Updates and Summary of the Evolving Executive Federal Funding Freeze

On January 20, 2025, President Donald Trump signed several executive orders pausing several federal funding streams while the Trump Administration evaluates whether covered government financial assistance aligns with the administration’s policy goals. The following week, the Office of Management and Budget (“OMB”) issued Memo M-25-13, which paused the obligation or disbursement of all federal financial assistance and other activities that may be implicated by the President’s executive orders. The issuance of Memo M-25-13 caused uncertainty with respect to what federal financial assistance is subject to a pause. On January 31, US District Judge John McConnell (District of Rhode Island) issued a temporary restraining order against funding pauses arising out of Memo M-25-13 and the executive orders. While the text of this order raised some questions as to its scope, as of February 2, several federal agencies—including the Departments of Justice, Labor, and Transportation—have distributed notices of court order to all federal funding recipients, indicating that federal agencies cannot pause or terminate any awards or obligations on the basis of Memo M-25-13 or the executive orders. However, the notice also states that agencies may exercise their own authority to pause awards, provided that such pause complies with all relevant laws, regulations, and agreements.

This Legal Update explores the timeline of events leading to the funding freeze, challenges with respect to the OMB memoranda and executive orders, the current state of the pause directives, and takeaways for parties to contracts funded with federal grants and loans.

Executive Orders and Memoranda

First-Day Executive Orders

On January 20, President Trump signed several executive orders, including:

• EO 14159 (Protecting the American People Against Invasion)
• EO 14169 (Reevaluating and Realigning United States Foreign Aid)
• EO 14162 (Putting America First in International Environmental Agreements)
• EO 14154 (Unleashing American Energy)
• EO 14151 (Ending Radical and Wasteful Government DEI Programs and Preferencing)
• EO 14168 (Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government)
• EO 14182 (Enforcing the Hyde Amendment)

(collectively, the “Seven Referenced Orders”).

The executive orders contemplate pausing funding streams to allow the Trump Administration to identify programs that are inconsistent with its policy goals. Specific funding streams mentioned in the Seven Referenced Orders include:

• New obligations and disbursements of development assistance funds to foreign countries and implementing NGOs, international organizations, and contractors (pursuant to EO 14169);
• Federal funding to non-governmental organizations supporting or providing services, either directly or indirectly, to “removable or illegal aliens” (pursuant to EO 14159);
• Financial commitments made under the United Nations Framework Convention on Climate Change and the U.S. International Climate Finance Plan (pursuant to EO 14162);
• Funds appropriated through the Inflation Reduction Act of 2022 and the Infrastructure Investment and Jobs Act (pursuant to EO 14154; the freeze only applies to funds supporting programs, projects, or activities that may be implicated by the policy established in the EO14154. Please see description of Memo M-25-11 for additional details);
• Funding for “diversity, equity, inclusion, and accessibility mandates, policies, programs, preferences, and activities in the federal government” (pursuant to EO 14151);
• Funding used to “promote gender ideology” (pursuant to EO 14168); and
• Funding for “elective abortion” and promotion thereof (pursuant to EO 14182).

On January 21, OMB issued Memo M-25-11 providing guidance regarding Section 7 of EO 14154 (Unleashing American Energy), which requires agencies to immediately pause disbursement of funds appropriated under the Inflation Reduction Act of 2022 and the Infrastructure Investment and Jobs Act. The memo clarifies that the freeze only applies to funds supporting programs, projects, or activities that may be implicated by the policy established in the executive orders.

Memo M-25-13

On January 27, OMB issued Memo M-25-13. Memo M-25-23 broadly directed all federal agencies to take a series of actions to facilitate a comprehensive assessment of federal financial assistance to determine whether such assistance aligns with the policies and priorities of the Trump Administration, including as articulated in various listed executive orders of the president. Specifically, agencies were directed to: (1) to the extent permissible under applicable law, temporarily pause (a) all activities related to obligation or disbursement of all federal financial assistance or (b) other relevant agency actions that may be implicated by the President’s recent executive orders, effective at 5 p.m. on January 28, 2025 (the “OMB Pause”), (2) by February 10, 2025, submit to OMB detailed information on programs, projects and activities subject to the OMB Pause, (3) assign responsibility and oversight for each federal financial assistance program to a senior political appointee, (4) to the extent permissible by law, cancel already awarded awards that are in conflict with administration priorities, and (5) initiate investigations when warranted to identify underperforming recipients of federal financial assistance and address issues up to and including cancellation of awards. The OMB Pause was intended to be in effect “until OMB has reviewed and provided guidance…with respect to the information submitted” regarding the programs and activities subject to the OMB Pause. Covered “federal financial assistance” subject to the OMB Pause was defined to include “(i) all forms of assistance listed in paragraphs (1) and (2) of the definition of this term at 2 CFR 200.1 and (ii) assistance received or administered by recipients or subrecipients of any type except for assistance received directly by individuals.” Paragraphs (1) and (2) of the definition at 2 CFR 200.1 include assistance that recipients or sub recipients receive or administer in the form of: (i) grants; (ii) cooperative agreements; (iii) non-cash contributions or donations of property (including donated surplus property); (iv) direct appropriations; (v) food commodities; (vi) other financial assistance; (vii) loans; (viii) loan guarantees; (ix) interest subsidies; and (x) insurance.

The next day, OMB issued additional Q&A guidance related to the January 27 Memo (the “Q&A Guidance”). The Q&A Guidance stated that any program not implicated by the President’s executive orders is not subject to the OMB Pause. It also states that the executive orders listed in the guidance are the Seven Referenced Orders. The Q&A Guidance also clarified that any program that provides direct benefits to individuals is not subject to the OMB Pause, and stated that the OMB Pause with respect to any program “could be as short as a day”.

Legal Challenges to the Funding Freeze and Rescission of Memo M-25-13

National Council of Nonprofits et al. v. Office of Management and Budget et al.

The first challenge against the OMB Pause was brought by the National Council of Nonprofits in the U.S. District Court for the District of Columbia. In that case, U.S. District Judge Loren AliKhan issued an administrative stay related to the OMB Pause minutes before Memo M-25-13 was scheduled to go in effect. The stay provided a five-day delay of implementing the OMB Pause, but only with respect to the disbursement of federal funds under open awards; it did not affect the OMB Pause’s hold related to the issuance of new awards or other agency actions.

Rescission of Memorandum M-25-13; Further Statements by Trump Administration

On January 29, OMB rescinded Memo M-25-13. Shortly thereafter, however, the Trump Administration stated that the rescission of Memo M-25-13 was not a rescission of the federal funding freeze. White House Press Secretary Karoline Leavitt stated that the intent of the rescission was to “end any confusion created by the court’s injunction,” but the President’s executive orders “on federal funding remain in full force and effect.”

New York et al. v. Trump et al.

Separate from National Council of Nonprofits, the attorneys general of 23 states and the District of Columbia filed a federal suit challenging the funding freeze contemplated by the executive orders before U.S. District Judge John McConnell (District of Rhode Island). Following the rescission of Memo M-25-13 and the further statements by the Trump Administration, Judge McConnell expressed an intention to move forward with granting a temporary restraining order despite the rescission, stating that “while the piece of paper may not exist, there’s sufficient evidence that the defendants collectively are acting consistent with that directive.”

As directed by the court, the states proposed a temporary restraining order, to which defendants responded, including with a request for a narrowing of the scope of any temporary restraining order to only obligations to provide federal financial assistance to the plaintiffs.

On January 31, 2025, Judge McConnell issued a temporary restraining order (the “TRO”) providing that (i) agencies shall not pause, freeze, impede, block, cancel, or terminate compliance with awards and obligations to provide federal financial assistance “to the States,” and agencies shall not impede the States’ access to such awards and obligations, except on the basis of the applicable authorizing statutes, regulations, and terms; (ii) if agencies engage in the identification and review of federal financial assistance programs, as identified in Memo M-25-13, such exercise shall not affect a pause, freeze, impediment, block, cancellation, or termination of agencies’ compliance with such awards and obligations, except on the basis of the applicable authorizing statutes, regulations, and terms; and (iii) agencies shall also be restrained and prohibited from reissuing, adopting, implementing, or otherwise giving effect to the Memo M-25-13 under any other name or title or through any other agency.

The TRO contained some ambiguity as to its intended scope. For instance, some provisions included an apparent narrowing of its prohibition to obligations flowing “to the States.” This limitation was not included in the original draft order proposed by the plaintiff states, but rather was a modification requested by the defendants and accepted by Judge McConnell in his final order. Other statements in the TRO, however, contained no such limitation. The provisions that included the “to the States” limitation suggested an additional ambiguity, as it was not clear if “States” was intended to refer only to the plaintiff states, or to any state grant or award recipients.

As a response to the TRO, several agencies, including the US Departments of Justice, Transportation, and Labor, shared a notice of court order with federal fund recipients that summarizes the executive branch’s current position on implementing the TRO, indicating that (i) federal agencies cannot pause, freeze, impede, block, cancel, or terminate any awards or obligations on the basis of Memo M-25-13, or on the basis of the executive orders issued by President Trump; (ii) the prohibition applies to all awards or obligations—not just those involving the States in the litigation—and also applies to future assistance; and (iii) agencies may exercise their own authority to pause awards or obligations, provided agencies do so purely based on their own discretion—not as a result of OMB Memo M-25-13 or the executive orders issued by President Trump—and provided the pause complies with all notice and procedural requirements in the award, agreement, or other instrument relating to such a pause.

Takeaways

• While Memo M-25-13 may have been rescinded and the TRO under New York v. Trump prohibits the implementation of pauses in funding that are based on Memo M-25-13 and the executive orders (including the Seven Referenced Orders), the directives related to funding pauses will likely be the subject of continued challenge and additional guidance in the coming weeks and months.
• Regardless of whether pausing program funding is upheld as enforceable, the Trump Administration’s policy goals may lead to significant shifts in required contract and grant provisions and related program rules for federal financial assistance, which could affect both new awards as well as existing agreements.
• Parties that receive funds directly or indirectly from the federal government (whether as contractors, counterparties, grant or loan recipients, subrecipients, or otherwise) should identify federal funding streams and determine whether any such funding streams are affected by the executive orders, including the Seven Referenced Orders.
• Parties under contracts funded in whole or in part by federal grants and loans that are affected by the executive orders should review the terms of their contracts to determine whether the contract may be terminated for convenience or lack of funds.
• Parties currently negotiating contracts funded in whole or in part by federal grants and loans that are affected by the executive orders should consider adding clauses addressing the unavailability of federal funds.

Mayer Brown attorneys are available to discuss the impacts of ongoing developments in the availability of federal financial assistance.