Judge blocks OMB from retroactively cutting grants to states
A federal judge in Boston has blocked the Office of Management and Budget (OMB) from using a little-known grant termination clause to retroactively revoke billions of dollars in federal funding based on changing agency priorities. Judge Indira Talwani rejected the Trump administration’s attempt to dismiss a lawsuit filed by 20 states, three governors, and Washington D.C., which challenged the policy.The controversy centers on an OMB regulation allowing agencies to end grants if they no longer serve their original goals or align with agency priorities.The states argued that this clause was intended for adjustments within specific programs, not for canceling grants due solely to changes in administration policies. The judge ruled that federal law does not authorize grants to be terminated merely as priorities shift after award. The lawsuit claims that prior to President Trump’s second term, agencies never used the clause to cancel grants for this reason, instead citing other reasons for termination. The decision is seen as a victory for the states, emphasizing that federal agencies cannot revoke funding based on new policy priorities without proper legal grounds.
A federal judge in Boston on Friday blocked the Office of Management and Budget from using an obscure grant termination clause to revoke billions of dollars in federal funding based on shifting agency priorities.
U.S. District Judge Indira Talwani, an appointee of former President Barack Obama, denied the Trump administration’s request to dismiss a lawsuit brought by 20 states, three governors, and the District of Columbia challenging the policy.
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The states sued last year, arguing the administration had improperly invoked the clause to terminate grants supporting a range of programs, including universities, school lunch programs, violent crime prevention initiatives, and hate crime prevention efforts.
At issue is a provision in OMB regulations allowing agencies to end a grant if it “no longer effectuates the program goals or agency priorities.” The language was first introduced in 2020 and revised in 2024 under the Biden administration. The states argued it was intended to address changes to specific grant programs, not to allow agencies to cancel awards because a new administration adopted different policy priorities.
In her ruling, Talwani wrote that the regulation’s reference to grants that “no longer effectuates … agency priorities” does not give federal agencies broad authority to revoke previously awarded grants simply because their priorities have changed.
The states argued that, before President Donald Trump’s second term, federal agencies had never used the provision to terminate grants solely because agency priorities shifted during the grant period. Instead, agencies cited the clause in termination letters that often stated only that the funded activity no longer aligned with current priorities.
Talwani agreed, writing that federal law does not authorize agencies to terminate grants based on “new program goals or agency priorities” identified after the award has been made.
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“Instead of working with us to keep the public safe and lower costs for hardworking New Jerseyans, the Trump Administration has recklessly and illegally gutted federal funding for public safety, disaster preparedness, scientific research, clean water, and more,” New Jersey Attorney General Jennifer Davenport, who co-led the lawsuit, said in a statement.
“Today’s decision is an important win for all New Jerseyans and confirms that the Trump Administration defied the law when it embarked on its campaign to gut critical federal funding to the states,” Davenport said. “The President and his allies cannot hold critical programs hostage to their personal whims and political ideologies, destabilizing the country by yanking essential federal funding that was already awarded to the states.”
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