Federal Grants Impacted By Executive Orders Of The New Administration

With the recent transition of Presidential administrations, there have been a substantial number of new Executive Orders that have led recipients of federal grants and cooperative agreements to ask whether the funding they receive is at risk and, if the funding continues, whether changes in federal program policy goals may materially alter the implementation requirements attached to that funding.

Although these questions arise each time there is a change in Presidential administration, in the current cycle, national attention is more heavily focused on federal spending during and after the pandemic and emphasis by the incoming administration on funding reductions. Moreover, there is a clear contrast in the policy aims of the outgoing and incoming administration that which is, in part, being implemented through funding conditions placed upon federal grants.

Current examples include a funding pause for programs funded through the Inflation Reduction Act and Infrastructure Investment and Jobs Act under the Executive Order entitled "Unleashing American Energy," and changes in anti-discrimination, affirmative action, and "diversity, equity, and inclusion (DEI)" requirements attached to grant and contract funds under the Executive Order entitled, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," issued on January 20 and 21, 2025.¹

Concerns in these areas generally boil down to the following three specific questions:

1. Can the budget authority for the federal program under which funding is awarded to an organization be eliminated or substantially cut?
2. Can a specific federal grant made to an organization be terminated on the grounds that, in the grant's current form, it is designed to achieve policy aims that are inconsistent with the policy aims of a new administration?
3. To what extent can new terms and conditions oriented toward revised policy goals be placed on an existing federal grant?

Each of these is addressed below.

Question 1: Can the budget authority for the federal program under which funding is awarded to an organization be eliminated or substantially cut?

Short answer: Generally, yes'through the Impoundment Control Act of 1974'if the President and a majority in each Chamber of Congress are in agreement that it should be. Such reductions in budget authority are, however, generally limited to unobligated funds.

In 1974, Congress enacted the Impoundment Control Act ("ICA"), 2 U.S.C. ' 681 et seq, a specific statutory mechanism by which a President may seek a reduction of amounts previously appropriated by Congress for federal activities. Despite various arguments for and against its necessity or appropriateness within the constitutional framework of the United States,² it appears that Presidents have generally employed this mechanism when seeking to reduce appropriations made by Congress.^{3 4}

The statute is heavily procedural in its focus, establishing steps and deadlines within the legislative process to enable a President to request a rescission of existing budget authority with a reasonable assurance that Congress will'whether favorably or unfavorably'act upon it. Most notably, those steps are:

• "Whenever the President determines that all or part of any budget authority . . . should be rescinded for fiscal policy or other reasons" the President may commence the rescission process through a special message transmitted to both the House of Representatives and Senate and published in the Federal Register specifying the budget authority for which rescission is requested and setting forth supporting facts, circumstances, and reasons.⁵
• In response to such message, within both the House of Representatives and Senate, any member may introduce a rescission bill within the pertinent committee for consideration of such bills.⁶ Within the House or Representatives, that is generally the Appropriations Committee.⁷ Within the Senate, such bills are generally referred to both the Appropriations Committee and Budget Committee.⁸
• If a rescission bill is introduced and the relevant committee fails to report it within 25 days of continuous session, any member may move to discharge the bill from the committee, provided the motion is seconded by one-fifth of members of the chamber involved.⁹ Once reported or discharged, the rescission bills are subject to special privilege in the House and Senate enabling them to be taken up for consideration through a mere majority vote.¹⁰ As explained by Mark Strand and Tim Lang of the Congressional Institute, "[a] rescission bill is privileged, which means that it is pretty much guaranteed a vote on the Floor'regardless of the views of the Appropriations Committee."¹¹
• If a rescission bill passes both the House and Senate within 45 days of continuous session, it will be enacted.¹² If it does not, the funds at issue can no longer be withheld from obligation and cannot be proposed again for rescission.¹³

Under the above-described procedures, where the majority party in the House of Representatives and Senate are both aligned with the President, it appears likely that a rescission bill would receive expeditious consideration and favorable treatment.

Importantly, rescission bills under the ICA may be used only with respect to budget authority amounts that are not obligated.¹⁴ Relevant to federal grants, grant funds are generally considered obligated upon the award of the grant.¹⁵ Thus, grant funds that have been awarded through a notice of award or grant agreement for a current grant period are beyond the reach of the ICA's rescission process unless the award is terminated in whole or in part.¹⁶

Question 2: Can a specific federal grant made to an organization be terminated on the grounds that, in the grant's current form, it is designed to achieve policy aims that are inconsistent with the policy aims of a new administration?

Short answer: It depends upon the specific terms and conditions set forth in the notice of award or grant agreement and when the grant was made.

The bases upon which a funding agency may terminate a grant award are set forth within the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards ("Uniform Guidance"), 2 C.F.R. Part 200, at ' 200.340(a), as follows:

The Federal award may be terminated in part or its entirety as follows:

(1) By the Federal agency or pass-through entity if the recipient or subrecipient fails to comply with the terms and conditions of the Federal award;

(2) By the Federal agency or pass-through entity with the consent of the recipient or subrecipient, in which case the two parties must agree upon the termination conditions. These conditions include the effective date and, in the case of partial termination, the portion to be terminated;

(3) By the recipient or subrecipient upon sending the Federal agency or pass-through entity a written notification of the reasons for such termination, the effective date, and, in the case of partial termination, the portion to be terminated. However, if the Federal agency or pass-through entity determines that the remaining portion of the Federal award will not accomplish the purposes for which the Federal award was made, the Federal agency or pass-through entity may terminate the Federal award in its entirety; or

(4) By the Federal agency or pass-through entity pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.

(emphasis added).

These bases have evolved in important ways over the past decade. They appeared in a form very similar to the current form when the Uniform Guidance was first promulgated in late 2014.¹⁷

Likely based upon programmatic policy changes implemented by the Department of Health and Human Services ("HHS") under the first Trump Administration,¹⁸ recipients under the Teen Pregnancy Prevention Program ("TPPP") were notified that their awards would end at the end of their then-current one-year budget periods, shortening their overall potential project periods from five years to three years.¹⁹

Several recipients brought suit against HHS, asserting that the cessation of funding before the end of their competitively approved multi-year project periods constituted "terminations," and...