{"id":24297,"date":"2025-01-28T16:57:57","date_gmt":"2025-01-28T21:57:57","guid":{"rendered":"https:\/\/blogs.law.columbia.edu\/climatechange\/?p=24297"},"modified":"2025-02-03T14:03:51","modified_gmt":"2025-02-03T19:03:51","slug":"the-legality-of-pausing-climate-grant-loan-and-other-financial-assistance-programs","status":"publish","type":"post","link":"https:\/\/blogs.law.columbia.edu\/climatechange\/2025\/01\/28\/the-legality-of-pausing-climate-grant-loan-and-other-financial-assistance-programs\/","title":{"rendered":"UPDATED: OMB’s Pause on Climate Grants, Loans, and Other Financial Assistance: Legal Issues and Next Steps for Federal Awardees"},"content":{"rendered":"
<\/div>

On Monday, January 27, 2025, the federal Office of Management and Budget (OMB) issued <\/span>Memorandum-25-13 relating to a \u201cTemporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs.\u201d<\/span><\/a> The memo references several of<\/span> President Trump\u2019s January 20 executive orders (EOs)<\/span><\/a>, including the \u201c<\/span>Unleashing American Energy<\/span><\/a>\u201d EO. It directs federal agencies to \u201ccomplete a comprehensive analysis of all of their Federal financial assistance programs to identify programs, projects, and activities that may be implicated by\u201d these EOs. While they do so, \u201cFederal agencies <\/span>must temporarily pause<\/b> 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\u2026 the green new deal\u201d (emphasis in original). A White House statement later clarified that the freeze \u201cdoes not apply across-the-board\u201d to all federal funding programs but reiterated that \u201cgreen new deal\u201d programs are covered.\u00a0<\/span><\/p>\n

Yesterday\u2019s 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\u2019s priorities, will be halted as of 5 pm eastern time today, if not sooner. The memo describes this as a \u201ctemporary pause,\u201d 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 \u201cOMB has reviewed and provided guidance to [the] agency with respect to the information submitted.\u201d 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.\u00a0<\/span><\/p>\n

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. <\/span>Federal agencies have<\/span><\/a> 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.\u00a0<\/span><\/p>\n

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 \u201cinitiate investigations\u201d into awardees and \u201caddress identified issues up to and including cancellation of awards.\u201d It further states that \u201cagencies must . . . to the extent permissible by law, cancel awards . . . that are in conflict with Administration priorities.\u201d\u00a0\u00a0<\/span><\/p>\n

The OMB memo suggests that cancelling awards, and pausing payments under them, is appropriate and justified because federal agencies \u201chave a duty to align Federal spending and action with . . . Presidential priorities.\u201d 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.<\/a> and Maryland <\/a>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.<\/span><\/p>\n

Yesterday\u2019s 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 <\/span>in response to<\/span><\/a> President Nixon unilaterally canceling billions of dollars in Congressionally-approved spending. At that time, <\/span>courts were beginning to find<\/span><\/a> 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 <\/span>Nixon <\/span><\/a>and <\/span>Reagan <\/span><\/a>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 <\/span>attempted to impound funds<\/span><\/a> intended for Ukraine security assistance without Congressional approval and, on the campaign trail, he <\/span>asserted <\/span><\/a>that the President has \u201cthe Constitutional power to stop unnecessary spending through . . . Impoundment.\u201d Ultimately that will be up to the courts to decide.\u00a0<\/span><\/p>\n

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 <\/span>blog post<\/span><\/a> last week, tax credits are not \u201cappropriated through\u201d 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 <\/span>post by the NYU Tax Law Center<\/span><\/a> describes how the Internal Revenue Service is institutionally predisposed to make payments in a timely fashion, lest they incur <\/span>interest on overpayments<\/span><\/a>. 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.<\/span><\/p>\n

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,\u00a0 have a lot to say on that. Lawsuits challenging the memo have already <\/span>been filed<\/span><\/a>. They will take time to resolve and, in the meantime, the Trump administration will no doubt seek to further reshape federal climate programs.\u00a0<\/span><\/p>\n

Update on Wednesday, January 29: <\/b><\/p>\n

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<\/b>\u00a0the federal funding freeze until Monday, February 3, 2025<\/a><\/b>\u00a0in order to \u201c\u2018buy[] the time to deliberate\u2019 when issues are not \u2018easy to evaluate in haste.\u2019\u201d The administrative stay was limited in scope only to \u201copen awards,\u201d and \u201cdoes not affect OMB\u2019s memorandum as it pertains to \u2018issuance of new awards\u2019 or \u2018other relevant agency actions that may be implicated by the executive orders.\u2019\u201d<\/b><\/p>\n

On Wednesday, January 29, OMB issued\u00a0<\/b>Memorandum M-25-14 rescinding the Monday memo that ordered the federal spending freeze<\/a><\/b>. This latest memo does not rescind the underlying\u00a0<\/b>Unleashing American Energy\u00a0<\/i><\/b>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\u2019s memo.<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"

On Monday, January 27, 2025, the federal Office of Management and Budget (OMB) issued Memorandum-25-13 relating to a \u201cTemporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs.\u201d The memo references several of President Trump\u2019s January 20 executive orders (EOs), including the \u201cUnleashing American Energy\u201d EO. It directs federal agencies to \u201ccomplete a comprehensive […]<\/p>\n","protected":false},"author":2325,"featured_media":24309,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[65711],"class_list":{"0":"post-24297","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"tag-cities-climate-law-initiative","9":"czr-hentry"},"yoast_head":"\nUPDATED: OMB's Pause on Climate Grants, Loans, and Other Financial Assistance: Legal Issues and Next Steps for Federal Awardees - Climate Law Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.law.columbia.edu\/climatechange\/2025\/01\/28\/the-legality-of-pausing-climate-grant-loan-and-other-financial-assistance-programs\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"UPDATED: OMB's Pause on Climate Grants, Loans, and Other Financial Assistance: Legal Issues and Next Steps for Federal Awardees - Climate Law Blog\" \/>\n<meta property=\"og:description\" content=\"On Monday, January 27, 2025, the federal Office of Management and Budget (OMB) issued Memorandum-25-13 relating to a \u201cTemporary Pause of Agency Grant, Loan, and Other Financial Assistance Programs.\u201d The memo references several of President Trump\u2019s January 20 executive orders (EOs), including the \u201cUnleashing American Energy\u201d EO. 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