programs outside of those specifically named by (i) prohibiting federal funding from being employed “in a manner contrary to the principles” of the EO and (ii) calling for agencies to “review their processes, policies, and programs for issuing grants, loans, contracts, or any other financial disbursements of such appropriated funds for consistency with the law and policy” described in the EO.   

OMB Funding Memorandum
On January 27, 2025, OMB issued Memorandum 25-13 which stated the following:

“[T]o the extent permissible under applicable law, Federal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities that may be implicated by the executive orders, including, but not limited to, financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.”

In this memorandum, “Federal financial assistance” was broadly defined as “[a]ssistance that recipients or subrecipients receive or administer,” but not including assistance provided directly to individuals. The “freeze” was scheduled to begin the following day, January 28 at 5:00pm EST, generating uncertainty for federal agencies, state and local governments, government grantees, and other interested parties as to the scope and impact of the memo.

In response, on January 28, 2025, OMB shared further guidance in a Q&A document to address concerns regarding which programs and funding would not be affected by the “temporary pause.” The Q&A document explicitly stated that funding geared toward individual assistance, including Medicare, Medicaid and Social Security, were exempt from any pause. Additionally, the guidance indicated that funding for small businesses, farmers, Pell grants, rental assistance and Head Start would also be exempt. The Q&A document, however, did not include a list of impacted programs.

The initial OMB memorandum spurred immediate litigation challenging the order to temporarily pause disbursements, with some nonprofit organizations and public health groups arguing that even a brief pause to federal funding would adversely affect essential services. The memorandum was then blocked by a U.S. District Court Judge who ordered a “brief administrative stay” to allow for ongoing litigation. The stay preserved federal disbursements until at least until Monday, February 3.

On January 29, 2025, the Trump administration rescinded the January 27 OMB memo. However, the White House later clarified that while the OMB memo was rescinded, other President Trump directives regarding federal funding, namely those included in EOs, would stand. White House Press Secretary Karoline Leavitt shared in a press conference that the goal of the “pause” was to have an opportunity to analyze spending within the federal government and to be “good stewards of taxpayer dollars.” One U.S. District Judge cited to the White House Press Secretary’s comments as potential grounds to issue another order blocking the freeze.

Legal and Policy Considerations
The broad language in the EOs raises questions about whether they apply to funds already appropriated by Congress. These actions potentially implicate an (until now) little-known federal law titled the Congressional Budget and Impoundment Control Act of 1974 (the Act). Among other things, the decades-old Act is intended to restrict a President’s ability to refuse to spend funds that have been appropriated by Congress. The Trump administration argues that a temporary pause does not violate this law, as it allows agencies time to assess financial assistance programs’ compliance with EOs.

However, notably, Trump and key officials have indicated a broader goal of reducing federal spending beyond a temporary pause. During his 2024 campaign, President Trump advocated for restoring presidential impoundment authority. OMB Director-nominee Russell Vought and Department of Government Efficiency (DOGE) lead Elon Musk also supported impoundment as a cost-cutting measure.

What’s Next
It remains unclear how the Trump administration will treat funding deemed inconsistent with its priorities and how courts will address legal challenges to any further funding freezes. Organizations relying on federal funding should closely monitor OMB guidance, agency directives and ongoing litigation. Moreover, contractors and grantees who receive notices directing that their activities be suspended should coordinate with their legal counsel and relevant contracting officers to ensure that they preserve their rights.

Pillsbury will continue tracking these developments. Please visit our Trump 2.0 Resource Center for analysis of key Administration actions.