On Monday, January 27, 2025, the federal Office of Management and Budget (OMB) issued Memorandum-25-13 relating to a “Temporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs.” The memo references several of President Trump’s January 20 executive orders (EOs), including the “Unleashing American Energy” EO. It directs federal agencies to “complete a comprehensive analysis of all of their Federal financial assistance programs to identify programs, projects, and activities that may be implicated by” these EOs. While they do so, “Federal agencies must temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and any other relevant agency activities that may be implicated by the executive orders, including… the green new deal” (emphasis in original). A White House statement later clarified that the freeze “does not apply across-the-board” to all federal funding programs but reiterated that “green new deal” programs are covered.
Yesterday’s memo means that we should expect that all payments in furtherance of local climate-related programs, among other policy areas inconsistent with the current president’s priorities, will be halted as of 5 pm eastern time today, if not sooner. The memo describes this as a “temporary pause,” but does not specify how long it will remain in place. It is likely to be at least months and potentially much longer. The Unleashing American Energy EO gave federal agencies 90 days to complete reviews of their funding programs and the OMB memo directs them to submit initial information by February 10, 2025. The memo indicates that disbursements must be paused at least until “OMB has reviewed and provided guidance to [the] agency with respect to the information submitted.” OMB is a small agency with fewer than 500 professional and administrative staff. It arguably does not have the capacity, nor the expertise, to review every federal funding program (even just within the climate space). Completing such a review will certainly take OMB significant time.
The OMB memo also clarifies the Unleashing American Energy EO, which was vague on whether payments under signed contracts would be affected; it now appears clear that they will be. An indefinite pause on disbursements under signed contracts could very well result in federal agencies breaching their contractual obligations. Federal agencies have contractually obligated about 84 percent of climate funding under the Inflation Reduction Act, which means they are required to disburse the funds as set out in the relevant agreements. Federal grantees that are denied payment they are owed, or for whom payments are withheld, may have a legal claim. Contractual law claims will be informed by the terms of each individual federal contract; those contracts will set out when, how, and other what terms federal agencies are required to disburse funds.
Federal grantees, including state, local, and tribal governments and nonprofit organizations, also have contractual obligations. To the extent feasible, awardees should not pause on carrying out their obligations under affected federal contracts. For example, if reports, certifications, or other documents or statements are due to the relevant federal agency, awardees should submit them as required. Awardees should keep records of their efforts to perform under contract and meet their compliance obligations. All of this gives an awardee the best position from which to claim that a payment has been unlawfully denied. It also reduces the risk that federal agencies will argue that the awardee is in breach of their contractual obligations and thus that their contract should be terminated. OMB has foreshadowed this possibility, with the memo issued yesterday directing agencies to “initiate investigations” into awardees and “address identified issues up to and including cancellation of awards.” It further states that “agencies must . . . to the extent permissible by law, cancel awards . . . that are in conflict with Administration priorities.”
The OMB memo suggests that cancelling awards, and pausing payments under them, is appropriate and justified because federal agencies “have a duty to align Federal spending and action with . . . Presidential priorities.” The first Trump administration made a similar argument to justify the cancellation of federal grants and was rebuffed by the courts. In two decisions handed down in 2018, federal district courts in D.C. and Maryland struck down agency attempts to cancel grants on the basis that the relevant agency had failed to consider the purpose for which Congress appropriated grant funding, and had unilaterally decided that continued funding was not in the best interests of the federal government. The courts found that, in these circumstances, cancellation of the grants was arbitrary and capricious in violation of the Administrative Procedure Act.
Yesterday’s memo, or at least parts of it, also arguably violates the Impoundment Control Act (ICA) which requires the President to secure approval from Congress to withhold appropriated funds. Congress enacted the ICA in 1974 in response to President Nixon unilaterally canceling billions of dollars in Congressionally-approved spending. At that time, courts were beginning to find this behavior to be an unconstitutional violation of the separation of powers because Congress holds the power of the purse under Article I of the Constitution, and the executive branch must faithfully execute the laws under Article II. Department of Justice Legal Counsel in both the Nixon and Reagan administrations similarly rejected the argument that the president has the inherent power to impound. Trump administration officials seem to disagree, however. During his first term, President Trump attempted to impound funds intended for Ukraine security assistance without Congressional approval and, on the campaign trail, he asserted that the President has “the Constitutional power to stop unnecessary spending through . . . Impoundment.” Ultimately that will be up to the courts to decide.
There is one small piece of good news. Based on the text of the OMB memo and the Unleashing American Energy EO, tax credits and elective pay should not be impacted. As discussed in our blog post last week, tax credits are not “appropriated through” the IRA or the 2022 Infrastructure Investment and Jobs Act, and are therefore not covered by the terms of the EO. Moreover, changes to tax credits, including to the elective pay mechanism, would require Congressional action. A helpful post by the NYU Tax Law Center describes how the Internal Revenue Service is institutionally predisposed to make payments in a timely fashion, lest they incur interest on overpayments. However, it remains to be seen how the IRS will implement Trump administration policy. As in the grant context, entities seeking to claim tax credits by elective pay should take care to comply with all legal, regulatory and filing requirements to best position themselves in case payments are delayed or withheld.
While these and other steps should help to reduce risk, there is still much uncertainty, and many potential challenges ahead. Perhaps the only sure thing is that the halting of federal financial assistance programs, even temporarily, will have significant implications for climate work at the national, state, and community levels. Just how much that work is affected will depend, at least to some extent, on how the OMB memo is implemented, including precisely what programs are affected and for how long. The courts will, no doubt, have a lot to say on that. Lawsuits challenging the memo have already been filed. They will take time to resolve and, in the meantime, the Trump administration will no doubt seek to further reshape federal climate programs.
Update on Wednesday, January 29:
Following the publication of this post, two major developments occurred. On Tuesday evening, a federal judge in the U.S. District Court for the District of Columbia imposed an administrative stay on the federal funding freeze until Monday, February 3, 2025 in order to “‘buy[] the time to deliberate’ when issues are not ‘easy to evaluate in haste.’” The administrative stay was limited in scope only to “open awards,” and “does not affect OMB’s memorandum as it pertains to ‘issuance of new awards’ or ‘other relevant agency actions that may be implicated by the executive orders.’”
On Wednesday, January 29, OMB issued Memorandum M-25-14 rescinding the Monday memo that ordered the federal spending freeze. This latest memo does not rescind the underlying Unleashing American Energy EO, so the pause in federal disbursements contemplated in that order is not directly affected. However, we can expect continued and significant confusion among federal agencies in implementing vague and sometimes conflicting directives. Furthermore, it is not yet clear how litigation brought by nonprofit groups and by several states will proceed given the rescission of Monday’s memo.
Amy Turner is the Director of the Cities Climate Law Initiative at the Sabin Center for Climate Change Law at Columbia Law School.
